President Trump recently threatened to remove Harvard University’s non-profit charitable status. That is an excellent idea. However, it should not be limited to Harvard, but extended to all charities, eliminating all their tax preferences. The Charity Industrial Complex, representing about 5.5% of GDP in nominal value, subtracts far more than that from our wealth for two reasons. First, like the government, its members determine their success by non-market metrics; hence consume more resources than they generate. Second, the Charity Industrial Complex has increasingly been used as a cover for subversive activities directly detrimental to the social, political and economic health of the nation and the world.

The direct loss to the Treasury from the nonprofit sector is larger than you think. The Treasury’s annual Tax Expenditures Report puts the annual loss to the fisc from the individual charitable tax deduction at around $60 billion. However, that report cheats by not counting nonprofit income as part of the tax base, so it associates no “tax expenditure” with the gaping hole produced in the Federal Budget by not taxing it. Fortunately, an elementary calculation can supply the figure; if the non-profit sector currently represents 5.5% of a $30.5 trillion GDP, and that sector is currently untaxed (since Treasury does not even deign to consider it part of the tax base) then taxing it at a modest blended rate of 25%, less than the higher rates of individual tax, would yield an annual revenue of $420 billion. There would be additional revenues at the state level, since tax regulations generally follow federal definitions in determining what is taxable.

That does not solve the United States’ $2 trillion annual budget deficit problem, but it puts a damn good hole in it. Add another $400 billion from tariffs and $200 billion from DOGE’s initial efforts, and you have closed half the gap without resorting to higher individual taxes or any politically difficult spending cuts. Give DOGE another year to find further savings, especially in avoiding Social Security payments to centenarians, Medicaid payments to illegal aliens and food stamp fraud and you will have the problem solved – any reasonable level of growth will swing the Federal Budget into surplus and save the precious jewels of Social Security and Medicare from the effects of their nominal trust funds running out in the next few years.

I have written frequently in the past about the iniquities of the charitable contributions tax deduction for individuals. It is a gratuitous subsidy to the excessively rich. The nauseating spectacle of the $75,000-per-ticket Met Gala demonstrates the rottenness of this element of the tax system. You and I as ordinary taxpayers are paying around $30,000 for each Met Gala ticket sold, because taxes on us are increased to make up for the tax subsidy received by the Met Gala’s paying participants (roughly 40% of ticket cost in the top tax bracket). The occasion makes no attempt to be politically neutral, thus violating the central principle of Section 501-c-3 under which it enjoys charitable status; the Republican mega-wealthy were deterred from applying for tickets, while the faded former beauty queen Kamala Harris had a starring role. (Her tickets appeared to have been “comped” by the Black Widow — well, technically a Black Divorcée — editor of Vogue magazine Anna Wintour.)

In the charities enjoying tax free status, there are too many corrupt scams to count. You have the absurdity of Dr. Fauci’s beagle-killing laboratory at the National Institute of Health, entirely funded by the government, but battled by the tax-exempt 501-c-3 People for the Ethical Treatment of Animals (PETA) – unpleasant Action met by almost equally unpleasant Reaction, all funded by the taxpayer. You have the innumerable non-tax “Non-Government Organizations” receiving funding from the government as well as their tax break, whose sole purpose is to pull U.S. policy sharply to the Left and obstruct any attempt to run the country in the interests of its ordinary citizens. In this respect the ineffable Stacey Abrams under the Biden administration was close to becoming the world’s most successful charitable fundraiser, obtaining a $2 billion subsidy from the government.

Those examples exemplify the economic folly of non-profit status. For-profit companies are supposed to be run to maximize their long-term value for their shareholders. Innumerable governments and nonprofits have in recent years muddied the waters, attempting to force companies to follow sleazy political objectives, but fortunately that movement appears to be in retreat. The government has no defined objective, and is therefore economically axiomatically inefficient, but it is at least nominally controlled by the mechanism of regular elections. In this context, rogue elements of the bureaucracy attempting to thwart the will of the people must be slapped down, ideally by Congressional legislation, since today’s courts cannot be trusted.

Nonprofits have neither the discipline of the market nor the less stringent discipline of voters. Accordingly, they are free to follow any damnfool objective they please, and they do so. Given that the political proclivities of those entering the nonprofit sector lean sharply left, the sector’s entities are faced with the twin temptations of hard-left agitation and outright corruption. The sector’s activities thus damage the economy, directly through absorbing resources that could be better used, indirectly through its corruption, which infects those who have to deal with it, and subversively through its promotion of the worst possible economic and social nostrums. In this context, the decision to maintain control of OpenAI through a nonprofit is deeply concerning; without proper market objectives, this important technology leader will be subject to the political and technological whims of its controller and the state. It makes absolutely no sense for taxpayers to be forced to subsidize the nonprofit sector; it should be forced to pay full taxes and contributions to it should not be allowed as a tax deduction.

Among the nonprofit sector colleges stand out as prime candidates to have their tax-free status removed. With the various gigantic subsidies they receive, notably the disgraceful state taxpayer-guaranteed student loan scheme, likely to result in a loss of more than half its $1.7 trillion in outstandings, colleges have bloated their overhead, stacked their faculty with leftist ideologues and rigged their admissions procedures against the most able students. Allowing them to claim tax-exempt status and giving them additional taxpayer benefits such as the ability to provide tax-free housing to their professors is a grotesque subsidy to them. Like many such subsidies, this one rewards the wealthiest and most useless in the community (often the same people) at the expense of its poorer members.

Removing their tax exemption would force the richest colleges to cut back and live off their endowments and force the poorer ones out of business, in a Darwinian struggle for survival. That would be no bad thing. Far too many young people embark on four-year degrees that are either not completed or result in qualifications of no value in the job market. Bear in mind that cutting out tax subsidies for nonprofits will disproportionately reduce the job opportunities for the holders of useless degrees. Those opportunities are also reduced by cutting back the government, whose salary structure subsidizes lengthy but useless post-graduate degree qualifications from colleges of no academic merit. Forcing colleges to offer worthwhile degrees at a reasonable cost by removing all the subsidies and loan guarantees would be a huge win for the U.S. economy and the American people.

The fanciest colleges, with the best international reputation, might attempt to get round the forced restructuring by offering additional places to foreign students, many of them the offspring of oligarchs or top Communist officials. They should be free to do so, but in an era of tariffs, a 20% tariff should be charged on all college fees paid by foreign students. That would encourage colleges to let in more worthy domestic students. It would also reduce the cost to the Treasury of foreign students hostile to U.S. norms and offset some of the taxpayer cost of college science and research grants. Naturally, such a tariff would also make a modest additional contribution towards balancing the Federal budget, currently a top priority (or it should be).

Abolishing tax benefits for the nonprofit sector would make the very rich pay more tax, remove subsidies to the left and force entities representing an additional 5.5% of GDP to operate in the free market. Win-win-win, it seems to me.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)