GOP Probe of AARP Could Ensnare Other Nonprofits

Posted April 1, 2011 at 3:46pm

Correction Appended

The Republican attack on AARP could trigger a more widespread examination of the tax-exempt status of nonprofit groups, including those who have backed conservatives, Democrats warned Friday.

“I think it is a very slippery slope we are going down today,” Rep. Mike Thompson (D-Calif.) said during a contentious House hearing.

Republicans on two House Ways and Means subcommittees called the hearing to grill AARP executives about the group’s financial practices and whether it deserves to keep its tax-exempt status.

AARP receives royalties from endorsing health insurance policies that Republicans say will be more in demand with the implementation of the health care reform law that the seniors group supported. They noted that AARP’s income from insurance royalties has risen from $240 million in 2002 to $657 million in 2009. Over the same period, revenue from the organization’s membership dues have remained stagnant.

“AARP has changed into an insurance and advertising powerhouse,” said Rep. Charles Boustany (R-La.) the chairman of the Ways and Means Subcommittee on Oversight.

Democrats responded that Republicans were singling out AARP merely because of its support of the health care reform law. They said any probe should look at a wide array of similarly structured organizations, including those that opposed health care.

“This is nothing other than a political witch-hunt,” Rep. John Lewis (D-Ga.) said. “I ask my colleagues: Who is next? My college? Your church? This is a dangerous game to play.”

Democrats listed a number of groups that have nonprofit tax designation, including the U.S. Chamber of Commerce, the National Federation of Independent Business and the 60 Plus Association — all of which lobbied against the health care measure last year. They also said that Tea Party Patriots and American Crossroads GPS, conservative groups that campaigned against Democrats in last year’s midterm elections, also have the same tax status.

They pointed out that the sixth-largest tax-exempt social welfare organization in the nation is Prairie Meadows Racetrack and Casino in Iowa, which reported total revenue of $2.5 billion in 2008.

AARP falls into the tax-exempt status because it is an organization whose purpose is to promote social welfare. In 2010 there were 139,129 of these nonprofit groups, called 501(c)4s, that have the same designation as the AARP, according to the IRS. Business groups such as the chamber have a different tax-exempt classification.

Aside from its business practices, Republicans also raised questions about the high compensation levels and generous travel policies for AARP executives. Former AARP CEO Bill Novelli was paid $1.6 million in total compensation in 2009, including a severance payment of $351,000.

AARP’s current CEO, Barry Rand, is paid $648,000. The AARP travel policy also pays for first-class accommodations for board directors for flights exceeding five hours when business class is not available. Its CEO is allowed to travel first class on any flight exceeding one hour.

But Democrats provided material that showed other groups paid their top executives even more, according to filings with the IRS. The total compensation for chamber President Tom Donohue was $3.7 million in 2009, according to IRS filings. Donald Danner, the CEO of NFIB, had a compensation package of $938,000 in 2009.

Called as a witness at the hearing, Rand defended the use of insurance royalties to carry out AARP’s mission. He said the proceeds have allowed the group to keep dues low.

“I am proud of the fact the membership dues are kept low,” he said. “We don’t expect to extract incremental dollars from our members.”

Republicans on the committee, however, said AARP has strayed from its mission of helping seniors and was operating more like a for-profit insurance company.

Rep. Wally Herger (R-Calif.), the chairman of the Ways and Means Subcommittee on Health, said the rising insurance royalties “raises questions of where the motives lie” for AARP.

Herger and other Republicans on the committee defended their decision to investigate AARP, saying the group specifically lobbied on legislation that could benefit its business arm. They also noted that Democrats in the past have criticized AARP’s business practice, particularly after the seniors group endorsed the Medicare drug plan that was approved by a Republican Congress and signed by President George W. Bush.

Boustany, however, said his subcommittee would look into the larger question of the tax status of nonprofits at another time.

During the hearing, Democrats complained about the report on the AARP that was produced at the behest of a number of Republican Members.

The Democrats initially balked at allowing the report to be entered into the official record because the Republicans had not spelled out who authorized and paid for it. Herger eventually told them that the report, which was begun 18 months ago, was written by Ways and Means staffers with the help of an IRS official.

Democrats said that the former chairman of the committee, Rep. Sander Levin (D-Mich.) had not authorized committee staffers to work on the report.

Correction: April 1, 2011

The article misstated whose subcommittee would look into the larger question of the tax status of nonprofits at another time. It is Rep. Charles Boustany (R-La.).