Jack TenneyExtra Point

by Jack Tenney, Publisher

August 2009


Way back in the’60s, on my first audit for a CPA firm, the client was a recently merged group of Boston-area hospitals. One had a ton of gifted GM stock. In those days (top personal tax bracket 77 percent!) you could do a deal where you gave away the tree but kept the fruit. If you owned a low-basis stock, you could gift it and get back virtually 77 percent of its value in taxes AND keep a life interest in the dividends (the fruit.) I was scandalized.

What would be a riot, of course, is if the hospital still has the GM stock and the old codger who gifted it cashed his last dividend and kicked off just as GM went to zip meaning there was never a financial benefit to the hospital. (IRS has since pruned this scam as one gets a deduction only for the “tree” less the discounted cash value of the “fruit.”)

I still wonder what happens to the cost of health care when someone donates a million bucks to a hospital.

The answer, I fear, is if the donor didn’t specify what to do with it, the donor would get something like a $400,000 tax reduction and the hospital would add the million to its endowment funds where it would earn a few percent at best, of which 25 percent or less would be released to a board-designated reserve. So in a year or two it would be reported as unbudgeted income and therefore would end up having zero effect on health-care costs, unless you counted the $400,000 the donor got from the federal and state tax refunds. Then you could say the well-intended donation increased the cost of health care by the $400,000.

Of course, if  the donors knew all that or wanted to make sure everyone knew about the gift, they’d insist something specific be done like buy a CAT scanner. Then the effect on health-care costs would be the tax deduction plus the budgeted depreciation and operating costs of the new scanner — call it another $300,000. And, of course, it would be a gift that kept on giving, as each year the scanner was in service, price-level depreciation would be budgeted, driving recoverable rates higher, and of course, the brass plaque on the scanner should be kept up — what’s a can of Brasso go for these days?

See what craziness is evinced when rational people contemplate health-care costs?

Here’s my last extra point on the subject: My condo association did a deal with a cable company so I and my neighbors enjoy Oprah, et al, at a wee discount. The charge is included in our condo fees, and the association pays the cable outfit. How, you may ask, does the cable company justify (afford) this? Well, for one, they get a few extra customers. And the clincher? They save statements, envelopes, stamps, receivable-clerks’ time, collectors, bad checks, and late payments. It’s called the “single-payer” benefit.