More Non-Profits

The number of non-profit organizations that can offer their donors a tax deduction has grown 60%, to 1.1 million, in the past decade, the New York Times reported in a front-page news article over the weekend. "The $300 billion donated to charities last year cost the federal government more than $50 billion in lost tax revenue," the article says. That is one way to look at it, from the perspective of a desire to maximize government revenue. There are plenty of other interesting factors and motives at play here that deserve comment, though. One is, as I have mentioned, "the cultural and attitudinal shift on university campuses toward non-profit or government employment and away from the private, for-profit sector." Another is that, given the choice between having the government spend the money or having it spent by non-profits, a lot of people are voting with their donations that they'd prefer the non-profits. It's also interesting that folks like Warren Buffett, George Soros, and Bill Gates's father, who favor an estate tax and, in the case of Mr. Buffett, other taxes as well, have nevertheless devoted themselves to big non-profit foundations that allow them to avoid paying taxes on most of their wealth. The Times article doesn't get into that aspect of it. If Congress raises rates or lowers the exclusion on estate taxes, or even if Congress raises income tax rates, that just makes the tax escape hatch of charitable donations more attractive. If non-profits expanded as much as they did during the lower-tax environment of the Bush administration, imagine how they are going to take off once the Bush tax cuts expire. It could mean that some of the government revenue gains that have been forecast as a result of the expiring tax cuts will fail to materialize. More broadly, the rise of the non-profit model and the attending disdain for profits may make it harder to accumulate the big fortunes that fund all these charities. We'll have more to say about this in the days ahead.