An Overview of the Nonprofit and Charitable Sector

Congressional research reportNov 17, 2009

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An Overview of the Nonprofit and Charitable

Sector

(name redacted)

Analyst in Economics

(name redacted)

Senior Specialist in Economic Policy

November 17, 2009

Congressional Research Service

7-....

www.crs.gov

R40919

CRS Report for Congress

Prepared for Members and Committees of Congress

An Overview of the Nonprofit and Charitable Sector

Summary

A number of policy issues have direct or indirect consequences for the nonprofit and charitable

sector, including the establishment of a social innovation initiative, changes in the tax treatment

of charitable donations, responses to the economic downturn, and health care reform. The

nonprofit and charitable sector represents a significant portion of the U.S. economy. The sector is

also highly diverse. Having a greater understanding of the nonprofit and charitable sector as a

whole may help policymakers evaluate proposals that may impact the sector.

The first section of this report provides a formal definition of the nonprofit and charitable sector.

The term “nonprofit sector” is generally intended to refer to organizations with federal taxexempt status; “charitable sector” refers to the subset of these organizations that have 501(c)(3)

public charity status.

The next section reports on the size and scope of the charitable sector. Charitable organizations

are estimated to employ more than 7% of the U.S. workforce, while the broader nonprofit sector

is estimated to employ 10% of the U.S. workforce. In 2009, the charities filing Form 990 with the

Internal Revenue Service reported approximately $1.4 trillion in revenue and reported holding

nearly $2.6 trillion in assets. Nonprofit institutions serving households (largely charities)

constituted more than 5% of GDP in 2008.

The third section of this report examines how charities are funded. Revenue comes from a variety

of sources, including private contributions, payments (fees for service), government grants, and

investment income. Revenue sources vary significantly across different types of charities:

charities involved in health care (including nonprofit hospitals) and educational institutions rely

heavily on private payments while arts, culture, and humanities charities and environment and

animals charities are more reliant on private contributions. Private contributions to charities are of

particular interest as charitable giving may respond to changes in the tax code. As the recent

economic downturn has increased the demand for goods and services provided by a number of

charities, the impact of the business cycle on funding is also discussed.

The fourth section provides an overview of the charitable sector’s relationship with government.

From a theoretical perspective, economics suggests that the government should subsidize

activities that are either public goods or have positive external effects. It can be argued that some

charitable activities possess these qualities. The costs to the government of providing grants,

allowing charitable contributions to be tax deductible, exempting investment income of charities

from tax, and providing property and sales tax exemptions are presented. The oversight role of

the government is also reviewed.

Finally, the report concludes with policy considerations. This section opens by surveying what

policy options are considered most important by charitable organizations themselves. Building on

this, a number of policy options are examined, including (1) increasing government grants and

subsidies to charitable organizations; (2) creating an oversight agency within the federal

government to gather data, conduct research, and advocate for the charitable sector; (3)

implementing policies designed to help charities and foundations in economic downturns; (4)

changing the itemized deduction for charitable contributions by limiting, converting to a credit, or

making the deduction more widely available; and (5) a variety of other tax issues.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Contents

The Nonprofit and Charitable Sectors..........................................................................................2

IRS Filing Requirements .......................................................................................................3

Size and Scope of the Nonprofit and Charitable Sectors ..............................................................4

Employment .........................................................................................................................4

Revenue................................................................................................................................9

Assets ................................................................................................................................. 11

Revenue and Assets in the Broader Nonprofit Sector ..................................................... 11

Contribution of Charities to GDP ........................................................................................ 12

The Nonprofit & Charitable Sectors vs. Other Major Economic Sectors .............................. 13

How Are Charities Funded? ...................................................................................................... 16

Revenue.............................................................................................................................. 16

Revenue Sources by Charitable Sector .......................................................................... 18

Growth in Revenue Sources .......................................................................................... 20

Nongovernmental Financing: Private Contributions............................................................. 21

Government Financing: Grants and Transfers ...................................................................... 28

The Business Cycle’s Impact on Funding ............................................................................ 30

How Have Nonprofits Fared During Past Economic Downturns? .................................. 30

Charitable Contributions in Past Recessions .................................................................. 31

The Current Recession: Charitable Giving in 2008 ........................................................ 31

Endowments and Assets ................................................................................................ 33

Outlook 2009 ................................................................................................................ 34

The Charitable Sector’s Relationship with Government ............................................................. 35

Market Failures: Justifying the Subsidization of Charities.................................................... 35

Public Goods ................................................................................................................ 35

Externalities.................................................................................................................. 36

Is There an Economic Rationale for Nonprofit Hospitals?.............................................. 37

Relationship with the Federal Government .......................................................................... 38

Federal Government............................................................................................................ 38

Social Innovation Initiatives .......................................................................................... 38

Foundations .................................................................................................................. 39

Donor-Advised Funds and Supporting Organizations .................................................... 39

Endowments ................................................................................................................. 40

Charitable Contributions ............................................................................................... 40

Exemption of Tax on Investment Income of Nonprofits ................................................. 41

Charitable Contributions and Other Tax Expenditures ................................................... 43

Postal Subsidies ............................................................................................................ 45

State and Local Governments .............................................................................................. 45

State and Local Tax Benefits ......................................................................................... 45

Potential Impacts of Government Grants on Giving............................................................. 46

Government Funds and Private Funds as Substitutes ..................................................... 46

Government Funds and Private Funds as Complements ................................................. 48

Taxes and Charitable Contributions ..................................................................................... 49

Policy Considerations ............................................................................................................... 50

Increased Funding for Grants and Subsidies ........................................................................ 52

An Oversight Agency in the Federal Government................................................................ 53

Proposals to Aid Nonprofits in Economic Downturns .......................................................... 54

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Foundation Grants......................................................................................................... 54

State Funding and Payments.......................................................................................... 54

Providing Economic Stimulus Funds ............................................................................. 55

The Itemized Deduction for Charitable Contributions.......................................................... 56

Other Tax Issues.................................................................................................................. 57

Channeling Benefits Through the Federal Income Tax System (Including Health

Insurance Credits) ...................................................................................................... 57

Restrictions on Donor-Advised Funds (DAFs), Supporting Organizations, and

Endowments .............................................................................................................. 57

Gifts of Appreciated Property........................................................................................ 58

Nonprofit Hospitals....................................................................................................... 58

Extenders...................................................................................................................... 59

The Estate Tax .............................................................................................................. 59

Figures

Figure 1. Share of Workers in Each State Employed by the Charitable Sector, 2004.....................7

Figure 2. Full-Time Equivalent Volunteers as Percent of Workforce, 2004 ...................................8

Figure 3. Nonprofit Institutions Serving Households’ Share of GDP .......................................... 13

Figure 4. Revenue by Source, 2005 ........................................................................................... 17

Figure 5. Comparing Revenue Sources Across Charitable Sectors ............................................. 19

Figure 6. Charitable Giving....................................................................................................... 23

Figure 7. Giving as a Percentage of GDP, 1967-2008................................................................. 24

Figure 8. Giving to Charities by Type........................................................................................ 26

Figure 9. Charitable Contributions as a Percentage of Output, 1967-2007.................................. 31

Tables

Table 1. Registered and Filing Nonprofit Organizations by Organization Type.............................3

Table 2. Nonprofit Employment by Industry................................................................................4

Table 3. Employment in the Charitable Nonprofit Sector .............................................................6

Table 4. Charitable Organizations by Group: Revenue & Assets ................................................ 10

Table 5. Total Revenue and Assets by Nonprofit Type ............................................................... 12

Table 6. Employment by Industrial Sector, 2005........................................................................ 14

Table 7. Contribution to GDP by Industry.................................................................................. 14

Table 8. Distribution of Employment by Establishment, 2008.................................................... 15

Table 9. Percentage Change in Real Revenue, 1995 - 2005 ........................................................ 21

Table 10. Giving and Household Income, 2004 ......................................................................... 27

Table 11. Share of Revenue from Government Grants, 2005...................................................... 28

Table 12. Changes in Giving by Source, 2007-2008................................................................... 32

Table 13. Changes in Giving by Recipient, 2007-2008............................................................... 32

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Table 14. Tax Expenditures and the Nonprofit Sector, FY2009 .................................................. 43

Table 15. Distribution of Charitable Giving Across Income Classes, 2005 ................................. 44

Table 16. State and Local Tax Subsidies, 2008-2009.................................................................. 46

Table A-1. Revenue by Source, 2005......................................................................................... 60

Appendixes

Appendix. ................................................................................................................................. 60

Contacts

Author Contact Information ...................................................................................................... 60

Acknowledgments .................................................................................................................... 60

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

s this report illustrates, the nonprofit and charitable sector represents a significant, highly

diverse component of the U.S. economy. Currently, there are a number of policy issues

that could affect, either directly or indirectly, the structure and functioning of nonprofit

and charitable organizations. President Barack Obama has turned toward the nonprofit sector

while seeking solutions to social problems via the Social Innovation Fund.1 The recent economic

downturn increased the demand for many of the goods and services provided by charitable

organizations, while simultaneously placing the same organizations under increased financial

constraints. The treatment of nonprofits in health care reform has also been a major issue, as the

tax code cannot provide the same incentives to nonprofits (nonprofit health care providers and

nonprofit employers providing insurance) that are available to for-profit organizations. Finally,

the tax treatment of nonprofits and their contributors raises issues of efficiency, equity, and

fairness.

To assist policymakers in evaluating reforms that will potentially affect nonprofit and charitable

organizations, this report provides a broad overview of the charitable sector. Such context and

background information will help policymakers determine if the government’s current

relationship with the nonprofit and charitable sector is efficient, or if there are policy changes that

could lead to a better use of resources.

This report begins by defining the nonprofit and charitable sector. It is especially important to

understand the distinction between nonprofit and charitable organizations. While the term

nonprofit tends to be used loosely in the literature, nonprofit here is used to identify the broad

array of organizations with federal tax-exempt status. Charitable organizations are defined as

organizations with 501(c)(3) public charity status, and are a subcategory of the broader nonprofit

sector.

The second section provides an overview of the charitable sector, focusing specifically on

employment within the sector, as well as revenue and assets of charitable organizations. The

charitable sector’s role in the broader economy is evaluated by comparing the charitable sector to

other major industrial sectors.

Third, the finances of charitable organizations are explored. Specifically, various revenue sources,

both government and nongovernment, are examined. The amount of revenue coming from private

contributions, government grants and transfers, private payments, and investment income is

identified. The differences in revenue sources across charitable sectors are also analyzed. Finally,

the impact of the economic downturn on revenue for charitable organizations is briefly addressed.

The fourth section reviews the relationship between the charitable sector and government. To

evaluate the relationship between the charitable sector and the federal government, the economic

rationale for subsidizing charities is presented. After presenting the theoretical underpinnings for

interaction between charities and government, direct evidence on the cost of the relationship as it

presently exists is discussed.

Finally, the report concludes with policy considerations and options. The policy options are

framed by examining policy issues deemed important by nonprofit and charitable organizations.

The possibility of increasing support through grants and subsidies, introducing an oversight

The White House: Office of the Press Secretary, “President Obama to Request $50 Million to Identify and Expand

Effective, Innovative Nonprofits,” press release, May 5, 2009.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

agency within the federal government, and revising the rules on itemized deductions for

charitable organization are explored.

The Nonprofit and Charitable Sectors2

This report analyzes data relating to the nonprofit and charitable sectors. For purposes of this

report, the term “nonprofit sector” is generally intended to include all organizations with federal

tax-exempt status.3 The term “charitable sector” is used to refer to one type of tax-exempt

organization, specifically those organizations with 501(c)(3) public charity status.

The Internal Revenue Code (IRC) describes approximately 30 types of tax-exempt organizations.4

Examples include charitable organizations, social welfare organizations, labor unions, trade

associations, fraternal societies, and political organizations.

The largest category, and the primary focus of this report, are the organizations described in

Internal Revenue Code (IRC) Section 501(c)(3). Organizations eligible for 501(c)(3) status

include charities, religious organizations, hospitals, and educational institutions.5 The entire

universe of these organizations is commonly referred to as “charitable organizations.”

Every 501(c)(3) organization is classified as either a “public charity” or “private foundation.”

Public charities have broad public support and tend to provide charitable services directly to the

intended beneficiaries. Private foundations often are tightly controlled, receive significant

portions of their funds from a small number of donors or a single source, and make grants to other

organizations rather than directly carry out charitable activities. 501(c)(3) organizations are

presumed to be private foundations unless they qualify for public charity status based on support

and control tests.

Erika Lunder, Legislative Attorney, wrote this section of the report.

While this report generally uses the terms “tax-exempt organization” and “nonprofit organization” interchangeably, it

should be noted that this might not be appropriate in other contexts. The term “tax-exempt organization” refers to

organizations with federal tax-exempt status. The term “nonprofit organization” is often used simply to refer to an

entity that is not intended to be a profit-making corporation. The term can be more precisely understood to mean an

entity organized under the laws of a state, with its status and privileges determined under state law. Because the

qualifications for nonprofit status vary among states, it is possible for the term “nonprofit organization” to be broader

than, narrower than, or identical to the term “tax-exempt organization.” For a nonprofit organization to be exempt from

federal income taxes, it must meet the statutory requirements found in the Internal Revenue Code and usually must file

an application with the IRS. Some organizations, including small 501(c)(3) organizations and qualifying religious

organizations, are exempt from the application requirement.

For more information on tax-exempt organizations, see CRS Report 96-264, Frequently Asked Questions About TaxExempt Organizations, by (name redacted) and CRS Report RL30877, Characteristics of and Reporting Requirements

for Selected Tax-Exempt Organizations, by (name redacted).

IRC § 501(c)(3) describes organizations “organized and operated exclusively for religious, charitable, scientific,

testing for public safety, literary, or educational purposes, or to foster national or international amateur sports

competition … or for the prevention of cruelty to children or animals.” Among other requirements, “no part of the net

earnings of” the organization may “inure to the benefit of any private shareholder or individual.”

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

IRS Filing Requirements

A primary source for some of the data contained in this report is Form 990, which is the annual

information return that must be filed with the IRS by most tax-exempt organizations. Form 990

collects information about the organization’s finances, assets, and activities.

For tax year 2009, public charities with gross receipts of at least $500,000 or total assets of at

least $1.25 million must file the regular Form 990, while public charities with gross receipts

between $25,000 and $500,000 and total assets of less than $1.25 million may file the Form 990EZ. Public charities whose gross receipts normally do not exceed $25,000 file the Form 990-N

(“e-Postcard”), which only requires basic identifying information such as the names and

addresses of the organization and a principal officer. Private foundations file using the Form 990PF. Churches and other qualifying religious organizations are exempt from the annual

information-reporting requirements.

In addition to the information return, there are other situations when tax-exempt organizations

must file a tax return. For example, tax-exempt organizations are subject to tax on income from

business activities unrelated to their exempt purpose. Organizations subject to this tax, known as

the unrelated business income tax (UBIT), must file a tax return using the Form 990-T.

Additionally, tax-exempt organizations must generally pay the same employment taxes (i.e.,

withhold income and payroll taxes of their employees) as for-profit employers and file the

applicable returns. Finally, an organization’s activities might require it to file other returns, such

as an excise tax return.

Table 1 presents information on the number of nonprofit and charitable organizations as of July,

2009. Of the 1.5 million registered nonprofit organizations, nearly 64% are public charities.

Nearly 8% are private foundations, while 29% are other types of nonprofits. Only 52% of

registered charities file Form 990. Non-filers include qualifying religious organizations, small

organizations, and organizations that may no longer exist but have not been removed from the

IRS Business Master File (BMF). Very little information is available regarding non-filing

organizations.

Table 1. Registered and Filing Nonprofit Organizations by Organization Type

Number of

Registered

Organizations

Share of Total

Registered

Organizations

Number of

Organizations

Filing Form 990

Share of Total

Filing

Organizations

Public charity

986,553

63.5%

512,689

58.6%

Private

foundation

115,958

7.5%

86,591

9.9%

Other nonprofit

450,151

29.0%

275,420

31.5%

Unknown

1,615

0.1%

894

0.1%

Source: IRS Business Master File (BMF) (July 2009), Urban Institute National Center for Charitable Statistics

(NCCS)

Notes: Registered organizations are those registered as having tax-exempt status with the IRS. Filing

organizations are those that filed Form 990 (including 990EZ and 990PF) within 24 months of the July 2009

release date, as reported in NCCS Core Files and IRS Business Master Files.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Size and Scope of the Nonprofit and Charitable

Sectors

Employment

Measuring employment in the nonprofit and charitable sector is not an easy task. There is no

government agency that regularly collects systematic employment data on the nonprofit sector.6

There are two major studies that have attempted to measure employment in the nonprofit and

charitable sector in recent years. Their results are presented in Table 2 and Table 3 below. The

first is employment in the nonprofit sector. In 2005, the estimated total employment in the

nonprofit sector was 12.9 million. The second is employment in the charitable sector. The

estimated number of paid workers employed by charities in 2004 was 9.4 million. At the end of

2004, there were 132.5 million employees nationwide. 7 Nearly 10% of America’s workforce

works in the nonprofit sector, with more than 7% of the workforce employed by charities.

Table 2 provides estimates of nonprofit employment by industry. More than half of nonprofit

employment (approximately 54%) is involved in health care and social assistance. In 1998, nearly

23% of nonprofit employees were involved in other services. This proportion fell by 2005 to just

over 21%. In both 1998 and 2005, approximately 18% of nonprofit employees provided

educational services. Arts, entertainment, and recreation was the fourth largest category, with

nearly 4% of all nonprofit employment within this category.

Table 2. Nonprofit Employment by Industry

NAICS

Code

Industry

1998

2005

% Change

1998 - 2005

Agriculture, forestry, fishing, and

hunting

11,900

0.1%

12,211

0.1%

2.61%

Utilities

4,131

0.0%

6,875

0.1%

66.42%

Transportation and warehousing

1,272

0.0%

1,833

0.0%

44.10%

Information

32,354

0.3%

36,602

0.3%

13.13%

Finance and insurance

72,829

0.7%

86,548

0.7%

18.84%

Real estate and rental and leasing

2,986

0.0%

2,910

0.0%

-2.55%

Professional, scientific, and technical

services

119,255

1.1%

167,560

1.3%

40.51%

Administrative and waste

management services

25,311

0.2%

21,476

0.2%

-15.15%

Educational services

1,972,039

17.8%

2,335,466

18.1%

18.43%

48, 49

Organizations are required to provide some employment data on the Form 990. This data is collected at the

organization level, rather than establishment level, making it difficult to make geographic distinctions for nonprofit and

charitable workers. Further, a number of organizations fail to report their number of employees. The data is selfreported by the organization and may contain errors.

Total nonfarm payroll for all employees is collected by the U.S. Department of Labor: Bureau of Labor Statistics.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

NAICS

Code

Industry

1998

2005

% Change

1998 - 2005

Health care and social assistance

5,941,902

53.5%

6,999,312

54.2%

17.80%

Arts, entertainment, and recreation

403,242

3.6%

481,755

3.7%

19.47%

Accommodation and food services

12,730

0.1%

17,902

0.1%

40.63%

Other services, except government

2,500,681

22.5%

2,751,202

21.3%

10.02%

Total

11,100,632

12,921,652

16.40%

Source: Estimated employment levels are from Kennard T. Wing, Thomas H. Pollak, and Amy Blackwood, The

Nonprofit Almanac 2008 (Washington, DC: The Urban Institute Press, 2008).

Notes: The employment levels here were estimated using data from the 2002 Economic Census conducted by

the U.S. Census Bureau, the U.S. Department of Commerce, Bureau of Economic Analysis, National Income and

Product Accounts from 2007, the U.S. Department of Labor, Bureau of Labor Statistics, Quarterly Census of

Employment and Wages spanning 1998 through 2007, the Urban Institute’s National Center for Charitable

Statistics Core Files from 1998 through 2006, and the IRS Statistics of Income Form 990 and 990-EZ Sample Files

from 1998 through 2006. The NAICS Code is the North American Industrial Classification System. Shares may

not sum to 100% due to rounding.

Between 1998 and 2005, employment in the nonprofit sector grew by an estimated 16.4%.

Overall, nationwide growth in employment was approximately 6.2%.8 While the utilities;

transportation and warehousing; accommodation and food services; and professional, scientific,

and technical services sectors experienced the most growth between 1998 and 2005, each of these

four sectors still represents less than 1% (1.3% for the professional, scientific, and technical

services) of total nonprofit employment. The first and third largest sectors in terms of nonprofit

employment—health care and social assistance and education services, respectively—

experienced increases in employment that exceeded employment increases for the nonprofit

sector as a whole.

The second employment estimate is that of the number of persons employed by the charitable

sector. Table 3 presents 2004 estimates of employment by charities across various sectors.

CRS calculations based on total nonfarm payroll for all employees, U.S. Department of Labor: Bureau of Labor

Statistics.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Table 3. Employment in the Charitable Nonprofit Sector

NAICS

Code

Industry

2004

Share of

Charitable

Employment

Information

71,000

0.8%

52-53

Finance, insurance, and real estate

76,000

0.8%

Professional, scientific, and technical services

250,000

2.7%

Educational services

1,373,000

14.6%

Health care and social assistance

6,518,000

69.5%

Arts, entertainment, and recreation

243,000

2.6%

Other services, except government

695,000

7.4%

Total

9,385,000

Source: Lester M. Salamon and S. Wojciech Sokolowski, Employment in America’s Charities: A Profile, The Johns

Hopkins Center for Civil Society Studies, Nonprofit Employment Bulletin Number 26, December 2006.

Notes: Note that the total is not the sum of individual fields. This is attributable to data disclosure limitations.

These estimates were made using data from the U.S. Bureau of Labor Statistics’ Quarterly Census of

Employment and Wages (QCEW). Since many states only require nonprofit organizations with at least four

employees to respond to the QCEW, the numbers reported here likely understate total employment in the

charitable sector. The data report employment from the second quarter of 2004. Shares may not sum to 100%

due to rounding.

Generally, the estimates of employment in the charitable sector are consistent with estimates for

total employment by nonprofits.9 Since charities are a subset of nonprofits, it is expected that

there would be fewer persons employed by charities as compared to nonprofits.

Figure 1 depicts regional variation with respect to the percentage of the workforce employed by

the charitable sector. In relative terms, the northeast tends to see a larger proportion of its

workforce employed by the charitable sector. The District of Columbia has the largest proportion

of workers employed by the charitable sector, with 16.3%. In Rhode Island, 13.6% of workers are

employed by a charitable organization. New York ranks third when ranking states by employment

in the charitable sector, with 13.3%. Relative to other parts of the country, fewer persons are

employed by the charitable sector in the south.

In addition to paid workers, volunteer workers make up a significant portion of the labor involved

in providing charitable goods and services. In 2004, there were an additional 4.7 million full-time

equivalent (FTE) volunteer workers employed by charitable institutions.10 Figure 2 depicts FTE

volunteers as a percentage of total employment in each state. While states in the northeast tend to

have a larger proportion of workers employed in the charitable sector, a similar pattern does not

appear for volunteers as a share of total employment. In fact, there is very little (if any)

relationship between the proportion of workers employed by the charitable sector and volunteers

relative to total employment.

Kennard T. Wing, Thomas H. Pollak, and Amy Blackwood, The Nonprofit Almanac 2008 (Washington, DC: The

Urban Institute Press, 2008) explicitly discusses the methodologies used for estimating employment in the nonprofit

sector.

Salamon and Sokolowski, Employment in America’s Charities: A Profile, The Johns Hopkins Center for Civil

Society Studies, Nonprofit Employment Bulletin Number 26, December 2006.

Congressional Research Service

Figure 1. Share of Workers in Each State Employed by the Charitable Sector, 2004

Source: CRS calculations based on data from Salamon and Sokolowski (2006). Percentage of paid workers employed by the charitable sector in 2004.

CRS-7

Figure 2. Full-Time Equivalent Volunteers as Percent of Workforce, 2004

Source: CRS calculations based on data from Salamon and Sokolowski (2006). Percentage of full-time equivalent volunteer workers employed by the

charitable sector in 2004.

CRS-8

An Overview of the Nonprofit and Charitable Sector

Revenue

Table 4 reports the revenue of 501(c)(3) public charities reporting as of July 2009. For charities

filing Form 990, total revenues for 2009 are $1.40 trillion. Revenue information is provided by

512,889 public charities filing Form 990 with the IRS. The revenue raised differs significantly

across sectors. For example, nonprofit hospitals that are charitable organizations are less than 1%

of all filing organizations. Yet amongst revenues for filing charitable organizations, 41% is

reported by hospitals. More than 29% of assets held by filing charitable organizations are held by

hospitals.

Charitable hospitals receive the largest share of revenue. Other health-orientated charitable

organizations are also responsible for a relatively large share of revenue flowing into the

charitable sector, more than 15%. Given that 9.6% of filing organizations are health

organizations, the fact that these organizations bring in 15% of revenue is closer to being

proportional.

The higher-education sector, like the hospital sector, generates a highly disproportionate level of

revenue and holds a disproportionate quantity of assets. While only 0.5% of charities are highereducation organizations, higher-education organizations generate more than 11% of revenue

flowing to charitable organizations and hold more than 21% of the charitable sector’s assets.

These data suggest that while higher-education and hospital charitable organizations are relatively

few in number, they are a very large part of the charitable sector in terms of revenue and assets.

Charitable organizations focusing on providing goods and services in the realm of arts, culture,

and humanities tend to have below-average revenue. While more than 12% of charitable

organizations filing Form 990 are in the arts, culture, and humanities category, the sector only

generates 2.3% of total revenue flowing into the charitable sector. In terms of revenue, arts,

culture, and humanities charities are markedly smaller than health and education charitable

organizations. Charitable organizations with a focus on the environment, human services, and the

public benefit also tend to be smaller, as evidenced by the fact that these sectors represent a larger

share in the number of organizations than the sectors’ share in revenue generation or asset

holdings.

The data in Table 4 also highlight the limited amount of information reported by religious

charitable organizations. While 22.6% of registered charitable organizations are religious

organizations, only 6.5% of organizations filing 990 are religious charities. Since religious

organizations are not required to file Form 990, very little is known about the revenue generated

and assets held by religious charities.

Congressional Research Service

Table 4. Charitable Organizations by Group: Revenue & Assets

(billions of dollars)

NTEE Group

# of Registered

Organizations

# of Organizations

Filing 990

Total Revenue

Total Assets

Arts, Culture, and Humanities

99,263

10.06%

64,347

12.55%

32.67

2.34%

100.39

3.86%

Education

149,411

15.14%

91,113

17.76%

97.84

6.99%

303.68

11.68%

Higher Education

4,177

0.42%

2,378

0.46%

158.94

11.36%

551.22

21.21%

Environment

45,882

4.65%

24,924

4.86%

13.73

0.98%

33.05

1.27%

Health

72,410

7.34%

49,357

9.62%

216.16

15.45%

256.06

9.85%

Hospitals

6,384

0.65%

4,822

0.94%

577.06

41.25%

757.08

29.13%

Human Services

261,984

26.54%

163,885

31.95%

175.50

12.55%

268.79

10.34%

International, Foreign Affairs, and National Security

14,781

1.50%

9,361

1.83%

30.80

2.20%

31.65

1.22%

Public and Societal Benefit

107,946

10.94%

65,835

12.84%

81.33

5.81%

254.61

9.80%

Religion Related, Spiritual Development

213,574

21.64%

33,110

6.46%

12.14

0.87%

26.68

1.03%

Mutual/Membership Benefit Organizations, Other

2,521

0.26%

1,617

0.32%

2.49

0.18%

15.07

0.58%

Unknown

8,700

0.88%

2,140

0.42%

0.30

0.02%

0.64

0.02%

Total

987,033

100.00%

512,889

100.00%

1,398.95

100.00%

2,598.92

100.00%

Source: The Urban Institute, National Center for Charitable Statistics, http://nccsdataweb.urban.org/ and Internal Revenue Service, Exempt Organizations Business Master

File (July 2009).

Notes: Revenue and assets are for organizations that filed Form 990 or Form 990EZ within 24 months of the July 2009 Business Master File release date. Organizations are

grouped according to the National Taxonomy for Exempt Entities (NTEE), a system for categorizing the activities of nonprofit organizations established by the National

Center on Charitable Statistics. Registered organizations are those appearing in the Business Master File. Revenue and assets are for filing organizations only.

CRS-10

An Overview of the Nonprofit and Charitable Sector

Assets

Table 4 also reports total assets across different types of public charities. Charities reporting as of

July 2009 held $2.6 trillion worth of assets. These assets are held by the 512,899 public charities

filing Form 990. As was seen with respect to revenue, asset holding patterns vary across

charitable sectors.

Charities in the education sector stand out when examining asset holdings. Specifically, education

charities hold nearly 33% of assets held by charitable institutions, while only 18% of charitable

organizations filing Form 990 are in the education sector. Relative to other types of charities,

education charities hold more assets. This observation is driven by asset holdings of highereducation institutions, and the large asset holdings in the endowments of some of these

institutions.

Health-related charities also hold a disproportionate volume of assets relative to the number of

organizations in the health sector, while charities in the human services and housing sectors hold

a share of assets that is less than their share of filing organizations. Specifically, health charities

hold nearly 36% of assets while only 5.5% of charitable organization filing Form 990 are in the

health sector. More than 10% of charities filing Form 990 are in the human services sector, yet the

human services sector holds less than 6% of charitable organizations’ assets. Housing charities

are another sector where the share of assets held is relatively low. Nearly 4% of all charitable

organizations filing Form 990 are in the housing sector yet the housing sector only holds 2.5% of

all charitable organizations’ assets.

One important point to note when examining the revenue and asset data presented in Table 4 is

that there is no adjustment or control for charity size. Revenue and assets for the health and

education sectors are relatively high, reflecting in part their tendency to be larger than other types

of charities. Health charities, for example, averaged $26.5 million in revenue and $33.3 million in

assets. Arts, culture, and humanities organizations are much smaller, with the average institution

in this sector generating $0.5 million in revenue and holding $1.6 million in assets. Charitable

sectors that tend to have organizations smaller in size hold a lesser share of the charitable sectors’

total revenue and assets.

Revenue and Assets in the Broader Nonprofit Sector

Table 5 contains information on the assets and revenue for public charities relative to private

foundations and other nonprofits. While public charities represent approximately 59% of

nonprofit organizations filing Form 990, charities bring in 71% of revenue, a disproportionately

large share. Nearly 10% of nonprofit organizations filing Form 990 are private foundations.

Private foundations hold a disproportionate amount of assets, with nearly 15% of nonprofit assets

held by foundations. While nearly 32% of nonprofits are neither charities nor foundations, less

than 20% of revenue and 24% of assets are held by these other nonprofits.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Table 5.Total Revenue and Assets by Nonprofit Type

(billions of dollars)

Share of Total

Filing

Organizations

Total

Revenue

Reported

on Form

990

512,689

58.6%

Private foundation

86,591

Other nonprofit

Share of

Total

Revenue

Total

Assets

Reported

on Form

990

Share of

Total

Assets

$1,397

71.1%

$2,598

61.3%

9.9%

$181

9.2%

$621

14.7%

275,420

31.5%

$386

19.7%

$1,014

23.9%

894

0.1%

875,594

100%

$1,966

100%

$4,236

100%

Number of

Organizations

Filing Form

990

Public charity

Unknown

Total

Source: IRS Business Master File (BMF) (July 2009), Urban Institute National Center for Charitable Statistics

(NCCS).

Notes: Filing organizations are those that filed Form 990 (including 990EZ and 990PF) within 24 months of the

July 2009 release date, as reported in NCCS Core Files and IRS Business Master Files. Columns may not sum

due to rounding.

Contribution of Charities to GDP

To evaluate the contribution of nonprofits and charitable organization to total output, data from

the agency charged with measuring the size of the U.S. economy, the Bureau of Economic

Analysis of the Department of Commerce (BEA), is utilized. As illustrated in Figure 3, in 2008

nonprofit institutions serving households (NPISH) were responsible for generating 5.2% of U.S.

GDP, or $751.2 billion worth of output.11 The share increased 0.4 percentage points between 1998

and 2008.12 Nonprofits’ share of output consists of wages paid to nonprofit employees, the rental

value of assets owned and used by nonprofits while providing services, and rental income from

tenant-occupied housing owned by nonprofits.

Nonprofit institutions serving households (NPISH) are tax-exempt organizations that provide services in one of the

following five areas: (1) religion and welfare, including social services, grant-making foundations, political

organizations, museums and libraries, and some civic and fraternal organizations; (2) medical care; (3) educational and

research institutions; (4) recreation, including cultural and athletic organizations; and (5) personal business, including

labor unions, legal aid, and professional associations. See Charles Ian Mead, Clinton P. McCully, and Marshall B.

Reinsdorf, Income and Outlays of Households and of Nonprofit Institutions Serving Households, Bureau of Economic

Analysis, April 2003, http://www.bea.gov/scb/pdf/2003/04april/0403household.pdf.

Examination of the data underlying Figure 3 supports the finding that the increase in NPISH’s share of GDP is

representative of a trend rather than an anomaly.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Figure 3. Nonprofit Institutions Serving Households’ Share of GDP

Source: CRS calculations based on U.S. Department of Commerce, Bureau of Economic Analysis, National

Income and Product Accounts Tables, Table 1.3.5.

Notes: Shares determined using Gross Value Added by Sector.

While the Bureau of Economic Analysis’s data provide the best representation of the nonprofit

sector’s share in the economy, some care should be taken in interpretation. First, the NPISH

classification represents a subset of all nonprofits, and therefore represents a share of economic

activity smaller than that of the entire nonprofit sector. The NPISH classification also is not

synonymous with what is typically thought of as the charitable sector 501(c)(3) organizations.

Social welfare organizations and labor unions, for example, may be included in the BEA’s NPISH

category but are not 501(c)(3) charitable organizations. On the other hand, some 501(c)(3)

organizations may not fall within the NPISH classification, such as those that sell goods or

services in a manner similar to businesses. Overall, it is likely that the NPSIH’s share in GDP is

greater than that of the charitable sector, but less than that of the nonprofit sector.

Other cautions include the fact that there are difficulties in placing a value on much of the output

of charitable organizations. Since pricing the value of charitable output is difficult, the BEA

estimates the value of output by using the cost of the inputs. Determining the cost of inputs,

however, presents its own set of problems. Employee wages are the largest component of

charitable organizations’ costs. As was noted above, the data on the number of employees in the

charitable sector are not precise. A final issue is the fact that the BEA’s method for measuring the

nonprofit sector’s output only includes measurable costs of inputs. However, many nonprofit and

charitable organizations are supported via volunteer efforts. Since these efforts do not represent a

cost they are not included in the measure of output.

The Nonprofit & Charitable Sectors vs. Other Major Economic

Sectors

To compare the size of the nonprofit sector to other major economic sectors, employment levels

are examined. As was noted above, there were nearly 13 million nonprofit employees in 2005,

and an estimated 9.4 million employees in the charitable sector in 2004. Table 6 presents

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

employment in selected industries in 2005.13 In terms of employment, the charitable sector is

larger than the construction sector. The charitable sector is also larger than the finance and

insurance, and real estate sectors combined when size is measured by employment. The charitable

sector has nearly half as many employees as the government, where the government includes all

federal, state, and local government employees.

Table 6. Employment by Industrial Sector, 2005

(thousands)

2005

Employment

Industrial Sector

Construction

7,353

Manufacturing

13,954

Retail Trade

13,467

Finance and Insurance

5,829

Real estate and rental and leasing

2,004

Educational Services

2,543

Health care and social assistance

13,258

Government

19,872

Source: Bureau of Economic Analysis, Table 6.5D, Full-Time Equivalent Employment by Industry.

Notes: The government sector includes federal government employees, both civilian and military. The

government sector also includes state and local government employment, including those involved in providing

education.

Table 7 provides the contributions of various economic sectors to GDP. As was illustrated in

Figure 3, nonprofit institutions serving households (NPISHs) represented 5.2% of GDP, or

$751.2 billion in 2008. In terms of contribution to GDP, NPISHs are a larger part of the economy

than the construction sector and the educational services sector. 14 NPISHs contribute nearly half

as much to GDP as the manufacturing sector.

Table 7. Contribution to GDP by Industry

(billions of dollars)

Industrial Sector

Value Added

Share of GDP (%)

Construction

581.5

4.1

Manufacturing

1,637.7

11.5

Retail trade

885.5

6.2

Finance and insurance

1,064.9

7.5

Real estate and rental and leasing

1,783.5

12.5

The nonprofit or charitable sector and the industrial sectors listed in Table 6 are not mutually exclusive. For

example, the educational services and health care and social assistance sectors have many employees that are also

counted as being employed in the charitable sector.

This does not include education provided by state and local governments.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Industrial Sector

Value Added

Share of GDP (%)

Educational services

138.3

1.0

Health care and social assistance

1,019.7

7.2

Government

1,840.0

12.9

Source: Bureau of Economic Analysis, Gross Domestic Product by Industry Accounts, Value Added by Industry,

2008.

Drawing conclusions regarding the importance of the charitable sector in the economy depends

critically on what is being measured. When looking at employment figures, the charitable sector

appears to be larger than the construction, manufacturing, finance and insurance, real estate and

rental and leasing, and educational services sectors. However, only the construction and

educational services sectors had contributions to GDP below the contributions of NPISHs in

2008. Further, direct comparison of the data presented on the nonprofit and charitable sectors’

employment to NPISHs contribution to GDP is not appropriate since NPISHs, by definition, are

not all charitable organizations nor all nonprofit organizations.

To gain further perspective on the relative size of nonprofit organizations, Table 8 compares the

distribution of employees at the establishment level of nonprofit firms to establishments in the

financial services and real estate industry and to establishments across all industries. While

establishment data do not provide information regarding the overall size of nonprofit firms to forprofit firms, the establishment data do allow for a couple of observations. First, relatively

speaking, there are fewer very large establishments in the nonprofit sector. Only 6% of nonprofit

establishments have more than 1,000 employees on site, while 14.6% of all establishments (forprofit and nonprofit) have more than 1,000 employees on site. In the financial services and real

estate sector, 27.2% of establishments have 1,000 or more employees. Second, there are fewer

very small establishments in the nonprofit sector than in all sectors taken together. While 52% of

nonprofit establishments have less than 10 employees, 58.1% of all establishments have less than

10 employees. In the financial services and real estate sector, 51% of establishments have less

than 10 employees. Nonprofit establishments are more likely than the typical establishment to be

mid-sized, with more than 10 but less than 1,000 employees.

Table 8. Distribution of Employment by Establishment, 2008

Distribution of

Nonprofit

Establishments (%)

Distribution of

Financial Services and

Real Estate

Establishments (%)

Distribution of Total

Establishments (%)

Less than 10

52.0

51.0

58.1

10-24

13.2

6.0

12.1

25-99

12.5

5.5

8.2

100-999

16.3

10.3

8.8

Greater than 1,000

6.0

27.2

14.6

Number of

Employees

Source: Medical Expenditure Panel Survey, 2008.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

How Are Charities Funded?

Revenue

Charities raise revenue from a variety of sources. The first source of revenue is from fees or

private payments for service. The second way charities raise money is through the receipt of

government grants and payments. Charities also rely on funding via private contributions (from

individuals, corporations, bequests, and foundations). Finally, charities are able to raise revenue

by earning returns on investments as well as through some other revenue sources. Figure 4

illustrates how much total revenue was raised in 2005 from each of these revenue sources.

Overall, charitable organizations raised $1.2 trillion in revenue in 2005.

Private payments for service are the largest category of revenue for charitable organizations.

Private payments for service may include a wide variety of services, such as payments for

medical care and education tuition. In 2005, charities collected $590 billion in payments for

services. Payments for services constituted 49% of total revenue in 2005.

Government grants and payments represent the second largest revenue source for charitable

organizations. In 2005, $351 billion worth of government grants and payments were made to

charities, or 29% of total revenue. While it appears from this measure that the government plays

only a moderate role in financing charitable organizations, it is important to remember that the

government subsidizes the activities of charitable organizations in other ways. For example,

charities receive various tax benefits, such as exemption from federal income tax, eligibility to

receive tax-deductable donations, and the ability to issue tax exempt bonds, 15 in addition to

indirect benefits that may arise from undertaking activities encouraged by other incentives in the

tax code.16 This report provides further detail on the government’s relationship with the nonprofit

and charitable sector below.

Large nonprofit institutions, such as hospitals and educational institutions, have long used tax-exempt bonds to

finance capital improvements. Recently, more smaller nonprofit organizations have taken advantage of the ability to

issue tax-exempt debt to finance capital costs. For examples, see Steven Rathgeb Smith, “Government Financing of

Nonprofit Activity,” in Nonprofits & Government, ed. Elizabeth T. Boris and C. Eugene Steuerle, 2nd ed. (Washington,

DC: Urban Institute Press, 2006), pp. 219-256.

There are indirect relationships between other elements of the tax code and the provision of goods and services by

charitable organizations. It has been argued that both the child and dependent care credit and the Low-Income Housing

Tax Credit (LIHTC) make services provided by nonprofit organizations more profitable, therefore increasing the

demand for such services. See Steven Rathgeb Smith, “Government Financing of Nonprofit Activity,” in Nonprofits &

Government, ed. Elizabeth T. Boris and C. Eugene Steuerle, 2nd ed. (Washington , DC: Urban Institute Press, 2006), pp.

219-256.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Figure 4. Revenue by Source, 2005

(billions of dollars)

Source: Wing, Pollak, and Blackwood, The Nonprofit Almanac, 2008, p. 134 and CRS calculations.

Notes: CRS calculations based on data provided by the National Center on Charitable Statistics based on data

from the Internal Revenue Service, Statistics of Income Division Exempt Organizations Sample Files, public

charities only. This sample is derived from organizations filing Form 990 and thus does not include small

organizations or religious charities.

Private contributions in 2005 were $143.77 billion, or 12% of overall revenue to charitable

organizations. There is substantial attention given to this revenue source, as it is believed that

private contributions to charities are likely to fluctuate in response to changes in economic

conditions and the tax treatment of contributions. These issues are explored in greater detail

below.

Charitable organizations made $81 billion from investments in 2005, which represents 7% of

their overall revenue. Investment income includes the sales of securities, interest, and dividends.

The recent recession has likely decreased revenue flowing into charitable organizations from

investment income. For example, university endowments lost 23% on average between July 1,

2008, and November 30, 2008.17

Other revenue, of which there were $30 billion in 2005, make up 3% of overall revenue received

by charitable organizations. These revenue come from revenue sources such as membership dues,

net special events income, and other miscellaneous revenue-raising activities.

John Hechinger, “College Endowments Plunge,” The Wall Street Journal, January 27, 2009, p. D3.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Revenue Sources by Charitable Sector

Charitable organizations are highly heterogeneous. One aspect of heterogeneity is charitable

organizations’ revenue sources. To explore this further, Figure 5 examines the distribution of

revenue sources across different types of charities. The data used to derive Figure 5 is available

in Table A-1. While the reliance of different types of charities on various revenue sources varies

along a number of dimensions, there are a few patterns of particular interest.

First, it is clear from the chart that charities providing education and health care receive the

majority of their revenue from private payments for service. These fee-for-service organizations

are much less reliant on private contributions than other types of charities. It is also important to

note that for hospitals, the government grants and payments category includes government

payments via Medicare and Medicaid.

The charts in Figure 5 also show that arts, culture, and humanities and environment and animals

charities rely most heavily on private contributions. 18 Charities that rely heavily on private

contributions are more susceptible to economic fluctuations and changes in the tax code that

would affect individual giving. These issues are discussed further below.

The charitable sector that is most reliant on investment income is education. Nearly 17% of the

charitable education sector’s revenue in 2005 were generated from investments. For higher

education institutions, this figure was over 19%. As noted above, university endowments suffered

substantial losses in 2008. Revenue for educational institutions are more susceptible to

fluctuations in markets likely to impact investment income than other types of charitable

organizations.

Overall, understanding what types of charitable organizations have a greater reliance on specific

sources of revenue may help policymakers understand the potential for external economic

conditions to impact the well-being of the charitable sector. Educational institutions, with a

greater reliance in investment income, are more likely to be adversely affected directly by the

downturn of financial markets.19 Charities where a larger proportion of revenue come from

private contributions, such as arts, culture, and humanities and environment and animals, are

more likely to be impacted by changes apt to cause fluctuations in private giving, such as changes

to the tax code. Charities that derive the majority of their revenue from private payments, such as

health care and education institutions, are less likely to suffer revenue losses when external

factors cause changes to the level of private giving.

Charities classified as international receive the vast majority, 72%, of their funds from private contributions.

Private donations may also be expected to decline when financial markets falter as potential donors’ loss of wealth

corresponds to reduced giving.

Congressional Research Service

Figure 5. Comparing Revenue Sources Across Charitable Sectors

(2005 share of total revenue)

Source: CRS calculations using data published by Wing, Pollak, and Blackwood, The Nonprofit Almanac, 2008, p. 134.

Notes: Data is from the National Center on Charitable Statistics based on U.S. Internal Revenue Service, Statistics of Income Division, Exempt

Organizations Sample Files, public charities only.

CRS-19

An Overview of the Nonprofit and Charitable Sector

Growth in Revenue Sources

Table 9 shows the percentage change in real revenue between 1995 and 2005 delineated by

charitable sector. Total revenue received by charitable institutions grew by 68.6% over this time

period. Private payments to charitable organizations grew more during the time period than other

revenue sources. Much of this increase appears to be driven by the increase in private payments

received by hospitals.

The portion of the charitable sector involved in health care receives the majority of their revenue

from private payments. Private payments in the health care sector have also grown faster than

private payments in any other sector. As the revenue demands for health care charities generally

have increased, these charities have seen a greater increase in private payments than in other

revenue sources. In fact, between 1995 and 2005, the portion of revenue from private payments

declined in real terms for charitable health care organizations (although this figure still increased

for hospitals).

Some charitable sectors have experienced much larger growth in revenue with respect to private

contributions than others. Overall, private contributions to charitable sectors increased nearly

69% between 1995 and 2005. However, charities involved with the environment and animals,

human services, and international issues all experienced growth in revenue from private

contributions in excess of 100% during that time period.

It is also noteworthy that growth in investment income between 1995 and 2005 was highest for

charities in the education sector. Education receives a larger proportion of their revenue from

investment income than most other charitable sectors. This trend is driven by higher education

institutions, where the growth in the share of revenue coming from investment income has been

the highest in the time period observed. Again, it should be noted that the financial assets of

higher education institutions did not fare well in 2008, and the growth in the revenue coming

from investment income has likely slowed.

Finally, the charitable sectors that have seen the largest growth in revenue overall are relatively

small. Between 1995 and 2005 the revenue flowing into the international charitable sector

increased by 190%. The international sector, however, still earned less than 1.7% of the charitable

sector’s total revenue. The environmental charitable sector’s revenue also increased more than

average, 90% between 1995 and 2005. Even in the face of this rapid growth, the environmental

charitable sector captures less than 1% of charitable organizations’ total revenue.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Table 9. Percentage Change in Real Revenue, 1995 - 2005

Private

Contributions Payments

Government

Grants and Investment Other

Payments

Income

Revenue Total

Arts, culture, and humanities

91.36

53.40

59.51

28.86

53.85

65.32

Education

59.07

62.01

70.50

76.10

44.36

64.40

Higher education

41.75

60.54

62.93

89.00

52.88

63.00

Other education

116.15

68.58

95.50

10.47

25.00

70.20

Environment and animals

136.73

78.29

114.55

51.06

3.66

90.18

Health care

-19.26

105.85

48.43

60.37

66.62

72.83

Hospitals

88.86

112.42

43.60

55.54

102.06

76.48

Other health services

-46.15

89.17

80.47

76.03

-2.24

61.54

Human services

102.33

88.85

41.97

25.27

57.99

67.03

International

302.45

83.93

71.70

66.67

-28.57

190.62

Other operating public charities

44.39

81.37

166.37

-21.23

7.84

65.89

Supporting public charities

96.77

-20.76

100.46

66.93

13.98

41.32

Total

68.89

83.27

52.73

56.93

44.82

68.60

Source: CRS calculations based on data from Wing, Pollak, and Blackwood, The Nonprofit Almanac, 2008, p. 134137.

Notes: Revenue are adjusted to constant dollars prior to calculating the percentage change. The percentage

change is the change in revenue over the 1995 to 2005 time period.

Nongovernmental Financing: Private Contributions

Private contributions to charitable organizations come from four different sources. The first is

gifts from individuals. In 2008, individuals gave $229.28 billion.20 The second is charitable

bequests, or gifts from estates. In 2008, total bequests were valued at $22.66 billion.21 The third

source of giving comes from corporations. Corporations gave $14.50 billion in 2008.22 Finally,

grants to charitable organizations are made by foundations. In 2008, it is estimated that

foundations gave $41.21 billion. Total giving by all four groups was $307.65 billion in 2008.

Total giving in 2008 was 2% less (5.7% less after adjusting for inflation) than total giving in

2007. This is the first decline in giving since 1987. Figure 6 shows giving by individuals,

bequests, corporations, and foundations in real terms in 1998, 2007, and 2008. Between 2007 and

The Center on Philanthropy at Indiana University, Giving USA 2009 (Indianapolis, IN: Giving USA Foundation,

2009), p. 210. This figure includes estimated charitable deductions on 2008 tax returns as well as an estimate of

charitable giving by those who do not itemize deductions on taxes. This figure exceeds that reported above for private

contributions because it includes giving to small organizations and churches, of which neither are required to file Form

990.

Charitable bequests include both those reported on 2008 estate tax returns and those given by estates not subject to

the estate tax.

Corporate giving, as calculated by The Center on Philanthropy at Indiana University, Giving USA 2009, includes

grants made by corporate foundations to charities but does not count giving by corporations to foundations.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

2008, giving by individuals and from bequests both fell by more than 6% (in real terms). Giving

by corporations fell by 8% (in real terms). Giving from foundations remained relatively constant,

falling by less than 1% (in real terms). Despite the recent reduction in the amount of contributions

charities receive from gifts, charitable organizations still received more in 2008 than they did a

decade earlier. In real terms, gifts from individuals increased by 25% between 1998 and 2008,

bequests increased 32%, corporate giving increased 30%, and gifts from foundations increased by

83%. While real giving has increased, looking at giving relative to the size of the overall

economy provides a better picture of society’s generosity.

To evaluate the generosity of society over time the ratio of charitable giving to GDP is examined.

Figure 7 plots giving as a percentage of GDP and disaggregates giving across sources. Giving as

a percentage of GDP was greater than 2% into the 1970s. From the early 1970s through the late

1990s giving as a percentage of GDP remained below 2%. In the late 1990s, giving as a

percentage of GDP began to increase, reaching a peak of 2.37% of GDP in 2005. Since 2005,

giving as a percentage of GDP has fallen. In 2008, giving as a percentage of GDP was 2.16%.

The increase in giving as a percentage of GDP between the 1990s and 2000s was driven primarily

by giving from individuals and giving from foundations. Prior to the late 1990s, giving by

individuals was less than 1.5% of GDP. Since 1999, giving as a percentage of GDP by individuals

has not fallen below 1.6%. In 2008, giving as a percentage of GDP by individuals was 1.61%,

down from its peak of 1.78% in 2005. Throughout the 1980s and most of the 1990s giving by

foundations never exceeded 0.15% of GDP. In 2008, this ratio was 0.29%. Giving as a percentage

of GDP by foundations increased between 2007 and 2008. Overall, giving as a percentage of

GDP by foundations has nearly tripled since the 1970s.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Figure 6. Charitable Giving

Source: CRS calculations based on data from The Center on Philanthropy at Indiana University, Giving USA

2009, pp. 210-211.

Notes: Giving by individuals, bequests, corporations, and foundations is presented in 2008 dollars. Real values

were calculated using the CPI-U.

Giving relative to GDP by bequests and corporations does not exhibit such clear patterns.

Corporate giving as a percentage of GDP in 2008 was 0.10%. Relative to GDP, corporate giving

in 2008 was the same as it was throughout most of the 1990s. Corporate giving relative to GDP

was lower (0.07% - 0.08%) in the 1970s and higher (0.12% - 0.13%) in 2005 and 2006. Bequests

relative to GDP were 0.16% in 2008, lower than they were in the early 2000s (when the ratio was

0.20%). Compared to the 1970s and 1980s, bequests as a percentage of GDP are still 0.03 – 0.06

percentage points higher.

To more fully understand the impact of giving on the charitable sector, it is important to address

what types of charities receive gifts. Figure 5 illustrates that the largest source of funding for arts,

culture, and humanities as well as for environment and animals charities is private donations.

Both of these types of charitable organizations received more than 40% of their revenue from

private donations in 2005.23

The data presented in the revenues section is for charitable organizations filing Form 990. Therefore, these data do

not include small organizations or churches. The data in this section are for all charitable gifts and do include donations

given to charitable religious organizations.

Congressional Research Service

Figure 7. Giving as a Percentage of GDP, 1967-2008

Source: CRS calculations based on data from The Center on Philanthropy at Indiana University, Giving USA 2009, pp. 210-211.

CRS-24

An Overview of the Nonprofit and Charitable Sector

Figure 8 plots giving to different types of charitable organizations in 2008, 2007, and 1998.

When looking at data from the giving perspective, it is clear that religious organizations are the

recipients of the largest share of gifts. Further, religious organizations were one of the few

categories to experience an increase in giving between 2007 and 2008. Overall, giving fell by

5.7% between 2007 and 2008, with the largest declines in gifts to grantmaking foundations (22%); human services (-16%); and arts, culture, and humanities (-9%).

Between 1998 and 2008 overall giving increased by nearly 32% in real terms. Again, there was

wide variation across sectors. The sectors that experienced the largest increases in giving over the

course of the decade were international affairs (98%), environment and animals (42%), and

education (30%). 24 Giving to religion grew over the course of the decade, but the rate of growth

was relatively low (19%). Giving to arts, culture, and humanities decreased by 2% between 1998

and 2008. This is particularly noteworthy since the arts, culture, and humanities charitable sector

receives the largest share of revenue from private contributions.

There are a number of issues which may affect giving by individuals. These include whether or

not individuals can deduct contributions, fluctuations in personal income, and broader economic

conditions. Individuals who itemize deductions have a greater incentive to give, as the price of

giving is reduced by the marginal tax rate. In 2005, those itemizing gave on average 3.54% of

their adjusted gross income. Non itemizers gave on average 1.34% of their adjusted gross

income. 25 It is important to note, however, that those choosing to itemize deductions tend to have

higher incomes and thus perhaps a greater ability to give. Individual charitable deductions are

subject to various restrictions, which include being generally limited to 50% of modified adjusted

gross income. 26

Unallocated giving actually had the largest increase, tripling in value over the decade.

Wing, Pollak, and Blackwood, The Nonprofit Almanac, 2008, p. 92.

Individual gifts to certain types of nonprofits and gifts of specific types of assets may be further restricted.

Congressional Research Service

Figure 8. Giving to Charities by Type

Source: CRS calculations using data from The Center on Philanthropy at Indiana University, Giving USA 2009, pp. 212-215. All values are adjusted to

2008 dollars using the CPI-U.

CRS-26

An Overview of the Nonprofit and Charitable Sector

Individual giving to charity is also responsive to income. Table 10 shows how giving and the

amounts given vary across three different income groups. In 2004, 56.3% of households with less

than $50,000 in income gave to charity, 81.4% of households with income between $50,000 and

$99,999 gave to charity, and 93.3% of households with income greater than $100,000 gave to

charity. 27 In 2004, the average household gave just over $2,000. This figure appears to be driven

by a few households making relatively large gifts as the median charitable gift was $775. The

average giving for households making $100,000 or more per year was more than three times the

average giving of households making less than $50,000. The median gift by households making

more than $100,000 was more than four times as much as the median level of giving by

households making less than $50,000 per year.

Table 10. Giving and Household Income, 2004

All Income

Groups

< $50,000

$50,000 $99,999

$100,000

and above

% of households giving

70.2%

56.3%

81.4%

93.3%

Average annual amount per donor household

$2,047

$1,186

$1,871

$3,886

Median annual amount per donor household

$775

$450

$815

$1,830

Source: Center on Philanthropy Panel Study, 2005 Wave.

Economists have also made attempts to measure the elasticity of charitable giving with respect to

income, which is the percentage change in giving relative to the percentage change in income.

Empirical work that has attempted to estimate the elasticity of charitable giving with respect to

income has produced a wide range of results.28 While many studies have found an income

elasticity of less than one, the fact that individual contributions relative to GDP have remained

relatively constant over time (see Figure 7) suggests that income elasticity is more likely unit

elastic. If the income elasticity were in fact less than one, as income increased over time one

would expect charitable giving relative to income to decline. 29

Charitable bequests are given by estates upon an individuals’ death. It is estimated that about

120,000 estates leave bequests each year. Most bequests come from small to mid-sized estates,

where the estate is small enough in size that filing of estate tax returns is unnecessary. Only about

8,000 estates filed estate tax returns in 2008. These 8,000 estates were responsible for about 85%

of all giving via bequests, illustrating that giving via bequests is highly concentrated amongst the

most wealthy decedents.30 Concern is often expressed that a reduction in or elimination of the

The Center on Philanthropy Panel Study does not include data from very-high-income households.

William Randolph, “Dynamic Income, Progressive Taxes, and the Timing of Charitable Contributions,” The Journal

of Political Economy, vol. 103 (August 1995), pp. 703-738; Gerald E. Auten, Holger Sieg, and Charles T. Clotfelter,

“Charitable Giving, Income, and Taxes: An Analysis of Panel Data,” The American Economic Review, vol. 92, no. 1

(March 2009), pp. 371-382; and Jon Bakija and Bradley Heim, How Does Charitable Giving Respond to Incentives and

Income? Dynamic Panel Estimates Accounting for Predictable Changes in Taxation, National Bureau of Economic

Research, Working Paper 14237, Cambridge, MA, August 2008.

For further discussion see CRS Report R40518, Charitable Contributions: The Itemized Deduction Cap and Other

FY2010 Budget Options, by (name redacted) and (name redacted).

The Center on Philanthropy at Indiana University, Giving USA 2009, p. 53.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

estate tax would lead to reduced giving to the charitable sector.31 Recent work has found that

bequests are responsive to changes in estate taxes as well as overall wealth. 32

Corporate giving can be made in one of two ways. The first way is as a direct gift from the

corporation. The second way is via a corporate foundation. A typical corporation is estimated to

give about 1% of its domestic pre-tax income to charitable organizations, or about 0.08% of

corporate sales.33 Corporations’ charitable deductions are generally limited to 10% of taxable

income, among other restrictions.

The final source of private contributions or charitable gifts comes from foundations. As noted

above, in relative terms, giving by foundations has increased more than giving by individuals,

bequests, and corporations over the past decade. In 2008, The Bill and Melinda Gates Foundation

gave $2.8 billion in grants (giving by all foundations was $41.2 billion in 2008). Giving by the

Gates Foundation increased by $0.8 billion between 2007 and 2008, contributing to the overall

stability of foundation giving between 2007 and 2008 as grantmaking by other foundations fell.

Government Financing: Grants and Transfers

From Figure 4, government grants and payments to charitable organizations were $351 billion, or

29% of charitable organizations’ total revenue. What Figure 4 does not do is identify whether

payments were made for fees for service (such as Medicare payments), grants, or transfers.

Similarly, Figure 5 shows that the share of government grants and payments in total revenue

varies substantially across different types of charities. Government grants and payments are much

more important in health (37%) and human services (36%) than in other types of charitable

organizations.

Table 11 reports estimates of the share of revenue that comes from grants alone, excluding fees

for services. These data are gathered directly from the Form 990 for charitable organizations that

were required to report. The data used to generate Figure 4 and Figure 5 were from the IRS

Statistics of Income division exempt organization sample files on public charities. In a few cases

grants are larger as a share of income than the share of total payments reported above. These

grants, of course, may have performance requirements, but they are not allocated to particular

individuals and services received.

Table 11. Share of Revenue from Government Grants, 2005

Type of Nonprofit

Share From Government Grants (%)

Arts, culture, and humanities

12.5

Education

14.9

Environment and animals

14.1

For estimates of how changes in the estate tax would impact charitable giving see CRS Report R40518, Charitable

Contributions: The Itemized Deduction Cap and Other FY2010 Budget Options, by (name redacted) and (name reda

cted).

Jon M. Bakija, William G. Gale, and Joel B. Slemrod, “Charitable Bequests and Taxes on Inheritances and Estates:

Aggregate Evidence from across the States,” American Economic Review, vol. 93, no. 2 (May 2003), pp. 366-370.

Sophia A. Muirhead, The 2006 Corporate Contributions Report, Conference Board, Report R-1399-06-RR, New

York, NY, 2007.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Type of Nonprofit

Share From Government Grants (%)

Health

3.4

Human services

22.7

International and foreign

21.9

Other

18.9

Total

9.0

Source: CRS calculations using data from Wing, Pollak, and Blackwood, The Nonprofit Almanac, 2008, p. 134.

Government grants are about 9% total revenue for the charitable sectors included in Table A-1, or

about $100 billion for 2005. The data indicate that government payments for health as a share of

revenue are primarily due to fees. Virtually all of the government payments in the remaining

sectors, other than human services, reflect grants.34 Grants are most important in human services

and international organizations, and least important in health. These data do not include religious

organizations, where government grants are unlikely to be an important source of revenue. Grants

reflect the nature of the specific charities (they are less important for organizations such as

hospitals that rely heavily on fees). Grant support is more important in areas where the

government has a special interest, such as the human services and international sectors.

The Bureau of Economic Analysis’s (BEA’s) National Income and Product Accounts provides

information on government transfers, which are relatively small. In 2007, the government

provided approximately $20 billion in transfer payments for all nonprofit organizations serving

households. 35 It is not clear how transfers are defined, but grants can include contracts and

agreements for services, as well as transfers. The BEA data does not separate these transfers by

type of charitable organization.

The data presented here do not separate state and local government funding from federal

government funding. Government funding to charitable organizations may come directly from the

federal government, from state and local governments that have received the funding from the

federal government (rather than raised the revenue themselves), or directly from state and local

governments. One study finds that, for 2001, only 12% of grants and fees originate with state and

local governments; 37% are financed by the federal government but flow through to nonprofits

via state and local programs, and the remaining 51% are provided directly by the federal

government.36 If Medicare and Medicaid, the main fee-related items, are excluded, the states

continue to supply only a small share (9% of their own funds) but administer a much larger share

of federal funds (61%). While the federal government appears to be the primary source of funds

via grants, state and local governments are the primary source of oversight.

Figure 5 does not report international, which is a very small charitable sector. In the international sector government

grants and payments were 20% of revenues, which, comparing with the shares in Table A-1 indicates that all

government support to the international sector came in the form of grants.

See http://www.bea.gov/scb/pdf/2008/11%20November/1108_newnipas.pdf.

Woods Bowman and Marion R. Fremont Smith, “Notes on Nonprofits and State and Local Governments” In

Nonprofits and Government, Collaboration and Conflict, ed. by Elizabeth T. Boris and C. Eugene Steuerle,

Washington, D.C., Urban Institute 2006 , pp. 181-218.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

The Business Cycle’s Impact on Funding

As is the case for many entities during an economic downturn, charities may suffer declines in

funding. For some, the decline comes at the time when their services may be in greater demand.

Analysis of past recessions suggests that the level of charitable giving declines during downturns,

but that charitable giving as a percentage of income does not decline. The level of giving has

declined during the current recession. Nonprofits overall tend to fare no worse than, and perhaps

better than, other sectors during downturns, although this recession may have been more

troubling because of the fall in asset values.

There are significant differences in giving trends across different types of charitable

organizations. The greatest decline in giving during the recent economic downturn has been for

human welfare organizations. Human welfare organizations as a sector are likely to experience

increased needs for their services during a downturn. While giving declined in inflation-adjusted

terms between 2007 and 2008 by 6%, the decline for human services organizations was 16%.37

Recessions can also affect assets, such as those held by university endowments and foundations

(whose purpose is primarily to provide grants to active charitable organizations). The current

recession has been accompanied by a significant fall in the value of assets which affected

charitable organizations’ assets. Despite the fall in asset values and in gifts to foundations,

foundation grants to other organizations fell less than inter-vivos giving by individuals, bequests,

and corporate giving.

Another major pressure on nonprofits during the recession has been the decline in support by

governments (primarily state governments), including delays in payments. A recent survey of

nonprofit organizations found that 35% have experienced a loss in government support while

37% reported experiencing delays in government payments.38

How Have Nonprofits Fared During Past Economic Downturns?

Sectors of the economy fare differently during a recession. Generally, sectors that produce

investment and durable consumer goods (such as housing, automobiles, and household

furnishings) and luxuries tend to suffer the largest declines in demand. Necessities and items that

are immediately consumed, such as food and health care, tend to be more resistant, as are items

that are a small part of the household budget. That is, individuals tend to economize on big-ticket

items whose purchase they can delay.

Charitable contributions tend to share features of both types of goods. While charitable

contributions are not a necessity, they are typically small as a part of individuals’ budgets.

Evidence indicates that there is a tendency for giving to fall in real (inflation adjusted) terms

during a recession. During the 12 recession years since 1967, charitable giving declined in 8 of

those years.39

The Center on Philanthropy at Indiana University, Giving USA 2009, p. 119.

Lester M. Salamon, Stephanie L. Geller, and Kasey L. Spence, Impact of the 2007-2009 Economic Recession on

Nonprofit Organizations, Johns Hopkins University Center for Civil Society Studies, Communique No. 14, 2009,

http://www.ccss.jhu.edu/pdfs/LP_Communiques/LP_Communique_14.pdf.

USA Today, Giving by the Numbers, April 24, 2009, http://www.usatoday.com/news/sharing/2009-04-13numbers_N.htm?loc=interstitialskip

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Charitable Contributions in Past Recessions

Although real giving tends to decline during recessions, it is not clear that giving is affected more

than average expenditures. Figure 9 shows the pattern of giving as a percentage of GDP from

1967 through 2008. Recession years are noted via shaded bars.40 Charitable giving as a

percentage of GDP has remained relatively stable over business cycles. Overall, there has been an

upward trend in giving as a share of output since the 1980s.

Figure 9. Charitable Contributions as a Percentage of Output, 1967-2007

2.50%

2.00%

% GDP

1.50%

1.00%

0.50%

Individual Charitable Contributions

0.00%

Other Charitable Contributions

Source: CRS calculations based on the Center for Philanthropy, Giving USA 2009, and National Income and

Product Accounts. Other charitable contributions (the difference between the two lines) include corporate,

foundations, and bequests. A version of this chart appeared in CRS Report R40518, Charitable Contributions: The

Itemized Deduction Cap and Other FY2010 Budget Options, by (name redacted) and (name redacted).

The Current Recession: Charitable Giving in 2008

Charitable giving declined during the recent recession, with a fall of 2% in nominal terms from

2007 to 2008.41 This reduction was a decline of 5.7% adjusted for inflation. The declines differed

The small dip and peak around 1986 is generally attributed by most researchers to a temporary rise in deductions

reflecting a timing shift as tax cuts for 1987 and 1988 were pre-announced in the 1986 tax cut. By 1989 contributions

had returned to their previous levels.

The data on patterns of giving between 2007 and 2008 are from The Center on Philanthropy at Indiana University,

Giving USA 2009, p. 210. A summary of the findings can be found at http://www.philanthropy.iupui.edu/News/2009/

docs/GivingReaches300billion_06102009.pdf. Information on the effects by sector are also summarized at

http://blog.charitynavigator.org/2009/06/giving-in-2008.html.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

depending on both the source of giving and the recipient as shown in Table 12. The pattern for

foundation grants suggests that, despite the loss in value that occurred in assets in this period,

using assets to finance grants seemed to provide more stability in giving. There is evidence that

giving by foundations has acted as a stabilizing force in the past.42

Table 12. Changes in Giving by Source, 2007-2008

Share of

Giving (%)

Nominal Change

(%), 2007-2008

Inflation Adjusted

Change (%),

2007-2008

Individual

75.0

-2.7

-6.3

Bequest

7.0

-2.8

-6.4

Foundation

13.0

3.0

-0.8

Corporate

5.0

-4.5

-8.0

Total

100.0

-2.0

-5.7

Source of

Giving

Source: CRS calculations using data from The Center on Philanthropy at Indiana University, Giving USA 2009,

pp. 210-211.

The effects also differed by the recipient of giving. As shown in Table 13, different types of

charities are affected in different ways. Religious giving, which accounts for the largest share of

the total, had an increase in real giving between 2007 and 2008 of 1.6%, a differential of 7.3

percentage points from the average effect. The other sector with an increase, public society

benefit organizations, include organized giving arrangements that flow through to other

beneficiaries, such as United Way, Jewish funds, and donor-advised funds. The largest decline in

giving was for foundations, but these institutions largely accumulate assets and make grants to

other organizations, and their giving to other organizations was more stable than other giving.

Outside of foundations, the organization that had the greatest drop in inflation-adjusted

contributions, 16%, was for human services, where the needs during a downturn and dependence

on contributions are likely the greatest. Most other institutions had a real decline of 9% to 10%

(education, health, arts, environment), 4 percentage points worse than the average across all

institutions. International affairs had a smaller drop than average, 3.6%.

Table 13. Changes in Giving by Recipient, 2007-2008

Share of

Giving (%)

Nominal

Change (%),

2007-2008

Inflation

Adjusted

Change (%),

2007-2008

Religious

35.0

5.5

1.6

Educational

13.0

-5.5

-9.0

Foundations

11.0

-19.2

-22.2

Human services

9.0

-12.7

-15.9

Health

7.0

-6.5

-10.0

Charitable

Recipient Sector

Steven Lawrence, Do Foundation Giving Priorities Change in Times of Economic Stress? Foundation Center,

http://foundationcenter.org/gainknowledge/research/pdf/researchadvisory_economy_200811.pdf.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

Inflation

Adjusted

Change (%),

2007-2008

Charitable

Recipient Sector

Share of

Giving (%)

Nominal

Change (%),

2007-2008

Public society benefit

8.0

5.4

1.5

Arts, culture,

humanities

4.0

-6.4

-9.6

International affairs

4.0

0.6

-3.6

Environment/animals

2.0

-5.5

-9.0

Source: The Center on Philanthropy at Indiana University, Giving USA 2009, pp. 212-215. Unallocated giving

accounts for 6% of giving.

It is important to note that nonprofit organizations that receive charitable contributions generally

have other important sources of revenue, such as user fees, earnings from assets, or government

support. Figure 4 shows that total charitable contributions received as a share of total revenue of

public charities was approximately 12% in 2005. For the health care sector, which includes

nonprofit hospitals, charitable contributions were approximately 2% of total revenue in 2005 (see

Figure 5). The share of charitable contributions in total revenue varies for other sectors. In 2005,

arts, culture, and humanities organizations received approximately 43% of their revenue from

charitable contributions, the education sector about 13%, environment and animals 48%, and

human services 16%.

Some of these nonprofit institutions may be fairly resilient to cyclical pressures (such as

hospitals). Attendance at colleges and universities is also likely to rise when jobs are scarce.

Charitable organizations and giving are also linked to endowments which can be a source of

funds in difficult times (but may also fall in value during a recession).

Endowments and Assets

The National Association of College and University Business Officers (NACUBO) follows the

endowment size of colleges and universities, covering their fiscal years which normally begin on

July 1. For the 2008 fiscal year (covering the second half of 2007 and the first half of 2008) asset

values rose by 0.5%, a loss in real terms and much smaller than previous growth. A special

follow-up survey found a 22.9% decline in the five months from July 1, 2008, to November 30,

2008.43 (Corporate stocks fell further, but have since begun to recover.) Foundations experienced

a 28% drop in the value of assets during 2008.44

Foundations hold a large quantity of financial assets. In 2007, total foundation assets were

estimated to be $682 billion.45 Community foundation assets represent a relatively small share of

NACUBO and Commonwealth Institute Survey, http://www.nacubo.org/documents/research/NES2008FollowupSurveyReport.pdf.

Asset Declines and Investment Strategy: Change by Family, Independent, and Public Foundations, Council on

Foundations, http://www.cof.org/files/Documents/Conferences/09FamPhilConf/EconSurvey4.pdf.

See http://foundationcenter.org/findfunders/statistics/pdf/02_found_growth/2007/04_07.pdf.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

that total, $56 billion in 2007.46 The largest foundation, the Bill and Melinda Gates Foundation,

had assets of $39 billion, while the top 10 foundations by asset size held $112 billion in 2007.47

Data on returns filed with the Internal Revenue Service on public charities showed assets held by

charities in 2006 to be $2.2 trillion, but a large share of this figure is likely to be buildings and

other physical assets. (This amount does not include most assets of religious organizations.)

Charitable organizations related to health (likely to be hospitals) accounted for $867 billion.

Education accounted for $682 billion. Educational institutions are known to have large

endowments, and endowments accounted for half their assets.48 University endowments had been

growing rapidly, and in the latest reports, total assets rose to $837 billion (the total for all public

charities was $2.6 trillion, and for hospitals $921 billion).49 Earnings from endowments appear,

overall, to be larger than receipts from charitable contributions for colleges and universities,

although endowments are highly concentrated in large institutions.50

Another consequence of loss of asset value is likely reduced individual giving, especially by

high-income donors and through bequests. High-income donors tend to be more likely than the

average donor to contribute to certain types of nonprofits, such as health, education, and arts, as

well as foundations, and less likely to contribute to religious and human welfare organizations.51

As asset values fall, reducing the wealth of high-income donors, charitable contributions tend to

decline.

Outlook 2009

Although annual data for 2009 are not available, surveys have been conducted regarding how

charities are faring. A summary report has been published by the National Council of

Nonprofits.52 This overview provides information suggesting nonprofits continue to feel the

pressures of increased demand for their services coupled with decreasing revenue. More than a

third of nonprofits have had to cut operations. The surveys, particularly several state surveys, cite

reduced support from governments as more problematic than reduced support from individual and

foundation giving (corporate giving is also cited as declining significantly). Although all three

levels of government (federal, state, and local) are mentioned, it is primarily state support that is

falling. In addition to funding cuts, states apparently have been delaying payments for services

they have contracted with nonprofits to provide. One study, from Connecticut, is specifically

focused on contract payment delays.53 One national survey found that 35% of respondents

See http://foundationcenter.org/findfunders/statistics/pdf/02_found_growth/2007/00_07.pdf.

See http://foundationcenter.org/findfunders/topfunders/top100assets.html.

Based on total endowments reported in (name redacted), testimony before the Senate Finance Committee,

September 26, 2007; the sum of endowments reported by NACUBO, http://finance.senate.gov/hearings/testimony/

2007test/092607testjg.pdf.

See http://nccsdataweb.urban.org/NCCS/V1Pub/index.php/.

(name redacted), testimony before the Senate Finance Committee, September 26, 2007; the sum of endowments

reported by NACUBO, http://finance.senate.gov/hearings/testimony/2007test/092607testjg.pdf. CRS Report R40518,

Charitable Contributions: The Itemized Deduction Cap and Other FY2010 Budget Options, by (name redacted) and

(name redacted).

See CRS Report R40518, Charitable Contributions: The Itemized Deduction Cap and Other FY2010 Budget

Options, by (name redacted) and (name redacted).

See http://www.councilofnonprofits.org/files/Special%20Report%208%20-%20A-Respectful-Warning-Call-to-OurPartners-in-Government-The-Economic-Crisis-Is-Unraveling-the-Social-Safety-Net-Faster-Than-Most-Realize.pdf.

See http://www.ctnonprofits.org/ctnonprofits/sites/default/files/fckeditor/file/policy/advocacy/

(continued...)

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

reported declines in government support and 37% reported delayed payments from the

government.

Some additional funds for charitable activities were provided in the 2009 federal stimulus plan,

many of these funneled through state and local governments. The additional funding was

summarized in a publication by the National Council of Nonprofits.54 Overall, however, it appears

that governments, particularly state governments, may be contributing to the financial difficulties

of nonprofit organizations, even to the point of not paying for contracted services.

The Charitable Sector’s Relationship with

Government

Various charitable activities are subsidized by the federal tax code or funded via government

grants. In order to understand the rationale for government support of the charitable sector, it is

important to understand the economic theories relevant for charitable activities.

Market Failures: Justifying the Subsidization of Charities

There are two types of market failures used to justify government subsidization or support of the

charitable sector. The first is the notion of public goods. Generally, the free market will provide

too few public goods, due to the free-rider problem. Government intervention can help by

increasing the quantity of public goods provided. The second relevant market failure is

externalities. An externality is an outcome of a transaction whereby the market participants do not

face the full cost or benefit of their actions. Each of these market failures is discussed in the

context of the charitable sector in the following sections.

Public Goods

Pure public goods are characterized by two properties: the fact that they are non-rival and nonexcludable. For a good to be non-rival, one person’s consumption of the good does not diminish

another’s ability to consume that same good. For a good to be non-excludable, it is either

impossible or prohibitively expensive to prevent consumption of the good once the good has been

provided. One example of a pure public good is clean air. The market itself is unlikely to provide

a public good due to the free-rider problem. Once a public good, such as clean air, is provided, it

is available for everyone to enjoy. Since individuals know that the pure public good, such as clean

air, will be available to them once provided they may wait for others to provide the good and not

contribute themselves. Without contributions, the good is not provided.

Just because a good has the characteristics of a public good, it does not mean that this good will

not be provided (at least partially) by the private market. In some cases, one person’s demand for

(...continued)

HowLatePaymentsHarm NonprofitProviders_0509.pdf .

See http://www.councilofnonprofits.org/files/

Special%20Report%201%20%20Overview%20(Feb%2023%20FINAL).pdf.

Congressional Research Service

An Overview of the Nonprofit and Charitable Sector

a good may be high enough that they are willing to provide the good on their own. Once

provided, the public good is there for all to enjoy.

Individuals also tend to give more towards providing public goods than standard economic

models would predict. 55 This happens to the extent that individuals are altruistic, and care about

the well-being of others in addition to their own well-being. Altruism, and the well-being that

individuals get from giving, motivates people to give both time and money to causes like

religious organizations, disaster relief, local charities, educational institutions, and research

causes among others. Economists have also postulated that the warm glow model can be useful in

explaining why individuals give to charity. 56 In the warm glow model, individuals not only care

about the total amount of the public good provided, but also about their individual contribution to

the total. Individuals are expected to contribute to a charitable cause up to the point where their

contributions cease to make them better-off. Even under a warm glow model, economists expect

public goods to be underprovided, since individuals do not take into account the positive external

effects of their contributions.

Individuals may be motivated to give to charitable causes to the extent that their own well-being

depends on the well-being of others in society. Here, redistribution has the potential to make all

members of society better off.57 In this sense, increasing the consumption of the poor can be

viewed as a public good. Redistribution can improve everyone’s well-being, but the optimal level

of redistribution is not likely to be achieved by the market absent government intervention, due to

the free-rider problem.

To the extent that charitable goods and services are underprovided by the market, government

subsidization of charitable activities (or government provision of goods and services provided by

charities) can increase overall well-being. The government supports charitable organizations that

provide public goods in two major ways. First, the government provides grants directly to

charitable organizations providing public goods. Second, the government provides tax breaks to

charitable organizations providing public goods.

Externalities

The second rationale for government intervention via the charitable sector is the case of

externalities. A number of activities in the charitable sector are associated with positive

externalities. With a positive externality, there are benefits to engaging in certain transactions that

do not accrue to either party involved in the transaction. For example, education is thought to

have positive externalities. Not only does the person receiving an education benefit, but educated

people are better equipped to participate in a functional democracy. Knowledge has positive

externalities to the extent it is transferred between individuals outside of the formal education

setting. Health care provision may also have positive external effects. When an individual

receives a vaccine against a communicable disease, not only does that individual benefit by not

becoming ill, but the entire community benefits as the risk that the individual will spread the

disease to others is diminished. Subsidization of organizations providing goods and services

associated with positive externalities has the potential to increase society’s overall well-being.

Standard economic models assume that rational individuals are selfish and utility-maximizing.

Jonathan Gruber, Public Finance and Public Policy (New York, NY: Worth Publishers, 2007).

It was shown that income redistribution could make everyone better off by Harold M. Hochman and James D.

Rogers, “Pareto Optimal Redistribution,” American Economic Review, vol. 59, no. 4 (September 1969), pp. 542-557.

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An Overview of the Nonprofit and Charitable Sector

Is There an Economic Rationale for Nonprofit Hospitals?

Some have come to question whether the favorable tax treatment for some charities is justified,

such as the exemption for nonprofit hospitals. In the United States, there are both for-profit

hospitals and nonprofit hospitals. Only nonprofit hospitals may qualify for tax-exempt status as

501(c)(3) charitable organizations.58 In order to qualify, the hospital must provide charity care and

“community benefits.” Under the community benefit standard, hospitals are judged on whether

they promote the health of a broader class of individuals in the community.59 A hospital could

meet the standard by providing charity care (i.e., free or reduced-cost care). However, there is no

requirement that hospitals provide charity care, and they may qualify for the 501(c)(3) charitable

status by providing other types of community benefits.

Given the large loss in tax revenue associated with treating nonprofit hospitals as tax-exempt

501(c)(3) organizations, it has come into question whether the benefits provided by these

institutions are worth the costs.60 Some have argued that since hospital services are not a public

good (a person’s consumption of medical care is rival and excludable), hospitals should not be

given the same tax advantage as other charitable organizations providing true public goods. 61

Analysis comparing nonprofit hospitals to for-profit hospitals has found that nonprofit hospitals

do provide higher levels of uncompensated care, more emergency room care and labor and

delivery care, but less Medicaid care. The monetary value of community benefits provided by

nonprofit hospitals is unclear, leaving open the question as to whether the favorable tax treatment

is justified. 62

Nonprofit hospitals are a highly significant portion of the charitable sector. In 2004, nonprofit hospitals held 29% of

total assets and collected 42% of total revenues within the charitable sector. See Joint Committee on Taxation,

Description of Present Law Relating to Section 501(c)(3) Organizations and Summary of Sections 501(c)(3)-Related

Provisions of the Pension Protection Act of 2006 and Proposed Legislative Proposals, JCX-53-07, July 19, 2007,

http://www.house.gov/jct.

See CRS Report RL34605, Tax-Exempt Section 501(c)(3) Hospitals: Community Benefit Standard and Schedule H,

by (name redacted) and (name redacted) for further discussion of the charity care and community benefit standards. The

report also reviews the new annual reporting requirements (Schedule H of the Form 990) placed on hospitals.

Beginning in 2009, completion of Schedule H of Form 990 is mandatory.

In 2002, the Joint Committee on Taxation estimated that the exemption from income taxes given to nonprofit

hospitals provided a tax savings of $2.5 billion while the ability to use tax-exempt bonds provided another $1.8 billion

in tax savings, for an overall estimate of tax savings of $4.3 billion. If these tax preferences were removed, the federal

revenue gain may be less than $4.3 billion as behavioral changes as hospitals move to minimize the tax burden are not

considered. See Congressional Budget Office, Nonprofit Hospitals and Tax Arbitrage, December 2006. When the value

of additional tax benefits, such as the deductibility of contributions to charitable hospitals on individual income taxes,

sales tax, and property tax exemptions were included as well, the Joint Committee on Taxation estimated that the 2002

value of all tax exemptions (federal, state, and local) for nonprofit hospitals and their supporting organizations was

$12.6 billion. See Congressional Budget Office, Nonprofit Hospitals and the Provision of Community Benefits,

December 2006.

Andrew Chamberlin and Mark Sussman, Charities and Public Goods: The Case for Reforming the Federal Income

Tax Deduction for Charitable Gifts, Tax Foundation, No. 137, November 2005.

Congressional Budget Office, Nonprofit Hospitals and the Provision of Community Benefits, December 2006. A

recent GAO report also finds that measuring the benefits provided by nonprofit hospitals continues to be a difficult

task. The report is hopeful that new IRS reporting requirements for nonprofit hospitals will afford greater

understanding of the extent to which nonprofit hospitals provide community benefit in the near future. See U.S.

Government Accountability Office, Nonprofit Hospitals: Variation in Standards and Guidence Limits Comparison of

How Hospitals Meet Community Benefit Requirements, GAO-08-880, September 2008, http://www.gao.gov/new.items/

d08880.pdf.

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An Overview of the Nonprofit and Charitable Sector

Relationship with the Federal Government

The government supports and affects nonprofits in several ways in addition to providing grants

and transfers. Recently, the federal government has begun undertaking social innovation

initiatives involving nonprofits. As noted above, payments and grants to nonprofits from the

government represent a significant share of receipts, although the importance of the share varies

by type of nonprofit, and transfers per se are small. Another significant source of government

support to the charitable and nonprofit sector arises from tax benefits, provided by both federal

and state governments.63 These relationships are discussed below first for the federal government

and then for state and local governments. 64

Estimates regarding the value of the government’s relationship with the charitable sector suggest

that grants amount to about $100 billion, with the federal government supplying about 90% of the

funds. Federal tax subsidies are valued to be approximately $115 billion to $130 billion, and state

and local tax subsidies are approximately $30 billion to $50 billion. In sum, the government

provides approximately $245 billion to $280 billion to the nonprofit and charitable sector via

grants and tax subsidies.

Federal Government

The federal government’s oversight over charities largely stems from the tax benefits provided to

the sector. Nonprofit and charitable organizations are generally exempt from tax on most income,

including investment income. Additionally, donations to charitable organizations are tax

deductible, effectively subsidizing charitable giving.

Recent legislation established a social innovation fund in the Corporation for National and

Community Service, and President Obama has created the White House Office of Social

Innovation and Civic Participation to coordinate these efforts. This program is briefly discussed

before turning to a discussion of several types of 501(c)(3) organizations and issues that have

been subject to recent congressional interest and the financial benefits related to taxes and the

postal subsidy.

Social Innovation Initiatives

The Edward M. Kennedy Serve America Act (P.L. 111-13) enacted in 2009 established a social

innovation fund that is administered by the Corporation for National and Community Service.

This corporation administers domestic volunteer initiatives (such as VISTA).65 A budget request

for $50 million has been submitted. In addition, a White House Office of Social Innovation and

Civic Participation has been established to coordinate these efforts. According to White House

officials the objectives of this initiative were to develop partnerships with the private sector

(nonprofits, businesses, and philanthropists), support and spread innovative ideas (such as Harlem

The federal government also provides a postal subsidy to the nonprofit and charitable sector.

Many of the issues addressed here are discussed in more detail in CRS Report RL34608, Tax Issues Relating to

Charitable Contributions and Organizations, by (name redacted).

See CRS Report RL33931, The Corporation for National and Community Service: Overview of Programs and

FY2009 Funding, by Abigail B. Rudman and (name redacted).

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An Overview of the Nonprofit and Charitable Sector

Children’s Zone), support greater civic participation through media, and promote national

service. 66

Foundations

Most foundations differ from operating charities in that they often have a single donor. In

addition, while a gift to a foundation is deductible for income (and estate and gift) tax purposes,

the funds are not immediately used for active charitable purposes. Rather, funds are invested and

donations are often made to charitable organizations from earnings that may allow the corpus of

the foundation to be maintained and grow. Contributing to a foundation and allowing the funds to

grow allows the benefits of both the charitable deduction and the exemption of tax on earnings.

To address concerns that foundations could simply retain earnings and grow indefinitely, and

because foundations are often closely tied to a family or specific group of donors, tax laws

require a minimum payout rate (5%) and restrict activities that may benefit donors. The tax code

imposes taxes and/or penalties for self-dealing, failure to distribute income on excess business

holdings, for investments that jeopardize the charitable purposes, and for taxable expenditures

(such as lobbying or making open-ended grants to institutions other than charities). There is a 1%

tax on investment income of foundations, and an additional 1% penalty if the foundation does not

make a certain minimum distribution (based on distributions made in the previous five years), or

has been subject to a tax for failure to distribute in the previous five years.

Donor-Advised Funds and Supporting Organizations

In recent years, concerns have been raised about charitable vehicles that have some of the same

features as foundations: donor-advised funds and supporting organizations. Donor-advised funds

are funds where donors make contributions to the fund and the institution holding the accounts

makes contributions to charitable organizations with the advice of the donor. While the donor has

no legal control, in practice the donor’s wishes are likely to be respected. Supporting

organizations do not actively engage in charitable activities but support organizations that do by

contributing funds. Supporting organizations fall into three categories: type I organizations

directly controlled by the charitable organizations; type II organizations controlled by the same

entity controlling the charitable organization; and type III organizations related to the charitable

organization (these organizations may support many charitable organizations).

Donor-advised funds and supporting organizations share many features with private foundations,

but have historically not been generally subject to self-dealing rules and other restrictions (meant

to prevent the donor from receiving a private benefit) or payout requirements (meant to keep the

organization from accumulating funds without paying out some amount for charitable

purposes). 67 In an effort to address concerns that abuses were occurring and that, in some cases,

little was being paid out, the Pension Protection Act of 2006 (P.L. 109-280) imposed a number of

regulatory requirements and also required a Treasury study of donor-advised funds and other

See http://www.whitehouse.gov/the_press_office/President-Obama-to-Request-50-Million-to-Identify-and-ExpandEffective-Innovative-Nonprofits/.

Self-dealing rules generally prohibit direct financial interaction between a foundation and nearly all persons closely

related to the foundation (disqualified persons). The IRS provides further detail regarding transactions that violate the

prohibition of self dealing for private foundations at http://www.irs.gov/charities/foundations/article/0,,id=

137679,00.html.

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An Overview of the Nonprofit and Charitable Sector

supporting organizations to evaluate whether they should continue to receive tax-exempt status.

Donor-advised funds eligible for charitable contributions are prohibited from providing benefits

to the donors, and are required to have a governance structure if grants are made to individuals

(such as a scholarship fund). Contributions of closely held businesses must be sold within a short

period of time. Supporting organizations must indicate which type they are and certain type III

organizations will eventually be subject to a minimum payout. The Treasury Secretary was

charged with determining the details of the minimum payout requirement through regulation. On

September 24, 2009, the Treasury issued a proposed regulation to impose a 5% rate (which is the

same rate that applies to private foundations), pending comments due in December 2009.68 At this

time, however, donor-advised funds are not subject to a payout requirement.

Endowments

Endowments also share a number of characteristics with foundations. Specifically, deductions for

the contribution are made in advance of the expenditure and the endowment principal may be

maintained or grow. Endowments receive tax-exempt earnings, but there is no payout

requirement. In recent years the growth of university and college endowments raised concerns

and led to discussions of possible payout requirements. The Senate Finance Committee received

testimony on college endowments in connection with hearings held on offshore funds in 2007.

Major university endowments are invested in, among other assets, offshore hedge funds, and one

issue discussed during the hearing was whether these investments were being used to avoid the

unrelated business income tax. The witnesses discussed the growth of endowments and also

addressed the relationship between endowments and affordability, showing that a very small

increase in payout of universities and colleges with the largest endowments could obviate the

need for tuition increases and could fund significant increases in student aid. 69 The Senate

Finance Committee also sent a survey to colleges with endowments of more than $500 million to

obtain more details about their endowments and payouts.70

Charitable Contributions

While charitable deductions are available to all taxpayers, individuals who take the standard

deduction do not use the charitable contribution deduction. (The logic behind the standard

deduction is that it accounts for the tax-deductable activities of individuals choosing not to

itemize deductions.) Slightly over one-third of individual taxpayers itemize; about 30% deduct

charitable contributions. Individuals’ contributions are, in general, limited to 50% of income for

most charities, but are restricted to 30% for certain nonprofits, including non-operating

foundations and institutions set up for the benefit of members (such as fraternal lodges).

See http://edocket.access.gpo.gov/2009/pdf/E9-22866.pdf.

See testimony of (name redacted), Congressional Research Service, and testimony of Lynn Munson, Center for College

Affordibility and Productivity, before the Senate Finance Committee, September 26, 2007, at

http://finance.senate.gov/hearings/testimony/2007test/092607testjg.pdf and http://finance.senate.gov/hearings/

testimony/2007test/092607testlm.pdf. Also, see the memorandum by (name redacted), Congressional Research

Service, analyzing endowment earnings, payouts, and uses that formed the basis for testimony, at

http://finance.senate.gov/press/Gpress/2008/prg011408b.pdf.

Senate Finance Committee Press Release, “Baucus, Grassley Write to 136 Colleges, Seek Details of Endowment

Pay-Outs, Student Aid,” at http://finance.senate.gov/press/Gpress/2008/prg012408f.pdf.

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An Overview of the Nonprofit and Charitable Sector

Individuals can contribute property as well as cash. The contribution of appreciated assets has

particularly beneficial treatment, as the value of most appreciated assets can be deducted without

including the capital gains in income which would be subject to tax. (Some contributions of

property are limited to the smaller of basis or fair market value, such as business inventory.) For

that reason, gifts of appreciated property are limited to 30% of a donor’s adjusted gross income

for most general charitable donations, and to 20% for donations to organizations with more

restricted giving limits, such as non-operating private foundations. Deductions for inventory

property used in a business are generally limited to the cost of production and not market value.

Individuals can also deduct costs of volunteering for charitable purposes, including out-of-pocket

expenditures, costs of using a vehicle, and travel costs when there is no significant personal

element. In lieu of calculating costs of operating an automobile, volunteers may deduct 14 cents

per mile. This amount is set by statute and is smaller than amounts allowed for medical and

moving purposes (24 cents), which are in turn smaller than the amounts allowed for business

purposes (55 cents). These latter rates are adjusted for changes in costs.71

Like individuals, corporations are subject to restrictions on their ability to deduct charitable

contributions. For example, corporate contributions are generally limited to 10% of taxable

income. In some cases, the tax code encourages the donations of certain types of property: for

example, there is an enhanced deduction for donations of food inventory to organizations serving

the needy.

There are a number of temporary provisions, referred to as extenders, that allow more generous

tax treatment for certain contributions. The most important, in revenue terms, is the IRA rollover

provision allowing individuals who are 70½ to contribute amounts in individual retirement plans

directly to charity without including the distribution in income. This provision is advantageous to

those who do not itemize deductions and benefits taxpayers because certain provisions (such as

the taxation of social security benefits) are triggered by adjusted gross income. Other major

extenders relate largely to gifts of inventory. 72

A number of difficulties arise in administering the charitable deduction tax provision. For

example, there is no third-party reporting to help confirm that deductions are legitimate. There are

also concerns about the valuations of certain types of property, including not only gifts by the

wealthy, but also gifts of vehicles and household furniture. Recent legislative initiatives have

increased recordkeeping requirements and placed other restrictions on non-cash charitable

contributions.73

Exemption of Tax on Investment Income of Nonprofits

Direct data on the cost of the tax exemption for investment income for nonprofits are not

available. The lack of tax on earnings of nonprofit organizations is not considered a tax

See CRS Report R40434, Charitable Standard Mileage Rate: Considerations for the 111th Congress, by (name red

acted).

See CRS Report RL32367, Certain Temporary Tax Provisions Expiring in 2009 (“Extenders”), by (name reda

cted) and (name redacted) for a discussion of extenders. See also CRS Report RL34608, Tax Issues Relating to

Charitable Contributions and Organizations, by (name redacted).

These issues are discussed in more detail in CRS Report RL34608, Tax Issues Relating to Charitable Contributions

and Organizations, by (name redacted).

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An Overview of the Nonprofit and Charitable Sector

expenditure. Consequently, the Joint Committee on Taxation does not provide estimates of the

cost of this provision. In an effort to estimate the cost of the tax exemption of investment income

for nonprofits two different data sources are reviewed.

The Bureau of Economic Analysis (BEA) reports for 2005, $128 billion in dividends, interest,

and capital gains for nonprofit institutions serving households. At a 35% tax rate, this would

result in $45 billion of revenue loss. This estimate does not include net rent (which is likely to

represent a relatively small share) and also excludes some capital gains income of religious

organizations.

Data taken from all organizations filing Form 990, including net rent, dividends, interest, and

capital gains on securities, indicate $170 billion of income for FY2006. At a 35% rate, total

revenue loss is $60 billion. For the data from the Form 990, charitable organizations with

contributions deductible under 501(c)(3) accounted for 55% of the investment income,

foundations about 32%; the remainder of the income is attributable to charitable organizations not

exempt under 501(c)(3). Among the charitable organizations, half the investment income was

received by the education sector (over a third in higher education) and about 30% in the health

category.

Income from university endowments soared in recent years before declining during the recession.

For FY2007, total increases of university endowments were $88 billion; with 30% projected to be

unrealized capital gains, income was about $53 billion, as compared to the $34 billion reported

the previous year.74 As the economy fell into recession, however, earnings fell precipitously.

These fluctuations in earnings make it difficult to determine a steady state rate of growth, but had

the BEA estimate increased by a normal growth rate of 5% or so per year, endowment income

would be $55 billion for 2009. Estimates using data from the Form 990 are closer to $70 billion.

In either case, the estimated cost of exempting this income from taxation exceeds the cost of the

charitable contribution deduction, which is approximately $50 billion.

The asset income estimates include foundations, supporting organizations, and endowments, but

do not include donor-advised funds. The amounts in these funds are small relative to the

remaining nonprofits’ assets, but have been growing quickly.75

As is the case with other provisions, this value of the exemption varies substantially across

different types of charitable organizations. On average, charities filing with the IRS report that

investment income is less than 7% of revenue. However, for higher education and supporting

organizations, that portion of income is close to 20%. Investment income is 9% for arts, culture,

and the humanities, but less than 3% for environment and animals, health, human services, and

international. The lesser importance of investment income for health stems from the fact that the

majority of the health revenue comes from fees for services (whether private or public). In health

care, investment income is similar in size to charitable contributions while in the education sector

See CRS Report RL34608, Tax Issues Relating to Charitable Contributions and Organizations, by (name redacted).

Issues surrounding supporting organizations and donor-advised funds, as well as gifts of appreciated property, are

discussed in the testimony of (name redacted), on Charities and Charitable Giving: Proposals for Reform, before the

Senate Finance Committee, April 5, 2005, at http://finance.senate.gov/hearings/testimony/2005test/jgtest040505.pdf. In

2007, donor-advised funds were estimated to hold approximately $31 billion in assets. Council on Foundations, Inc.,

Donor Advised Funds Provide the Majority of Grant Funds Awarded by Community Foundations, January 13, 2009,

http://www.foundationsonthehill.org/docs/08donoradvisedpaper.pdf.

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An Overview of the Nonprofit and Charitable Sector

investment income is about twice as large as charitable contributions. In other sectors, investment

income represents a much smaller share of overall income than do charitable contributions.

The exemption of income for nonprofits and charitable organizations also interacts with attempts

to provide relief or incentives for businesses that are channeled through the income tax system.

For example, in stimulus proposals enacted in 2008 and extended in 2009, provisions such as

bonus depreciation which were provided to stimulate investment spending were not available to

nonprofits because they depended on tax liability. Similarly, proposals designed to provide relief

for small businesses to help pay costs of providing health insurance for low-income employees in

some versions of proposals (e.g., H.R. 3200) would not be available to nonprofits.

Charitable Contributions and Other Tax Expenditures

Table 14 provides the estimated cost of various provisions benefitting the charitable sector. The

tax savings from deducting charitable contributions is estimated at approximately $50 billion,

with the majority of the costs reflecting deductions for the individual income tax. Table 14 also

provides the revenue effects for allowing nonprofit educational institutions and hospitals to issue

tax exempt bonds, and the provisions exempting housing allowances of ministers from tax.

Table 14.Tax Expenditures and the Nonprofit Sector, FY2009

(billions of dollars)

Provision

Individual

Corporate

Total

Charitable contributions

46.2

3.2

49.4

Education

6.3

0.4

6.7

Health

4.0

0.3

4.3

Other

35.9

2.5

38.4

Tax exempt bonds

3.7

1.4

5.1

Education

2.1

0.8

2.9

Hospitals

1.6

0.6

2.2

Ministers’ housing allowance

0.6

—

0.6

Source: Joint Committee on Taxation, Estimates of Federal Tax Expenditures, FY2008-FY2012, JCS-2-08,

October 31, 2008.

In addition to the tax benefit for income taxes, there is also a charitable contribution deduction for

the estate tax. This deduction is estimated at $4.3 billion.76

Estimates for the value of the charitable contribution subsidies are provided separately for

education and health. Specifically, 14% of the tax expenditures associated with allowing

charitable contributions to be tax deductable accrue to the education sector, while 9% accrue to

the health-oriented charities. These shares are similar to their shares of total charitable giving

(14% and 7%) but are higher than the shares for individuals, which are about 11% and 4%.

Based on data in CRS Report R40518, Charitable Contributions: The Itemized Deduction Cap and Other FY2010

Budget Options, by (name redacted) and (name redacted) indicating that $23.2 billion was contributed, 53% of that

amount was deductible, and assuming a tax rate of 45%.

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An Overview of the Nonprofit and Charitable Sector

Foundations tend to give a larger share to education and health, 23% and 24% respectively, and

account for 13% of contributions.77

The larger shares of charitable contributions deduction benefits for education and health reflect

the pattern of giving by income class. Those who itemize deductions (about 30% of returns) are

in the higher income classes. Itemizers account for over 80% of contributions. Table 15 provides

data on the distribution of giving by income class. Higher-income individuals give more than the

average share of contributions to health, education, and the arts, and are less likely to give to

religious organizations and those providing for basic needs. For example, while only 0.2% of

households have income over $1 million, these households provide 59.1% of charitable giving to

health. The 0.2% of households with income over $1 million is responsible for 20.3% of total

giving.

Table 15. Distribution of Charitable Giving Across Income Classes, 2005

(percentage of all households from income class giving to charity type)

Less than

$100,000

$100,000$200,000

$200,000$1 million

More than

$1 million

Religious

59.4

11.3

20.8

8.6

Combined purpose (e.g., United Way)

34.8

9.8

46.1

9.3

Basic needs

49.1

12.9

27.9

10.2

Health

13.9

5.1

21.9

59.1

Education

5.9

2.5

63.5

28.2

Arts

4.4

1.9

59.3

34.4

Other (e.g., environment, international)

31.4

6.0

37.9

24.7

Total Giving from Each Income Class

35.6

7.9

36.2

20.3

Addendum: directed at poor

41.4

9.6

34.4

14.6

Addendum: share of households

90.4

7.4

2.1

0.2

Type of Charity

Source: Patterns of Household Charitable Giving by Income Group, 2005, prepared for Google by the Center on

Philanthropy at Indiana University, Summer 2007.

Table 15 also provides information on giving directed at the poor. The data on giving directed at

the poor show the percentage of total giving focused on the needs of the poor coming from each

income class.78 Because the types of charities higher-income individuals contribute to tend to help

the poor somewhat less, they provide a smaller-than-average share of their contributions to the

poor.

CRS calculations based on data from The Center on Philanthropy at Indiana University, Giving USA 2009, pp. 3-4,

55, 67, 74, and 210-215.

Based on the estimated shares of contributions in each sector going to the poor: 20% for religious, 77% for

combined, 100% for basic needs, 10% for health, 16% for education, and 64% for other. The study notes that estimates

of the share for religious organizations were about twice the size of some earlier estimates; if 10% were used for

religious organizations, the overall share going to the poor would be about 27% and the share of those $100,000 and

under would be about 40%.

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An Overview of the Nonprofit and Charitable Sector

Relative to revenue, arts, culture, and humanities is likely to have the largest benefit from the tax

subsidy for charitable contributions because this sector is favored by higher-income individuals

and, as shown in Figure 5, contributions are a large share of receipts.

Most of the tax benefit from the estate tax goes to foundations (over half). Bequests are

disproportionately given to education, health, and arts and culture. Foundation grants also tend to

favor these types of activities.79

Postal Subsidies

Qualifying nonprofits are eligible for reduced postal rates. In the past when the federal

government appropriated funds to cover this cost, the value appeared to be several hundred

million, and could perhaps be as much as $1.15 billion today. Currently, the cost is shifted to

other mailers. The provision has been criticized by for-profit competitors as an inefficient and

potentially unfair way to aid nonprofits. 80

State and Local Governments

State and local governments provide benefits to nonprofits through mechanisms such as grants (as

discussed above) and tax subsidies. Tax subsidies include state income and estate tax provisions

similar to the federal provisions, as well as property tax and sales tax exemptions.

State and Local Tax Benefits

State and local governments provide tax subsidies for charities through income taxes (largely

state tax sources, which oftentimes piggyback on the federal income tax structure), property tax

exemptions (primarily local tax sources), and sales tax exemptions (primarily state tax sources).

There are also state inheritance taxes.

The value of these subsidies is more difficult to determine given the heterogeneity in state tax

systems and revenue sources. This is particularly true for property taxes which are collected

locally, leading to greater data limitations and overall revenue uncertainty. Table 16 provides

estimates of the value of state and local tax subsidies to nonprofit organizations. Regardless of the

uncertainties, the property tax exemption provides charitable organizations with the most tax

savings. The property tax exemption is particularly useful to organizations with significant real

property such as churches, educational institutions, housing nonprofits, and art museums. Adding

income subsidies, worth approximately $10 billion to $12 billion, and sales tax exemptions brings

the total value of state and local tax subsidies to $30 billion to $50 billion.

The Center on Philanthropy at Indiana University, Giving USA 2009, pp. 55 and 67.

Postal Regulatory Commission, Universal Service Obligation Report, December 19, 2008, pp. 132-134, available at

http://www.prc.gov. Also see CRS Report RS21025, The Postal Revenue Forgone Appropriation: Overview and

Current Issues, by (name redacted) for a discussion of the provision.

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An Overview of the Nonprofit and Charitable Sector

Table 16. State and Local Tax Subsidies, 2008-2009

(billions of dollars)

Provision

Tax Benefit

Exemption of investment income

7-9

Charitable contributions, individual

3.2

Charitable contributions, corporate

0.4

Inheritance tax

0.1

Property tax exemptions

17 - 32

Sales tax exemption

Total

3.3

31 - 48

Source: CRS calculations and Woods Bowman and Marion R. Fremont Smith, “Notes on Nonprofits and State

and Local Governments,” and by Evelyn Brody and Joseph J. Cordes, “Tax Treatment of Nonprofit

Organizations: A Two-Edged Sword?” in Nonprofits and Government, Collaboration and Conflict, ed. by Elizabeth T.

Boris and Eugene Steuerle (Washington, DC, Urban Institute, 2006), pp. 181-218 and141-180.

Notes: Corporate provisions were based on increases in the corporate marginal tax by adding state and local

taxes to the federal tax, which, as estimated by the Treasury Department, were 13% of the federal estimated tax

benefit. The range for investment income reflects the $55 billion to $70 billion range cited in the text. Estimates

of the tax benefit from individual provisions assumed an average marginal tax rate of 3% for state taxes and a

30% federal marginal tax which, allowing for deduction of state taxes on federal returns, indicate a state value

that was 7% of the federal value. The inheritance tax was based on the ratio of state to federal tax collections.

Property tax estimates were increased 33% to account for religious property. These exemptions are updated to

2008 based on revenue collections.

Potential Impacts of Government Grants on Giving

The amount of money spent on grants is not necessarily the amount of money the charities

ultimately receive. With grants, there is a possibility that government grants will displace

individual contributions (government funds substitute for private funds) or that government

grants will lead to more private contributions (government funds and private funds as

complementary).

Government Funds and Private Funds as Substitutes

Crowd-out, or charities substituting government funds for those that would have been raised

privately, is an important issues for policymakers in considering funding levels for charitable

activities. The level of crowding out determines how much the government must spend to

increase the supply of the public good. Most economists expect that crowd-out is partial. Crowdout would be full, meaning that each additional dollar of government spending on the public good

corresponds to a dollar decrease in private funding, when individuals only care about the total

amount of the good provided (as opposed to caring about where the funding for providing a good

comes from). When non-contributors are taxed to provide the public good, crowd-out will be

partial. Crowd-out will also be partial when there is a warm glow associated with giving.81

Gruber, Public Finance and Public Policy, pp. 190-195.

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The empirical evidence on the existence and magnitude of crowd-out provides mixed results. A

number of studies find significant, although mostly partial, crowding-out effects.82 Other studies

find empirical evidence of crowding-in. (Crowding-in occurs when government spending leads to

additional private-sector spending. Why this may occur is discussed below.) It spite of these

seemingly inconsistent findings, there are some trends that appear to be emerging. The first is that

the degree of crowding-out varies by charity type. While crowd-out has been found for public

radio, shelter, and human services, crowd-in has been found for crime and legal-related charities;

food, agriculture, and nutrition charities; and other specific human services charities.83 Other

work has found that government grants crowd-in donations for libraries, hospitals, scientific

research, and higher education.84 Some of this could have to do with the fact that different types

of charities generally rely on different funding sources. The second is that crowding-out also

depends on levels of support and where the money is coming from (what level of government).

Empirical work looking at American theaters found that theaters with low levels of public support

tended to experience crowding-in, while crowding-out was more common for theaters with larger

levels of government support. Federal support appears to have a crowding-in effect at any level,

while local support initially crowds in at low support levels but begins to crowd out at higher

levels of support.85 Considering the possibility of crowding-out is important for policymakers

looking to boost charitable activity within a given sector.

Recent work has found that governments should not only be concerned with the fact that

government spending can potentially crowd out private support for charities, but also that

government grants can cause charities to reduce their fund-raising efforts.86 Empirical work

shows that crowd-out via reduced fund-raising is partial, but at least one study has found that

crowd-out of fund-raising is greater than crowd-out of private donations.87 There is also evidence

that private contributions and fund-raising efforts both increased in the arts when the government

cut funding for the National Endowment for the Arts.88 This observation may have implications

for policy. Governments providing grants to charitable organizations may want to consider

matching grants, where receiving organizations are required to show increased fund-raising

Bruce Kigma, “An Accurate Measurement of the Crowd-Out Effect, Income Effect, and Price Effect for Charitable

Contributions,” Journal of Political Economy, vol. 97, no. 5 (October 1989), pp. 1197-1207 found crowd-out of

approximately 13.5 cents for every dollar of government funding in public radio. A. Abigail Payne, “Does the

government crowd-out private donations? New evidence from a sample of nonprofit firms,” Journal of Public

Economics, vol. 69, no. 3 (September 1998), pp. 323-345 found crowd-out of approximately 50% for shelter and

human services organizations.

Garth Heutel, Crowding Out and Crowding In or Private Donations and Government Grants, National Bureau of

Economic Research, Working Paper 15004, Cambridge, MA, May 2009.

Cagla Okten and Burton A. Weisbrod, “Determinants of Donations in Private Nonprofit Markets,” Journal of Public

Economics, vol. 75, no. 2 (February 2000), pp. 255-272.

Francesca Borgonovi, “Do Public Grants to American Theatres Crowd-Out Private Donations?” Public Choice, vol.

126, no. 3-4 (March 2006), pp. 429-451. Care should be taken not to presume these results will hold for other charitable

sectors. Nonetheless, these results do suggest that more research is needed to better understand what types of

government support are susceptible to crowding out.

James Andreoni and A. Abigail Payne, “Do Government Grants to Private Charities Crowd out Giving or FundRaising?” American Economic Review, vol. 93, no. 3 (June 2003), pp. 792-812. The authors find that crowd-out of fund

raising efforts is greater for arts organizations than in social service organizations.

James Andreoni and A. Abigail Payne, “Crowding out Both Sides of the Philanthropy Market: Evidence from a

Panel of Charities,” American Economic Association Annual Meeting, San Francisco, CA, 2009,

http://www.aeaweb.org/annual_mtg_papers/2009/.

Jane K. Dokko, “Does the NEA Crowd Out Private Charitable Contributions to the Arts?” National Tax Journal, vol.

62, no. 1 (March 2009), pp. 57-75.

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An Overview of the Nonprofit and Charitable Sector

efforts in order to receive the grant. Alternatively, government grants could be accompanied by a

maintenance of fund-raising effort clause.89 On the flip side, when the government reduces

funding to charitable organizations the loss may be mitigated by increased fund-raising efforts

leading to greater levels in private funding.

Government Funds and Private Funds as Complements

At other times, the government and charities work together and their efforts to provide goods and

services are complementary in nature.90 One reason for this relationship may be that in those

instances, it is more efficient for the government to hire an outside organization than to provide

goods and services themselves. With large bureaucratic organizations, such as the government,

providing additional services may not be cost effective. Nonprofits and charitable organizations

may also have better information with respect to the needs of the communities they serve, leaving

these institutions equipped to meet the needs of specific communities. The government may be

more inclined to partner with nonprofit as opposed to for-profit institutions since monitoring costs

are lower. Since nonprofits do not face a profit incentive, the motivation may be tilted more

toward providing quality services rather than minimizing costs. When the government’s

relationship with nonprofit and charitable organizations is complementary in nature, it is not

expected that additional government spending would crowd out private support. Over the past

few decades, social welfare spending by governments has increased dramatically, while the rate

of charitable giving has remained relatively constant.91 This fact alone lends support to the

argument that the government and nonprofit or charitable sectors complement one another in

aggregate, rather than act as substitutes.92

Government funding of nonprofits or charitable activities can serve as a signal of institutional

quality. In this case, when government funding to a specific charitable sector or institution

increases, private funding will also increase. This observed phenomena is referred to as

crowding-in. Instances where crowding-in has been observed empirically were noted above.

While it might seem that there is little consensus regarding whether government spending leads to

crowding-out or crowding-in of private giving to nonprofit and charitable organizations, there are

some lessons the empirical literature can provide. The main lesson is that government support can

either be a complement to or substitute for private funding, depending on circumstances.

It is also possible that government grants crowding out fund-raising efforts is efficiency enhancing. If the

government is able to raise and distribute funds more effectively than the charity via their own fund-raising efforts, it

may be more efficient to have a greater proportion of funding coming from government grants.

The arguments here follow those made in Dennis R. Young, “Complementary, Supplementary, or Adversarial?

Nonprofit-Government Relations,” in Nonprofits & Government, ed. Elizabeth T. Boris, C. Eugene Steuerle, 2nd ed.

(Washington, DC: The Urban Institute Press, 2006), pp. 37-79.

C. Eugene Steuerle and Virginia A. Hodgkinson, “Meeting Social Needs: Comparing Independent Sector and

Government Resources,” in Nonprofits & Government, ed. Elizabeth T. Boris, C. Eugene Steuerle, 2nd ed.

(Washington, D.C.: The Urban Institute Press, 2006), pp. 81-106.

While the relationship between nonprofits and government may be complementary in aggregate, this is not to say

that the activities undertaken by individual charitable sectors are not crowded out by increased government spending.

For example, an increased government role in providing for the elderly via Social Security and Medicare may have

reduced the need for private assistance that might have occurred. While this could be interpreted as crowding-out, it has

been argued that this should be interpreted as a reorientation of nonprofit activities. The government provision of these

services may free privately provided charitable funds to be used for other purposes. If the proportion of personal

income going to charities remains constant, there is no aggregate crowd-out of charitable contributions flowing to

nonprofit and charitable organizations.

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Circumstances that may matter, for example, might be the initial level of funding and the source

of the government spending.93 Circumstances will vary across nonprofit and charitable sectors as

well as across institutions within sectors. This would suggest that government grants and support

to the charitable sector be targeted as the potential for crowding effects are considered.

Taxes and Charitable Contributions

The effect of tax subsidies provided to charitable contributions on giving depend on the extent to

which the tax subsidies induce additional charitable giving. If tax subsidies do not induce

additional charitable giving, the subsidy provides a windfall to the taxpayer (without providing

additional funding to charitable organizations). It is useful for policymakers to understand how

much charitable giving is induced by the tax code, and the revenue losses associated with these

provisions.

The relationship between the amount of contributions and the revenue cost of the subsidy depends

on the price elasticity of giving. The price elasticity of giving is defined as the percentage change

in quantity given divided by the percentage change in price (in this case, the price of charitable

giving is 1- t, where t the marginal tax rate). This relationship is always expected to be negative,

as an increase in the price of giving (decrease in tax rate) should be associated with decreased

giving. Since the relationship is expected to be negative, elasticities here are referred to in

absolute value. If this elasticity is less than one (in absolute value), the induced giving will be less

than the cost of the charitable contribution deduction. When this is the case, more funds for the

charitable sector could be generated by spending government funds using alternative means, such

as grants (absent crowding-out). The most recent estimates of the price elasticity of charitable

giving by living individuals (inter-vivos giving) suggest that the elasticity is below one. A recent

CRS report uses a value of 0.5 as a central estimate. 94 This price elasticity suggests that a dollar

of revenue loss induces $0.50 of giving. Therefore, the $50 billion of loss from itemized

deductions is expected to induce increased giving of $25 billion.

Giving from estates via bequests also represents an issue of concern for charitable organizations.

Giving from estates is affected by both the estate tax rate and the wealth of individuals. The

percentage change in giving relative to the estate tax rate is the price elasticity. Empirical

evidence tends to suggest that the price elasticity in giving from estates is greater than one.95 This

suggests that the giving received by charitable organizations from estates exceeds the revenue

loss from allowing the tax deduction. Revenue losses from allowing estates to deduct gifts are

relatively small, about $4 billion annually.

Francesca Borgonovi, “Do Public Grants to American Theatres Crowd-Out Private Donations?” Public Choice, vol.

126, no. 3-4 (March 2006), pp. 429-451 reviewed the literature on crowding and conducted an institutional-level study

exploring the impact of public funding on total funding at American theaters. His evidence suggests that when public

support levels are low, additional support may have a crowding-in effect. As the level of government support increases,

there is a shift from additional government support having a crowding-in effect to a having a crowding-out effect.

Further, it is observed that crowding-out depends on the source of government funds (federal, state, or local).

For a review of the economic literature on the price elasticity of charitable donations see CRS Report R40518,

Charitable Contributions: The Itemized Deduction Cap and Other FY2010 Budget Options, by (name redacted) and

(name redacted).

For a review of the economic literature on the price elasticity of charitable bequests see CRS Report R40518,

Charitable Contributions: The Itemized Deduction Cap and Other FY2010 Budget Options, by (name redacted) and

(name redacted).

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Policy Considerations

This section considers a variety of policy issues, drawn from a number of sources. Some of these

issues stem from current and past legislative proposals, others arose during current debates, and

still others are the result of this report’s findings. Given the size and diversity of the nonprofit and

charitable sector, an exhaustive list of policy options is not feasible. Instead, some of the most

legislatively relevant have been presented below. 96

Before considering possible policy proposals, it is useful to consider what nonprofits themselves

indicate are their most important policy priorities. The Johns Hopkins Listening post project

surveyed nonprofit executives focusing on children and family services, elderly housing and

services, community and economic development, and arts and culture.97

The survey results indicated the four top priorities were

•

restoration and growth of federal funds in their field;

•

reinstatement and expansion of tax incentives for individual charitable giving;

•

federal grant support for nonprofit training and capacity building; and

•

reform of reimbursements under Medicare, Medicaid, and other programs to

ensure they cover the cost of services.

Other proposals that more than half of respondents identified as somewhat or extremely useful

included

•

expansion of tax incentives to encourage volunteering;

•

student loan forgiveness for those working in the nonprofit sector;

•

a credit for investment making low-cost private capital available;

•

restoration of the estate tax;

•

a commitment to support research and improve data on the nonprofit sector;

•

expansion of national service programs like Americorps;

•

replacement of the charitable contribution deduction with tax credits;

•

a federal agency to represent and promote the interests of the nonprofit sector;

•

strengthening of government oversight agencies;

Other relevant issues not addressed here are the charitable standard mileage rate, reviewed by CRS Report R40434,

Charitable Standard Mileage Rate: Considerations for the 111th Congress, by (name redacted), issues pertaining to

lobbying, reviewed in CRS Report 96-809, Lobbying Regulations on Non-Profit Organizations, by (name redacted), as

well as those related to charitable organizations involvement in political activities, as reviewed in CRS Report R40141,

501(c)(3) Organizations and Campaign Activity: Analysis Under Tax and Campaign Finance Laws, by (name red

acted) and (name redacted).

Communique No. 11, Nonprofit Policy Priorities for the New Administration, by Lester M. Salamon and Stephanie

Lessans Geller, http://www.ccss.jhu.edu/pdfs/LP_Communiques/LP_Communique11_pres_sounding_FINAL.pdf.

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•

clarifying the community benefits standard (this issue relates to nonprofit

hospitals);

•

eliminating or reducing the limits on lobbying activities; and

•

providing a special category of “hybrid” organizations, such as social enterprises

(organizations that operate businesses but with a social mission, such as hiring

the hard to employ or using the surplus for a charitable purpose).

The importance of different priorities varied by type and size of charitable organizations. All

organizations considered federal funding important, while those organizations that rely on

reimbursement for services considered reform in that area important. Museums considered tax

provisions (restoring the estate tax and expanding charitable giving) important while community

and economic development organizations considered nonprofit training and capacity development

important. Small nonprofits (less than $500,000) considered tax incentives for individual

charitable giving, health insurance tax credits, and training funds important.

The Independent Sector, an organization representing the charitable community, has also

provided a list of policy proposals.98 Most of the policies indicated above were suggested in their

report. Their work also included some specific tax proposals, including extending and expanding

the IRA rollover provision, revising the excise tax on foundation income, and allowing mileage

deduction rates to be the same as those of business. The Independent Sector also suggested, in

addition to loan forgiveness, offering scholarships in return for a specific term of service in the

nonprofit community. They proposed that loans, training, and technical assistance similar to that

provided by the Small Business Administration to for-profit firms be provided to nonprofits. They

also proposed relief from new funding obligations under the Pension Protection Act of 2006.

Modifying lobbying rules, including allowing private foundations to support non-partisan

lobbying of organizations they contribute to, was also suggested. The Independent Sector

indicated that anti-terrorism restrictions may have discouraged international charity and might be

revised. Proposals from the Independent Sector also emphasized that subsidies provided to

employers in a health care reform should also be made available to nonprofits.

It is natural that nonprofits and charitable organizations want more support from the government.

These desires should be weighed against the effectiveness and efficiency of nonprofits and other

potential uses of government funding. GAO testimony suggested that improving the governance

and skills, particularly of nonprofits, and collecting more comprehensive data are among the

issues that might be addressed.99 There have also been a series of legislative proposals that relate

to the tax treatment of charitable contributions and organizations.100 Some of these proposals

expanded benefits, while others were designed to address potential abuses.

Independent Sector, Policy Proposals to Strengthen the Nonprofit Community’s Ability to Serve Our Society,

January 6, 2009, http://www.independentsector.org/programs/gr/2009_Nonprofit_Platform.htm.

Testimony of Stanley Czerwinski before the Ways and Means Committee, Subcomittee on Oversight,

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