Charities in Tax Reform: Threats to Subsidies Overt and Covert

Fundamental tax reform would do far more damage to charities than the obvious repeal of the deduction for charitable contributions. Over the decades, charities have quietly garnered billions of dollars worth of indirect benefits. For example, the largest tax expenditure - the exclusion from workers' income of employer-provided health insurance - has fattened nonprofit hospitals, and the new tuition tax credits promise to spur tuition inflation. Tax reform presents an opportunity to eliminate tax subsidies and enact any desired direct expenditures for specific public goods and activities. However, converting tax expenditures to direct outlays would likely take the form of vouchers, which could be used with any type of provider - nonprofit, government, or for-profit. From a public finance perspective, the concept of a charitable sector could largely become an historical relic.