Is Income Tax Exemption for Charities a Subsidy?

30 Pages Posted: 1 Sep 2011

Date Written: July 15, 2011


Article considers whether income tax exemption for charities is consistent with normal income tax. .It finds that exemption for contributions is not special treatment and that exemption for income from sale of goods or performance of services related to the purpose of the charity is special treatment only if profits are used for expansion. It concludes that a subsidy for expansion can be justified. Most importantly the article finds that exemption for investment income is a subsidy. It concludes that exemption for such income depends on a value judgment as to whether public policy should favor less accumulation and more current spending by charites. It suggests that the exemption for investment income and the charitable deduction should be limited in certain circumstances.

Keywords: Charities, Income Tax Exemption, Endowments

JEL Classification: K34, L31, D63

Suggested Citation

Halperin, Daniel I., Is Income Tax Exemption for Charities a Subsidy? (July 15, 2011). Tax Law Review, Vol. 64, p. 283, 2011, Available at SSRN:

Daniel I. Halperin (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
(617) 495-3100 (Phone)
(617) 495-1110 (Fax)

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