How Charitable Organizations Influence Federal Tax Policy: 'Rent-Seeking' Charities or Virtuous Politicians?

Abstract

Tax-exempt charitable organizations exert considerable influence over Congress, the Department of the Treasury, and the Internal Revenue Service in matters dealing with exemption from federal income tax and the tax deductibility of charitable contributions. This Article uses both public choice and public interest analysis to help identify various features of the charitable community and explain how exempt organizations weild political influence despite the restrictions placed on their activities under the tax code. Arguing that the influence of charitable organizations over tax policy can be explained from either a public choice or public interest vantage point, the Article concluds that the wide congressional appeal of charitable tax subsidies represents the endorsement of a fundamental reallocation of responsibility between the federal government and the charitable community for certain social services. This newly-configured charitable community has something to offer both the self-interested and the public-spirited legislator. In fact, reallocation offers the self-interested legislator a golden management opportunity. It permits the legislator to: (i) shift the responsibility for certain social services; (ii) claim credit for encouraging more efficient delivery of needed social services; and (iii) avoid accountability for any unfavorable consequences. The only cost is the maintenance of two very popular tax subsidies.

Keywords: nonprofit, tax exempt organizations, charitable organizations, tax policy, public choice, exempt organization, pubic interest theory of legislation, public interest theory, 501(c)(3), electioneering, legislation, lobbying, political activities, rent seeking, volunteerism, 1000 points of light

JEL Classification: D64, D71, D72, D78, ,H11, H20, K34, L31