Tax Expenditures: A Criticism of the Concept as Applied to Nongovernmental Organizations

Abstract

The concept of tax expenditures has become increasingly important during the last decade, and it may have far-reaching consequences for tax policy on nongovernmental organizations (NGOs). This article challenges the concept of tax expenditures as it is often applied to NGOs that operate as nonprofits. It argues that the concept is too vague and general to be applied to third sector organizations. Tax expenditure analysis lacks the theoretical basis necessary to classify most tax provisions. Any deviations from the chosen, so-called general (normative or reference) rules of taxa tion are too easily classified as a subsidy or transference from the govern ment to the NGO. This subsidy perspective on NGOs oversimplifies the complex economic relationship between NGOs and the government. The article suggests some guidelines that can be applied in discussions of tax provisions and exemptions of relevance to NGOs.