The Political Orphanage The Non-Profit Industrial Complex
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May 6, 2026 Scott Hodge, tax policy expert and former Tax Foundation president now at Arnold Ventures, probes nonprofits that act like businesses. He debates how to tell charity from commerce. He highlights tax breaks, hospital and university exemptions, executive incentives, and calls for taxing commercial nonprofit income while protecting donor support.
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Donative Theory As A Clear Charity Test
- Hodge favors the donative theory: charities earn their status by attracting donations, which signals true benevolence.
- He suggests taxing all other earned business income while exempting donor‑funded amounts.
Unrelated Business Income Tax Has Been Watered Down
- Congress created the Unrelated Business Income Tax in 1950 to stop nonprofits running unrelated commercial enterprises.
- Over time the definition of 'related' eroded, so the UBIT now captures only about 0.1% of nonprofit business income.
Large Nonprofits Functionally Operate As Corporations
- Large nonprofit institutions like Kaiser Permanente operate like big corporations with high executive pay and substantial profits.
- Hodge argues such organizations shouldn't qualify for tax privileges labeled for true charities.
