Non-Profit Doesn’t Necessarily Mean “Do-Gooder”

I was intrigued to come across an essay by John Dilulio, Jr. in a publication I had previously not encountered: American Purpose. 

I have been familiar with Dilulio–a political scientist currently at the University of Pennsylvania–since his work on George W. Bush’s “Faith-Based Initiative.” (Thanks to a generous Ford Foundation grant, I helmed a three-year, three state study of that initiative.) In the 1990’s,  Dilulio was best known in criminal justice circles for his hostile analysis of young criminals and his condemnation of violent juveniles as ”superpredators,” a position from which he later–and properly–retreated.

The essay in American Purpose addressed a very different issue: the nonprofit status of American organizations, a status that entitles such organizations to various types of tax avoidance. The “nonprofit sector,” he tells us, consists of organizations

that enjoy one or more of four types of tax exemptions, subsidies, or supports: tax-free property owned by the organizations; tax-deductible donations to the organizations; taxpayer-funded grants, contracts, or fees to the organizations; and taxpayer-funded payments to individuals for purchasing goods or services from the organizations.

Intriguing indeed. But, you ask, why do we need any such “nonprofit sector?” What criteria should be used to determine which existing or new organizations receive some, all, or none of those four tax privileges? Who is supposed to benefit from their existence, and by what measures? And, last but not least, how might we mitigate the moral hazard when some of these organizations inevitably use their tax privileges for private gains or to evade public accountability, or behave in ways that are both deceptive and self-dealing?

The essay began with the good news: something like 92 percent of all nonprofits are small, community-based, and serve local needs. Fewer than 3 percent lobby for government grants or contracts.

At the top of the nonprofit pyramid, however, are less publicly beneficial organizations–and those are especially prevalent in health care.

At its very top, the tax-privileged sector is dominated by the ten nonprofit health systems that in 2021 each collected $14.5 billion or more in annual revenues, and by a dozen nonprofit universities that are among the most well-endowed universities in America. Is enough being done to ensure that these tax-privileged titans’ board members, CEOs, presidents, and other leaders are using their respective tax privileges in the public interest while refraining from individual or institutional self-dealing?

Dilulio cites a 2023 article in which Rice University economists Derek Jenkins and Vivian Ho wrote that, “Nonprofit hospitals, which currently comprise approximately 58 percent of U.S. hospitals, have been repeatedly criticized by scholars and policymakers for failing to live up to a poorly articulated standard of ‘charity care’ and benevolence,” and for failing to justify their tens of billions of dollars a year in federal, state, and local tax breaks.  He also cited a 2022 report by the Economic Research Institute, which found that, while nonprofit hospital CEOs are paid, on average, $600,000 a year, the ten highest-paid nonprofit health systems executives made $7 million a year or more;  the CEO of Kaiser Permanente was paid nearly $18 million in 2018.

Back when I was a practicing lawyer, I saw how this worked. If a corporation being formed could credibly point to some charitable purpose, and could successfully argue for nonprofit status, monetary gains that would otherwise constitute–and be taxed as– profit could be diverted/mischaracterized as “overhead costs.” These “nonprofits” could divert what would otherwise be profit into generous salaries and lots of perks for management. (Does a health organization executive really need a luxury car supplied by the nonprofit entity? What about that corporate jet?)

The essay has much more information, and offers suggestions for legislative interventions. If you are interested in the various ways in which nonprofit status can be–and has been– gamed, it’s well worth the time to click through and read in its entirety.

My own first reaction was that this situation–the culture of “game-playing” that has allowed greed to infect and distort significant elements of a system originally intended to serve the public good–has become widespread. It isn’t limited to health care and a handful of elite universities.

Assuming we emerge from the November election with American democracy still largely intact, we need to address a multitude of structural distortions, and not just those affecting the electoral system. The misuse of nonprofit status is one of them.


  1. Congress should legislate, that is, make laws or update policies that are no longer in the public interest. They would rather raise money or play politics, two full-time games they enjoy.

  2. Lets not forget the church sector – They are deeply involved with right wing politics while hiding behind their tax free status. tax them all.

  3. If We the People were truly committed to Promoting the General Welfare, there would be no need for charity. Instead, the wealthy use nonprofits to privatize what should be part of the social contract and control who gets just enough help to survive, who gets marginalized, and who gets rich in administering the funds.

  4. Of course it’s a scam!

    I suppose some of the non-profits start out with good intentions, but the temptation and opportunity is readily available for mismanagement.

    The pastors of these mega churches, with the Rolls-Royce and Mercedes-Benz personal transportation, plus Jets plus opulent homes plus Italian custom-made suits, jewelry, and myriads of other perks on the list, seem to live their lives contrary to what Jesus Christ preached to his followers.

    ” It is easier, in fact, for a camel to get through the eye of a sewing needle than for a rich man to get into the kingdom of God.” (Luke 18:24, 25) These words were prompted by the reaction of a rich young ruler upon being told by Jesus: “Sell all the things you have and distribute to poor people, and you will have treasure in the heavens; and come be my follower.” (Luke 18:22, 23) That rich young ruler was under obligation to help needy fellow Israelites. (Proverbs 14:21; 28:27; Isaiah 58:6, 7; Ezekiel 18:7-9) But his unwillingness to part with his material possessions, using these to assist others, and to devote himself to being a follower of Jesus Christ, blocked his ability to do so!”

    Catholic charities is funded by government in a large way. And if you do some digging, there is some definite overreach. You can trace all of this back to religion creeping its way into secular government. The idea of non-profits is a good one, but the reality is, “the Fox IS guarding the hen house! There are good examples, but in reality, they are few and far between. The temptation to be opulent in self dealing, is way too alluring to resist for most.

    I remember becoming incorporated years back, and one of the things they said, “the first thing you do is pay yourself.” This is true even if you are not a non-profit. Obviously most of these want to be do gooders, would rather line their own pockets than emulate Christ, or as many would say, do the right thing! Even King Solomon couldn’t resist his own desires having over a thousand wives, many palaces and mountains of treasure. It corrupted him and he was supposed to be a man with unbounded wisdom.

    As Todd would say, these are oligarchs in sheep’s clothing, lol! And he would be right!

  5. I did a little bit of researching of non-profits a few years ago. You might be amazed at the very large number of nonprofits in each state, their mandates and stared purposes, how easy it is to get a nonprofit status, and how this field seems to be a way to “scam” the system.

    In my opinion there are far too many, far to broad based, and a seemingly lightly regulated.

    A legislative review might find that negating some of these very extensive tax benefits might have a large impact on lowering the US Federal deficit.

  6. First and foremost every tax exempt organization should be required to list all donors and recipients on Its 990. That alone would stop the proliferation of dark money in politics.

  7. Of course, the nonprofits have been gamed—look at all the energy the elite-owned politicians put into shrinking the IRS department and budget. Look at all the non-profit schemes where dark money is laundered for the benefit of our political class.

    As Laurie points out, the wealthy use nonprofits to hide billions of dollars used to control local communities nationwide. They control economic development projects and set up quasi-governments to run communities while starving the public sector. They did the same thing with universities, public news, and broadcasting, which ruined the above.

    As a journalist, I researched our local community’s nonprofit world and how the Ball Family used it to control the town. It became rather evident once the industry sector moved out of Muncie. Indy and Eli Lilly are the same way. Much of the damage to our educational sector comes from Lilly’s nonprofits.

    I ran for City Council, and my district comprised the Ball-controlled hospital and university, as well as lots of churches. I showed the community how much money they should be paying toward the operation of the city, including the YMCA, which was just a fitness center like any other. The local Democratic Party wouldn’t support me and tore off the portion of my marketing fliers that explained Payments in Lieu of Taxes (PILOTs). Many local Democrats were given cozy board positions on the nonprofits, and the Mayor was allowed a seat on the Ball’s alternative government nonprofit. The Mayor is just a messenger boy/girl.

    Also, the governor appoints the Board of Trustees to publicly operated universities like Ball State. In Indiana, that means Republicans. It’s a racket. The Koch brothers are knee-deep in over 150 US universities and at Ball State University.

    Davarian Baldwin, a scholar, wrote a good book about the “UniverCity” and how they are gentrifying communities and worse:

  8. I’m always amazed at the number of people earning 7 figure salaries at our not-for-profits, starting with the $5.6 million salary for the IUHealth CEO (in 2021). If you pay the CEO this much, you have to pay million dollar salaries to a lot of other folks.

  9. Sad, but not surprising.
    What about how the Scientologists harassed the IRS in order to be considered a religion, and all the perks they have been getting as a result?

  10. Sorry, but this isn’t REALLY clarifying much of anything….EXCEPT for the confusing muddle that’s been made of things…..

    From my life-time work for public radio stations I’ve learned that there once was a critical distinction made between “Nonprofits” and “Not-for-profits”….. the two are conflated….and something is lost….

    NOTHING is said about that here…..

  11. Not wishing to minimize the horrors of the Catholic establishment – look seriously at Kars for Kids: Their own website: “We roll up our sleeves to plant roots and invest in children because they are our future. We’re a registered 501(c)(3) nonprofit Jewish organization who, together with our sister charity Oorah, help thousands of children.” – Countered by: However, new revelations about the charity are no laughing matter. According to the Minnesota attorney general, between 2012 and 2014, Kars4Kids raised $3 million in the state through car donations. But less than $12,000, less than one percent of what was raised, went to Minnesota kids” – and/or:” It’s faced criticism for not clearly disclosing that it primarily serves Orthodox Jewish children in the Northeast US, and for using very little of its money on charity.

    In 2009, Kars4Kids paid Oregon and Pennsylvania $130k to settle claims it misled donors.
    In 2010, the charity lost $5m+ on real estate investments, while spending ~$6m on children’s programs.
    In 2014, it raised $34.7m, $14m of which was spent on ads.”'s%20faced%20criticism%20for%20not,settle%20claims%20it%20misled%20donors.
    It should be NOTED that Kars for Kids – is a “charity” – whose focus is getting Orthodox Jewish children (or potentially such) to get to Orthodox Jewish summer camps primarily in New York and New Jersey. Its address is: 1805 Swarthmore Ave, Lakewood NJ 08701 – “As a major hub of Orthodox Judaism, Lakewood is home to Beth Medrash Govoha (BMG), the largest yeshiva outside of Israel.[28] The large Orthodox population, which comprises more than half the township’s population, strongly influences the township’s culture[28][29] and wields considerable political clout in the township as a voting bloc.[30][31][32]”,_New_Jersey#History
    Personally – I will be in Lakewood – 8 days from now to visit with my (Orthodox Jewish) Family – related to the recent death of my brother -a Haredi/Chasidic/ Orthodox Jew – whose funeral I attended just over a month ago – having been with him – when he passed away – in an EXCELLENT not-for-profit hospital – Robert Wood Johnson University Hospital in New Brunswick, NJ – where there were caring and most wonderful staff people who did their best in an impossible situation – trying to save my brother’s life. Deceptive Advertising – for Not-For-Profits – scams us all! I didn’t know of this (mostly) legal scam – until a month ago!

  12. When some, such as Harvard’s billions in donations from rich alumni and others are tax-free, guess who has to make up the necessary funding for state and federal budgets? You and I. We are involuntary if indirect funders of such tax-free entities, and to make things worse, those who contribute to such entities in this double whammy exercise take their contributions as deductions from their personal tax responsibility, leaving the rest of us holding the bag. This situation is one of many that have had me calling for reform of the Internal Revenue and Bankruptcy Codes for many years – a voice in the wilderness. Personally, I resent paying more taxes than Trump, Boeing and GE sometime pay.

    I have noted over the last several years that some members of Congress have been all for starving the IRS of enough money to enforce the Internal Revenue Code, which is, of course, designed to lessen the likelihood that the complicated returns of their rich donators will be audited. Billions in revenue have been lost as a result, and here again, who has to make up for such losses in order to meet our budgetary needs? You and I, and these people in Congress cover their tracks and change the subject by loudly complaining of heavy and unnecessary “spending” etc.


  13. My immediate reaction to your piece was damn right, it just isn’t right. On second thought, foundations and non-profit hospitals need to attract top tier leaders with pay comparable to for-profit enterprises. Let’s raise taxes on those leaders who make $6 million a year. Let’s apply property taxes on real estate which non profits own. The current tax code seems to provide an incentive to own property instead of leasing.

  14. Charity Navigator is a useful tool if you are going to give to a nonprofit. They put out a variety of information about each organization so that people can make smart choices in giving. I also would think that you could look up information about how much people earn in the nonprofit itself.

  15. Jeff Nelson. Thank you for the link. As I understand it, these comments do refer to non-profits rather than not-for-profits, as Sheila indicated. Seems to me that reform and enhanced regulations are needed for both groups. I’m sure there are non-profits like NPR that do fulfill their mission statements. Those should be protected and supported while the scofflaws should be put out of business.

  16. Sunday’s NY Times business section has a lead column on the direct line between graduates of the non-profit elite universities to big banks provides fodder for your solid points, Sheila. (Harvard is the top example) Why, for cryin’ out loud should the public, essentially, be providing the funds to support the preparation of the employees for profit-making organizations that lobby for and benefit from tax strategies to reduce their obligations as they assist those who seek to avoid taxes succeed as well? Universities serving as “the farm team” for business rankles. And leaders of profit-making financial and business organizations that fail to see they have any civic responsibilities compounds it.

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