When I began this blog–nearly twenty years ago!–I would occasionally run out of likely subjects, and ask my husband to suggest something. That problem has vanished; today, the challenge is to choose which aspect of a tumultuous time to consider. I share this small dilemma because today’s post is centered on a problem that probably doesn’t rank high in the universe of challenges we face, but still deserves attention–and ultimately, a remedy.
That problem is the definition of nonprofit.
Back before I decamped from legal practice to join academia, I was aware that a good lawyer could often turn what was really a for-profit endeavor into a nonprofit organization. Assuming an arguable existence of a public good, it was possible to create a corporation that didn’t have a positive bottom line. You would simply transfer amounts that would otherwise be taxable profits into overhead costs, mainly salaries and perks for those in charge, and avoid those pesky taxes.
That clever lawyering has given us (among other things) “nonprofit” hospitals paying executive salaries of over a million dollars a year (Hospital CEO’s are paid an average of I.3 million according to a recent study from Rice University.)
The effects of that blurry line between for-profit and nonprofit was the subject of a recent opinion piece in the Washington Post that called it a 2.8 trillion dollar tax shelter. As the author noted, a growing number of supposed “charities” have become big businesses.
Granted, many charities are authentic and truly benevolent, but it is also true that the nonprofit sector is dominated by companies that are exempt from the tax obligations that burden their virtually indistinguishable for-profit competitors. According to the linked essay, “the commercial revenue generated by these nonprofits totaled $2.8 trillion in 2023, nearly three times the amount nonprofits receive from donations and government grants.”
In 1909, Congress exempted charitable organizations from the corporate income tax, intending to protect “small fraternal societies providing insurance to widows and tending to the poor.” But the exemption also applied to mutual lending and insurance companies, which opened the door to exempting other “businesslike” companies. As a result, the “past century of special-interest lobbying has transformed a modest carve-out into a sprawling network of billion-dollar enterprises that look, act and compete like businesses — while enjoying privileged tax status.”
Consider nonprofit hospitals and health care plans: In 2023, they generated $1.3 trillion in revenue and nearly $45 billion in tax-free profits. The largest, Kaiser Foundation Health Plan and its affiliated hospitals, recently announced over $127 billion in revenue in 2025 — more than many of America’s largest for-profit companies — yet paid no corporate income tax on more than $9.3 billion in net income. The justification? In exchange for their tax exemption, nonprofit hospitals are supposed to provide charity care for the poor. However, studies consistently find that tax-exempt hospitals don’t provide more free or discounted care to low-income patients than their taxpaying competitors.
Or take AARP, an advocacy group for older Americans, which earned $9.9 billion in tax-free royalties in 2024 by licensing the use of its name to for-profit companies. AARP signed a sponsorship deal last year with the Washington Nationals to place its logo on players’ uniforms. Hardly the action of your neighborhood nonprofit.
Other organizations that fall into that category include the PGA–which pays no income taxes on the hundreds of millions it makes from television or tournament sponsorships, and the U.S. Tennis Association, the U.S. Polo Association, the WTA Tour, the Breeder’s Cup and the National Hot Rod Association. The list also includes profitable award shows like the Academy of Motion Picture Arts and Sciences Oscars ($147 million tax-free in 2023), and the Grammys (nearly $93 million from TV, sponsorships and ticket sales in 2024.)
Then there’s the credit union industry, which was originally exempted to serve working-class people of “small means.” They are now indistinguishable from commercial banks–in fact, over the past decade, they’ve purchased nearly 100 commercial banks, converting taxpaying businesses into tax-exempt ones.
We can exempt genuinely charitable endeavors like food banks, homeless shelters and others serving the needy from taxation, but it is long past time to distinguish between truly charitable endeavors and what the essay calls “commercial enterprises wearing nonprofit clothing. If it walks and quacks like a business, tax it like one.”
There is serious money at stake. The essay points out that taxing the net business income of these faux nonprofits at the standard 21 percent corporate rate would raise $51 billion annually — and would do so without raising rates on anyone currently being taxed.
It’s past time to treat these pretenders like the for-profit businesses they really are. Put this reform on your list of things we must do when we emerge from our current nightmare.
Wow, excellent and informative article.
While Social Security and Medicare are losing decades of viability, the 1% lines its pockets at the expense of the poor and middle-classes.
It never ceases to astonish me that so many otherwise nice people think that just because something is legal that it is also moral and ethical. This corruption of charity is just one example. And they don’t even try to hide it. Just look at the donor list of the Indianapolis Symphony Orchestra where your donation to one nonprofit is given to another. I look at those incredibly large dollar amounts and wonder how they might have done more good helping the homeless.
A united community sets its own priorities. United Way brings citizens together to identify the most urgent needs—especially for neighbors facing poverty and homelessness—and directs resources where they create the greatest impact. A gift strengthens this shared decision‑making, ensuring every voice matters and every family has a path to stability, dignity, and hope. United Ways operate in Indianapolis and right here in Asheville. If you look for what is right in the world … you will find it.
Add in the religious organizations, too!
Sorry, Norris, but I killed my donations to United Way decades ago. As a VP at a bank, we were required to “give back” to UW. Then I was told a “dedicated donation” given to Hospice would reduce the amount UW would give to Hospice, so I said FU and scratched my card and put -0- and made my donation directly to Hospice.
When I recently wrote an article about the cost of living in Muncie, Indiana, it struck a nerve. In short, the higher waged jobs were from the hospital and university (both nonprofits) but since they didn’t live here, they didn’t pay any property taxes for schools and other services. The politicians sold us about COITs and LOITs as a means to collect taxes from those high-waged consumer/employees, but guess what? In Indiana, the LOITs and COITs went to the counties and cities where those employees lived. #POOF
So, guess who got screwed into paying even more on local taxes because the grifters didn’t pay a dime? Now, we are paying an $8million firehouse on campus so they can house a ladder truck for the university?
Marion County and Downtown Indy suffer from the exact same grifting scheme.
If capitalism’s is so great and our tax system levels the playing field, why doesn’t it work that way? LOL
Super post on a hidden growth….
I worked for Community Health Network for 25 years. It’s a not for profit healthcare system. They are the third or fourth largest healthcare system in the state. While they have hundreds of millions of dollars in revenue, their margins are actually pretty slim. One of the things that I’m proud of about them is that they started out as a donor funded hospital to serve the east side of Indianapolis. Unlike St. Vincent’s, they could’ve moved out of town and up to the northern suburbs, but they didn’t. In the past 10 years they’ve completely rebuilt the East campus and have continued a strong presence on the east side.
I’m conflicted about their not for profit status, but I suspect if they were paying taxes, the East side hospital would have closed a long time ago.
I think Indiana’s biggest problem with hospitals is a lack of regulation and no certificate of need requirements. I’m still amazed that IU health is spending $4.3 billion on a single project at 16th and capital. A single payer system wouldn’t hurt either. Medicare‘s 2.5% overhead is pretty amazing but it’s being destroyed by Medicare advantage plans.
Dan, Community Health Network donated between $20,000 and $49,900 to the ISO this past year. WHY?
Believe me when I tell ISO might be doing well today, but that hasn’t always been the case. All things considered, in this day and time, the arts are in jeopardy. You may or may not be a fan of the Symphony, but it is an important part of Indy’s art scene. It’s nice to know that it’s now strong enough to continue, in spite of its wokeness.
Theresa, I can answer your question … and it is a good one. The gift is mission‑aligned, strategic, and beneficial to community health—exactly the rationale executives and board members expect.
Community Health Network’s mission extends beyond clinical care to strengthening the overall well‑being of Central Indiana. A $20,000 contribution to the Indianapolis Symphony Orchestra (ISO) directly supports this mission by investing in a cultural institution that enhances emotional, social, and community health.
The ISO is a cornerstone of civic life, providing accessible arts programming that reduces social isolation, supports mental wellness, and enriches quality of life—factors recognized as social determinants of health. Its education and outreach programs reach thousands of students annually, aligning with our commitment to youth development and healthy communities.
This partnership also reinforces Community Health Network’s role as an anchor institution. Supporting the ISO demonstrates visible leadership in community vitality, strengthens relationships with key civic stakeholders, and elevates our brand among diverse audiences who value arts, culture, and community investment.
Reading all the above, it seems one problem is that most of us just don’t know which organizations deserve our support and which ones are funneling money into already well lined pockets. Another reason why the 1% act to eliminate the free press and government regulations.
Sorry Norris, I’m not buying the nonprofit speak that rationalizes charity as a growth industry for all when the people who really profit are the ones operating the scam. Spin it any way you want, but the truth is that the $20,000 Community sent to ISO could have paid down the medical debt for numerous poor people… people who could never afford to go to the symphony.
Hmmmmm…
Yes, the National Rifle Association (NRA) is a non-profit, tax-exempt organization, specifically classified as a 501(c)(4) “social welfare” organization. While it promotes gun safety and education, its tax-exempt status allows it to heavily engage in lobbying, which separates it from 501(c)(3) charities. The NRA has faced legal challenges regarding its financial practices.
This has long been an issue for me. They have no true public stock holders, often thevoverseers of administrative abuse, and answer to Boards who are elected by members who are getting direct benefits. Many of those benefits have been tax deductible for the donors.
Also the definition of charity, educational programmer, is truly pretty sketchy and broad.
Thanks Sheila and The Washingto Post fir highlighting this possible abuse.