501(c)3 charitable organizations collected $1.73 trillion in revenue in 2012, according to statistics released by the IRS on Wednesday.
This figure represents the highest level of revenue ever received by charitable organizations, up from $1.65 trillion in 2011. Charitable organizations now make over three times as much revenue as they did in 1985, with revenues growing by an average of 4.8% each year.
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Contrary to what you might expect, charitable organizations do not make the bulk of their revenues through donations. In 2012, only 21.3% of revenue for 501(c)3 organizations came from contributions, gifts, and grants. Instead, charitable organizations in the United States are largely funded by “program service revenue” – such as the tuition received by non-profit universities, or the medical bills collected by non-profit hospitals.
The non-profit sector represents a substantial share of the United States economy, totaling $887.3 billion and accounting for 5.4% of GDP (about the same size as the information technology industry.) It is also one of the most rapidly growing parts of the economy, with overall employment increasing by 17% between 2000 and 2010, significantly faster than private business job growth. Now, the recent IRS figures confirm that charitable organizations are receiving higher revenues than ever.
The growing importance of the non-profit sector to the U.S. economy is a trend that tax policymakers cannot afford to ignore. The more economic activity in the U.S. is carried out by tax-exempt organizations, the heavier a tax burden the federal government will have to place on for-profit businesses to fund its operations. Discussions about tax reform will have to account for this trend towards more tax-exempt economic activity.Share