As this report illustrates, the nonprofit and charitable sector represents a significant, highly diverse component of the U.S. economy. The recent economic downturn increased the demand for many of the goods and services provided by charitable organizations, while simultaneously placing the same organizations under increased financial constraints. Charitable organizations are defined as organizations with 501(c)(3) public charity status, and are a subcategory of the broader nonprofit sector. The second section provides an overview of the charitable sector, focusing specifically on employment within the sector, as well as revenue and assets of charitable organizations. The fourth section reviews the relationship between the charitable sector and government. Finally, the report concludes with policy considerations and options. For purposes of this report, the term "nonprofit sector" is generally intended to include all organizations with federal tax-exempt status. Size and Scope of the Nonprofit and Charitable Sectors

		Employment

Measuring employment in the nonprofit and charitable sector is not an easy task. Nearly 10% of America's workforce works in the nonprofit sector, with more than 7% of the workforce employed by charities. Charities reporting as of July 2009 held $2.6 trillion worth of assets. Specifically, health charities hold nearly 36% of assets while only 5.5% of charitable organization filing Form 990 are in the health sector. Contribution of Charities to GDP

To evaluate the contribution of nonprofits and charitable organization to total output, data from the agency charged with measuring the size of the U.S. economy, the Bureau of Economic Analysis of the Department of Commerce (BEA), is utilized. How Are Charities Funded? There is substantial attention given to this revenue source, as it is believed that private contributions to charities are likely to fluctuate in response to changes in economic conditions and the tax treatment of contributions. Investment income includes the sales of securities, interest, and dividends. These fee-for-service organizations are much less reliant on private contributions than other types of charities. Overall, understanding what types of charitable organizations have a greater reliance on specific sources of revenue may help policymakers understand the potential for external economic conditions to impact the well-being of the charitable sector. Charities where a larger proportion of revenue come from private contributions, such as arts, culture, and humanities and environment and animals, are more likely to be impacted by changes apt to cause fluctuations in private giving, such as changes to the tax code. Similarly, Figure 5 shows that the share of government grants and payments in total revenue varies substantially across different types of charities. The Charitable Sector's Relationship with Government

Various charitable activities are subsidized by the federal tax code or funded via government grants. First, the government provides grants directly to charitable organizations providing public goods. Health care provision may also have positive external effects. Recently, the federal government has begun undertaking social innovation initiatives involving nonprofits. Policy Considerations

This section considers a variety of policy issues, drawn from a number of sources. Other proposals that more than half of respondents identified as somewhat or extremely useful included
expansion of tax incentives to encourage volunteering; student loan forgiveness for those working in the nonprofit sector; a credit for investment making low-cost private capital available; restoration of the estate tax; a commitment to support research and improve data on the nonprofit sector; expansion of national service programs like Americorps; replacement of the charitable contribution deduction with tax credits; a federal agency to represent and promote the interests of the nonprofit sector; strengthening of government oversight agencies; clarifying the community benefits standard (this issue relates to nonprofit hospitals); eliminating or reducing the limits on lobbying activities; and providing a special category of "hybrid" organizations, such as social enterprises (organizations that operate businesses but with a social mission, such as hiring the hard to employ or using the surplus for a charitable purpose). The Itemized Deduction for Charitable Contributions

A number of proposals have developed over the years relating to the itemized deduction for charitable contributions.
A number of policy issues have direct or indirect consequences for the nonprofit and charitable sector, including the establishment of a social innovation initiative, changes in the tax treatment of charitable donations, responses to the economic downturn, and health care reform. The nonprofit and charitable sector represents a significant portion of the U.S. economy. The sector is also highly diverse. Having a greater understanding of the nonprofit and charitable sector as a whole may help policymakers evaluate proposals that may impact the sector.
The first section of this report provides a formal definition of the nonprofit and charitable sector. The term "nonprofit sector" is generally intended to refer to organizations with federal tax-exempt status; "charitable sector" refers to the subset of these organizations that have 501(c)(3) public charity status.
The next section reports on the size and scope of the charitable sector. Charitable organizations are estimated to employ more than 7% of the U.S. workforce, while the broader nonprofit sector is estimated to employ 10% of the U.S. workforce. In 2009, the charities filing Form 990 with the Internal Revenue Service reported approximately $1.4 trillion in revenue and reported holding nearly $2.6 trillion in assets. Nonprofit institutions serving households (largely charities) constituted more than 5% of GDP in 2008.
The third section of this report examines how charities are funded. Revenue comes from a variety of sources, including private contributions, payments (fees for service), government grants, and investment income. Revenue sources vary significantly across different types of charities: charities involved in health care (including nonprofit hospitals) and educational institutions rely heavily on private payments while arts, culture, and humanities charities and environment and animals charities are more reliant on private contributions. Private contributions to charities are of particular interest as charitable giving may respond to changes in the tax code. As the recent economic downturn has increased the demand for goods and services provided by a number of charities, the impact of the business cycle on funding is also discussed.
The fourth section provides an overview of the charitable sector's relationship with government. From a theoretical perspective, economics suggests that the government should subsidize activities that are either public goods or have positive external effects. It can be argued that some charitable activities possess these qualities. The costs to the government of providing grants, allowing charitable contributions to be tax deductible, exempting investment income of charities from tax, and providing property and sales tax exemptions are presented. The oversight role of the government is also reviewed.
Finally, the report concludes with policy considerations. This section opens by surveying what policy options are considered most important by charitable organizations themselves. Building on this, a number of policy options are examined, including (1) increasing government grants and subsidies to charitable organizations; (2) creating an oversight agency within the federal government to gather data, conduct research, and advocate for the charitable sector; (3) implementing policies designed to help charities and foundations in economic downturns; (4) changing the itemized deduction for charitable contributions by limiting, converting to a credit, or making the deduction more widely available; and (5) a variety of other tax issues.