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Daniel Halperin, Is Income Tax Exemption for Charities a Subsidy?, 64 Tax L. Rev. 283 (2011).

Abstract: Article considers whether income tax exemption for charities is consistent with normal income tax. It finds that exemption for contributions is not special treatment and that exemption for income from sale of goods or performance of services related to the purpose of the charity is special treatment only if profits are used for expansion. It concludes that a subsidy for expansion can be justified. Most importantly the article finds that exemption for investment income is a subsidy. It concludes that exemption for such income depends on a value judgment as to whether public policy should favor less accumulation and more current spending by charites. It suggests that the exemption for investment income and the charitable deduction should be limited in certain circumstances.