A Diversity Theory of Charitable Tax Exemption—Beyond Efficiency, Through Critical Race Theory, Toward Diversity

Research output: Contribution to journalArticle


What is the normative rationale for the federal income tax exemption for nonprofit charitable corporations? Even though the exemption dates back to 1894, Congress has failed to fully rationalize it. Though scholars and courts have attempted over the years to come up with a coherent rationale for the charitable tax exemption, their attempts are focused almost exclusively on economic efficiency. Thus, the charitable tax exemption is typically framed by noted tax scholars like Boris Bittker, Henry Hansmann, and others as an economically efficient means of providing certain goods and services to the public. Rationalizing the charitable tax exemption in economic terms is certainly appealing and deceptively comforting. Indeed, since taxation is facially concerned with money, why not articulate a basis for tax exemption in money terms-hence, economic efficiency.

But no matter how appealing efficiency might seem, it is axiomatic that law, and more particularly tax law, is about much more than economic efficiency. Tax law is about broader conceptions of justice, fairness, and other aspects of a democratic society that extend beyond economic principles. Likewise, the tax exemption for charities is about much more than money, economics, or optimal profit. Instead, the charitable tax exemption is principally about accomplishing a value-based mission. That mission may at times be at odds with the notion of a pure profit motive that dominates the private market narrative. While efficiency analysis may be relevant to some aspects of a charitable mission, there are many other non-economic aspects of “mission” that extend beyond economics. Thus, this article does not dispute that traditional efficiency analysis adds to our normative understanding of tax-exempt charity law. Economic analysis may, for example, aid in understanding the exemption's economic impact. However, efficiency alone simply does not fully explain the varied and rich non-economic aspects of the charitable tax exemption. Accordingly, this article offers an alternative framing of the charitable tax exemption that serves as an alternative to the longstanding economic theories of scholars like Boris Bittker, Henry Hansmann, and others. The article demonstrates that a principal normative justification for the exemption, in addition to economic efficiency, is diversity-what this article calls "contextual diversity."

Original languageAmerican English
Pages (from-to)1-49
JournalPittsburgh Tax Review
Issue number1
StatePublished - Oct 1 2006


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