Income taxes & tax exempt status established: The beginning of the non-profit industrial complex
Description: The Revenue Act of 1913 established an income tax on the highest incomes. At the same time, institutions “organized and operated exclusively for religious, charitable, scientific or educational purposes” were exempted from paying federal income tax.
Intent: Federal income tax was established to compensate for the reduction in tariff dues, which was also a part of the Revenue Act. Charitable organizations were defined as those whose net income does not benefit “any private stockholder or individual.”
How Generosity Got Stifled: Public charities and independent foundations had been in existence for decades, and operated for the public good. This Act formally started the era in which tax policy regulated philanthropic activities and incentivized charitable giving. These laws created a distinct nonprofit sector defined by their legal status. This was the beginning of the nonprofit industrial complex, in which the government has the ability to monitor and control social movements, and a reliance on state/ foundation/corporate funding has derailed the course of social movements. Nonprofits can only be as radical as their donors, and must often shape their activities to align with donor interests.
Source: Internal Revenue Service