Is It Too Easy To Start A Nonprofit?

A woman shows two children something at a table.

In an article on, Ken Stern—CEO of Palisades Media and former CEO of National Public Radio—argues that we aren’t doing a good job of defining what a nonprofit should be. Looking at hospitals and private schools specifically, he wonders if we’re being critical enough in how we determine whether an organization is actually providing a public service:

"It’s hard to understand why some organizations receive charitable status and others do not. One of our core, and fairly obvious, organizing principles is that a charity must dispense a public service rather than a private good. But many of our most prominent civic charities would struggle to meet that basic test. Tickets to symphonies, operas, and the like are often so prohibitively expensive that their primary services effectively exclude everyone but the well-off."

His concern goes beyond how many nonprofits there are to the economic costs of having so many organizations:

"The failure of the IRS and other regulators to act as gatekeepers has consequences that go beyond a few amusing anecdotes. There are substantial economic costs in the form of lost income tax and property tax revenue from organizations that hardly qualify as charities (as well as the deductions taken by their donors). It also means that more and more charities are competing for a finite amount of money from public and private donors, diminishing the effectiveness of real charities. And when people become aware of this problem, it’s understandable that they come away feeling that many charities are downright uncharitable."

With over one million nonprofits in the United States, we often come across the argument that there are too many organizations doing the same work. Yet is the bigger issue not the size, but rather that many aren’t doing enough for the public good?

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