governments typically levy taxes. The activities of nonprofit organizations are financed through some combination of private and government contributions of money, time (volunteer labor), and goods; tax subsidies; user fees; and assorted ancillary revenue-generating activities (e.g., university bookstores, museum shops, or hospital-operated commercial fitness centers).

In keeping with standard practice, the outputs of the government and nonprofit sectors in the National Income and Product Accounts (NIPAs) are valued by summing the market value of the inputs purchased for their production (plus, for government, a capital depreciation component). Measured in this limited way—largely in terms of expenditures on labor and structures—output of federal, state, and local governments included in gross domestic product (GDP) was estimated to be $1.96 trillion of the total $10.49 trillion for national output in 2002 (Bureau of Economic Analysis, 2004). Over 22 million people are employed by government at all levels. This represents about 17 percent of all employment—a share that has held fairly steady over the past decade (U.S. Office of Management and Budget, 2003). According to Bureau of Economic Analysis (BEA) data, these government employees received more than $1.1 trillion in wages, salaries, and benefits in 2002 (Bureau of Economic Analysis, 2004).

Currently collected data also provide some sense of the importance of nonprofit institutions in the economy. Most of what is known relates to organizations that serve the public and are classified under section 501(c) of the tax code. These organizations are eligible to receive tax-deductible donations and are large enough (over $25,000 in revenues) to be required to file annual reports with the Internal Revenue Service (IRS). Other organizations of particular interest, such as religious congregations and organizations with revenues of less than $25,000 per year, are not required to report to the IRS and, as a result, information about them is lacking (Boris, 1998).

Under law, there are many classes of tax-exempt “nonprofit” organizations. 501(c)(3) public charities include, among others, most nonprofits involved in the arts, education, health care, human services, and community service. 501(c)(3) private foundations are primarily grant-making organizations, such as the Ford Foundation or the Pew Charitable Trusts, that make grants to other nonprofit organizations. Other exempt organizations registered with the IRS include trade unions, business leagues, social and recreational clubs, and veterans associations classified under varying parts of section 501(c)(4) of the IRS code (Urban Institute and National Center for Charitable Statistics, 2000).2

Data published in the New Nonprofit Almanac (Independent Sector and the Urban Institute, 2001) provide an indication of the role that these organizations play in the economy. The Almanac focuses on groups it calls independent-sector


For full definitions of these kinds of organizations, see the IRS web page on the topic, available at [accessed October 14, 2004].

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