Interesting New York Times article, What Is Charity? (by Stephanie Strom), which extensively quotes Tax Prof John D. Colombo (Illinois):

[A]re the tax breaks that propel our philanthropy justified? Representative Bill Thomas, Republican of California, the chairman of the powerful House Ways and Means Committee, has raised those questions in a series of hearings examining whether tax exemption is justified for certain types of nonprofits.

The question, in his words, is, "What is the taxpayer getting in return for the tens of billions of dollars per year in tax subsidy" offered to donors through tax write-offs or to nonprofits through their tax exemptions? According to the Treasury Department, the charitable deduction will amount this year to a $40 billion tax subsidy, mostly to upper-income households – overshadowing the roughly $20 billion the human services sector is likely to raise. No official estimates exist for the cost of the tax exemption covering money that nonprofits spend and for the property they own….

"When you start to ask what is the fundamental underlying rationale for tax exemption and the charitable deduction for donors, it leads to questions that are far more difficult to answer than questions about greater disclosure and better governance," said John D. Colombo, a tax-law professor at the University of Illinois who testified before Rep. Thomas. "It gets you to questions like, why should an institution with billions in the bank get tax exemption?"

"We simply don’t have a coherent rationale for what it is we call charity," Professor Colombo said. "So we have these vastly different sorts of organizations doing vastly different things and calling it charity."…

"For the past 15 to 20 years, educational institutions have been funded primarily by tuition and fees, not donations," Professor Colombo said. "We’re conditioned to think of them as charities, but they aren’t."

(See the Illinois press release here.)