In many cases, executives at non-profits make MORE than their for-profit counterparts simply because there aren't exactly shareholders, and people who sit on the boards of non-profits tend to be less experienced than corporate board members (often non-profits are seen as "training" for corporate board membership). This is especially common in health care. It's not universally true by any means, but it's common enough to be a real problem.

A business that operates at 90% of the effectiveness of its competitors is likely to fail completely. A charity that operates at 90% effectiveness will just produce a bit less good work in the world.

Again, this isn't a reasonable argument. The cost of labor does not magically disappear just because the employer is a non-profit instead of a for-profit. Teachers, clerks, and accountants don't magically cost less when they are paid with tax payer dollars. (Incidentally, administrators -- on average -- do cost substantially less in the non-profit sector.)

Actually, charity's pay people less than market rates in other positions.

It's not magical, though. And it's not because the charity is "funded by tax payers".

Sometimes the salaries are discounted because the charity can find someone who "believes in the mission" (sound familiar?).

Sometimes the salaries are discounted because that's all the charity can afford. If the charity can't find someone willing to take the pay cut, then it ends up subsisting on below-average performers. See hospitals, for example. If they don't pay market rates for doctors, they probably have sub-par doctors. If your charity can't sell its mission as part of the compensation package, then it has to cough up.

The point is, no one is going to take a pay cut just because, as GP put it, they're "funded by tax payers". Why the hell would anyone take a pay cut just because their job is funded by tax payers instead of by the Gates foundation?

A tax is an effectively positive tax rate. A subsidy is an effectively negative tax rate. A tax rate which is effectively zero is neither strictly positive nor strictly negative, so is neither tax nor subsidy.

In order to make the argument you seem to be making, you must be holding government revenues from taxes to be constant, which makes tax cuts and tax increases a zero-sum game. If someone is taxed less, someone else must be taxed more. But I do not agree with your assumption that the government seeks to keep its revenue from any one particular tax constant when considering changes to tax law, or that it must necessarily even consider the revenue impact at all.

The goal in this particular case actually seems to be to influence the behavior of those who pay the tax in a particular way, and the revenue is mainly a pleasant (for them) afterthought.

Tax exempt status may or may not be for any given operation (lots wouldn't pay any, or many, taxes even if they weren't tax exempt), but tax deductibility of donations to an organization is very clearly a form of subsidy, and one which increases with the marginal income tax rate (and thus, with the income) that would be paid by that organization's donors before considering the deduction for their donations.

Cut the tax break, fine, but then we need the government to intervene and provide assistance for citizens.

Or, you know, churches.

The idea that the tax subsidy is justified by the fact that subsidized charities are displacing costs that would otherwise need to be born by the government would probably be more supportable if:

(1) tax subsidized charities didn't perform functions that the government is Constitutionally barred from performing (viewing the subsidy as an alternative means of performing government functions, would make subsidizing "charities" to do such barred tasks a way for government to evade its Constitutional limits), and

(2) the tax subsidy were the same for all donors (e.g., a fixed proportion credit) since each dollar given would displace the same amount of government funds no matter who gives it, rather than escalating for wealthier donors.

All 501(c)(3) charities are funded by taxpayers by means of the tax subsidy provided by the deductibility of donations to the organization (which is a separate issue from the tax exempt status of the organization itself.)

Tax exempt non-profits that are not charities may or may not be taxpayer funded by some mean, but, the subject of the thread here is charities, not nonprofit organizations more generally.

Underpaying in a non-for profit assumes that they can still get the same quality worker.