| In the 1970s, welfare crises arose in western countries. Non-profit sector, as an alternative tool for government action in the welfare state, has drawn great attention. The academic research on the non-profit organizations has increased dramatically in North America and Europe. In Eastern Europe, non-profit organizations have also been given great attention after the disintegration of the former communist regime. Beginning of the 1980s, accompanied by the rise of non-profit organizations excitedly, the international academic community set off a wave on the third sector research. Organized around the issues of the non-profit organizational concept (or organizational motivation), organizational roles, organizational cooperation and development, foreign scholars have put forth a series of doctrines of non-profit organizations' "third time distribution" function, such as " the volunteer behavior theory(Susan Rose-Ackerman,1996)","Compensate for market failure theory(Henry B. Hasmann,1980)","Alleviate the crisis of welfare society theory(Jeremy Rifkin, 1996)" and "participation in democratic politics theory (Anthony Giddens,1991)" and so on. American scholar Eleanor·Osterloh won the Nobel Prize in Economics in 2009 because of exploring the order of public affairs co-operation and mechanisms of governance beyond the outside of the government and the market. She studies a large number of non-profit organizations'activities about resource allocation in her academic research on "governing the commons:the evolution of institutions for collective action."The growing non-profit organization led to the scholars" deeper thoughts concerning the issues of non-profit organizations'social status in the allocation of resources and their role of enhancing social welfare. On the basis of inspecting the status quo of China's non-profit organizations and drawing on the development of domestic and foreign scholars'academic achievements of the non-profit organizations, this paper studies the tax incentive system of China's non-profit organizations' "third distribution". at the same time of looking for theoretical basis for the eventual establishment of China's Non-profit organization taxation legal system, it also proposed improving measures related to problems of the tax rules and regulations which our government introduced to set a framework for the development of the non-profit organizations.Through the establishment of the pricing model for Non-profit organizations, I found that Under the law of the average cost pricing, Operating as commercial organizations, non-profit organizations may replace a part of the supply of public goods functions of the government tax, and the efficiency of their supply are higher than that of the government tax in social redistribution. Learning from the function design ideas of cardinal utility theory, and by setting the specific form of Bergson-Samuelson social welfare function, this paper constructs, " a social welfare model of 'third distribution' for non-profit organizations ", and then it compares the social welfare effects of "third distribution" of NPO with that of "second distribution" of the government. In accordance with the ways of fund raising or income collecting, NPO can be classified as business-focused non-profit organizations, and donor-based non-profit organizations, as well as hybrid non-profit organizations in between. Business-focused NPO conducts production operations in law of average cost pricing. When its revenue is used for public welfare undertakings, it will bring about a "double benefit effect." On the one hand, the law of average cost pricing enables NPO to maximize productivity, retrieve the lost part of the surplus value during production of profit-making enterprises, and generate "the first tier of benefits effect" in the process of social production. On the other hand, following its service purpose, NPO denotes revenue for the public welfare, which improves the welfare of disadvantaged groups in society, thereby enhancing the entire social welfare. This forms a "second layer of well-being effect" during the distribution in the community. Receiving continuous and adequate supply of external donation or government fund, Donation-based NPO could provide public services with a price lower than its cost. When cash donations, in-kind donations and contributions from self-employment profits of NPO are used to give relief to the community of poverty, disability and other special groups, it will improve the level of social welfare. If the donations in cash and in kind are with equal discounted price, social welfare effects of the cash donation is higher than that of in-kind donations. The optimal social welfare effect of NPO's "third distribution" differs from that of utilitarianism and egalitarianism, since the "third distribution" does not mandatorily require an absolute distribution of wealth among members of the society, but is running out of the savings for voluntary donations (that means, through the wealth transfer effect of "third distribution", the rich no longer have additional savings), so that resources can be fully used to improve social welfare. Comparing social welfare effects between cash donations of NPO and public goods supply from government tax, their sizes depend on the demand intensity of private goods or public goods among different social groups, and then closely relate to the shape of the different demand curves. Generally speaking, although the government's mandatory taxation can provide society with more adequate public goods, the tax would give taxpayers greater pain. It also causes a greater welfare loss to taxpayers than the voluntary donation. What's more, both the rich and the poor need to pay taxes because of horizontal equity of tax. This transfer of wealth means that maybe it is not able to improve welfare of the poor, but able to reduce the welfare of the poor. Non-profit organizations will bring less welfare losses to the donor because all of them are voluntary, and they could raise more money to special groups of the society in support of the government. Therefore, the "third distribution" of non-profit organization and the "second distribution" of government have complementary functions. The "third distribution" activities of non-profit organizations are very good supplement to improve the social welfare. During the process of transition from planned economy to market economy, the "Matthew Effect" of the initial distribution makes the Gini coefficient quickly to break through 0.2 where residents have a highly average income, to 0.2-0.4 where residents have an reasonable average income. However, the initial allocation emphasizes efficiency in excess. If this situation develops without limitless, the Gini coefficient will eventually exceed 0.6, which is a dangerous area where the residents have an income polarization and social unrest would occur at any time. Therefore, when a country's Gini coefficient varies between 0.4- and 0.6, the government should focus on income re-mediation using the "equalization effect" of "second distribution" and "third distribution", narrow the income gap between society members gradually, and make the Gini coefficient of income back to a more reasonable level between 0.3 and 0.4, in order to maintain the normal operation of socio-economic order.Government's financial incentives for non-profit organizations include project commissioning mechanism and financial subsidy mechanism. In different product markets, the elasticity of supply and demand curves determines the ultimately benefiting extent of the object of the government subsidies. Government should select appropriate form of subsidy for different types of product markets, making the largest part of the benefits received directly by consumers but not NPO, in order to achieve the objectives of government financial subsidies. Government tax incentives for non-profit organizations include business-focused non-profit organizations'tax incentives and social donations'tax incentives. When it implements preferential policies for business-focused non-profit organizations, such as tax breaks, encouraging the accelerated depreciation and so on, the actual income tax rate for non-profit organizations would be lower than the nominal tariff rate, and then investment will increase, which means Government's direct and indirect-type expenditures for the non-profit organizations have positive incentive effects. Government tax incentives mechanisms for non-profit organizations should ensure that it can keep non-profit organizations from deviating from the purpose of its service, and social donation revenue of non-profit organizations is more than tax expenditure on it. Only in this way, the size of social redistribution funds can be expanded, and the total funds of the second and third distribution will not produce leakage.Compared to the foreign public finance supports to non-profit organizations, non-profit organizations in China severely rely on public finance support, which means that the government is the life supply line to non-profit in our country, and government financial support is necessary to the development of our country non-profit organization. Our government financial support for non-profit organizations is mainly in the form of direct appropriation and special subsidy, but less item not so much cooperation with NPO. The author figured out Chinese fiscal revenue elasticity on civil administration fee was 1.145 by the co-integration analysis, which means the fiscal revenue arrangement for actual civil administration expenditure will increase by 1.145% for each additional 1% of the real fiscal revenue. As is showed by the Granger causality test and the impulse response analysis show, our civil expenses regarded as a financial support for the development of non-profit organization is positively correlated with financial income. In the existing institutional framework, the fiscal revenue growth will lead to the increase of the civil affairs expenses that support the development of the non-profit organization in the following five years, with a maximum effect in the second year.Compared to the foreign tax incentive system, the tax legislation related to the NPO in China is not perfect. In view of the experiences in developed countries, government rarely participates directly in the charities, but mainly strengthens the guidance and encouragement for the public charity through policy formulation, especially through tax expenditure policy. Developed countries definite and distinguish different types of non-profit organizations in terms of law, and bring the NPO into the general tax collection objects. The tax laws in developed countries strictly make a difference to commercial operation behavior by a nonprofit organization, and give the donors of non-profit organization munificent treatment of tax reduction or exemption. If the government raises the favorable level for the NPO in view of the foreign experiences, it is necessary for the government to calculate the potential tax expenditure scale of the Chinese NPO. The highest macro tax level for native NPO determines to what extent the government can give tax preference to the NPO, which consists the potential tax expenditure scale from the government. The author simulates the annual added values of the Chinese non-profit organizations are respectively for 85.53 billion yuan,117.63 billion and $141.74 billion yuan, with the macro tax rates 15.591%,16.34% and 19.03% from the year 2005-2007 by using BP neural network, so it can be figured out that the potential tax expenditure scales from our government to the nonprofit organization in these three years are 13.334 billion yuan,19.23 billion yuan and 26.98billion yuan. This means that if the Chinese government wants to implement the motivational tax preferential policies, the highest tax expenditure scale that the government assigned the NPO is the potential tax expenditure as calculated above, which accounts the tax amount of the third industry 1.43%,139 and 1.42%.
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