Super-long, and guess what? It's just an excerpt.
Charity is said to be a virtue without compare, and yet we all know that it arouses suspicion—about the giver’s display of his generosity, the recipient’s dependency, some essential inequity that the gift only reinforces. Perhaps for this reason, Maimonides argued that the highest level of charity was not charity at all but rather helping the needy find the means by which to earn their own living.
In democratic America, what charity is and what it ought to do have been redefined in this spirit from the bestowing of alms to the performance of public-spirited works of all sorts by voluntary associations of citizens. Over the past century, such associations have grown and gradually coalesced into an economic “sector” of their own, albeit one that is not dedicated to the pursuit of profit. The chamber of commerce, the soup kitchen, churches and synagogues, the Berlioz Society, the university, Commentary—these are all voices in the chorus of American nonprofits, which collectively account for 11 percent of the overall U.S. economy.
Charitable organizations have suffered along with everyone else from the present economic crisis. Estimates by the Independent Sector, a philanthropic umbrella group, are that charitable assets are collectively down by nearly a third. Some organizations have shut their doors, and the survivors have had to make painful adjustments, let go of staff, abandon projects, and scale down ambitions for years to come, at precisely the moment when their services and patronage are needed most.
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It was therefore surprising, and instructive, that at the same time the Obama administration was extending bailouts to troubled industries thought to be systemically or strategically important, it also presented for national consideration a change in tax policy that seemed like nothing less than a direct assault on the ravaged coffers of nonprofits. For almost a century, about as long as the U.S. has levied a significant tax on income, government policy has encouraged charity by exempting donated dollars from its reach. But in February, the administration announced that it would seek to raise revenue for its ambitious spending programs by reducing the charitable deduction for the highest two income-tax brackets by as much as 30 percent—this, when their marginal rates will already rise respectively to 36 and 39.6 percent in 2011.
When a reporter at a press conference in March suggested that this was effectively a tax on charity, Obama held fast, insisting
if it’s really a charitable contribution, I’m assuming that [the tax exemption] shouldn’t be the determining factor as to whether you’re giving that $100 to the homeless shelter down the street. And so this provision would affect about 1 percent of the American people. They would still get deductions. It’s just that they wouldn’t be able to write off 39 percent. In that sense, what it would do is it would equalize. When I give $100, I’d get the same amount of deduction as when some, a bus driver who’s making $50,000 a year, or $40,000 a year, gives that same $100. Right now, he gets 28 percent; he gets to write off 28 percent. I get to write off 39 percent. I don’t think that’s fair.
Nor was this the only virtue of the proposal, for it would also present the American people with a new pot of money to direct toward worthy societal aims:
I think it is a realistic way for us to raise some revenue from people who’ve benefited enormously over the last several years. And, you know, ultimately, if we’re going to tackle the serious problems that we’ve got, then, in some cases, those who are more fortunate are going to have to pay a little bit more.
Thus, the plan would eliminate an unfair privilege for the rich without hurting the poor—or, at least, without hurting the poor who receive charity from entirely selfless people who are certain to maintain their level of giving no matter what the federal government does. “There’s very little evidence,” Obama concluded, “that this [program] has a significant impact on charitable giving.”
Casually dismissing the role of incentives in altruism may strike those of a more hardnosed bent as fanciful, and as an empirical matter, according to the economist Martin Feldstein,
A substantial body of economic research shows that, on average, each 10 percent reduction in the cost of giving raises the amount that a person gives by about 10 percent. So, the 35 percent reduction implied by current deductibility rules raises the amount of charitable giving by about 35 percent. . . . [The administration’s plan] raises the cost per dollar of giving from 65 cents to 72 cents, an increase of 10.8 percent that can be expected to reduce the total giving of these donors by about 10 percent.
In other words, the President’s proposal would reduce the amount of money given to charity by at least 10 percent. That would be “a significant impact” in anyone’s book. Peter Orszag, director of the White House Office of Management and Budget, seemed to concede the point when he offered in mitigation that “contained in the recovery act, there’s $100 million to support nonprofits and charities as we get through this period."
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More interesting than his empirical assertion, at any rate, was the moral attitude Obama projected toward the nonprofit sector, in which he himself had worked for many years of his professional life. His argument made little of the fact that a donor does not consume a single penny of the charitable donation that is currently exempted from taxes. Financially, one is best off keeping the money. The supposed “benefit” only accrues when one gives it away, and only by lowering the “cost of giving” imposed by our progressive tax system, which already derives a majority of income taxes from the highest earners. Only givers would be penalized under the new plan—the situation for the uncharitable rich would remain the same—and yet the President’s critique suggested that the system needed to be corrected in the name of “fairness.”
In one of its rare acts of defiance this year, Obama’s otherwise compliant Congress did not vote his reduction proposal into law. But this does not mean it is gone forever; he will be in a position to submit it again, especially if, as seems likely, the Treasury finds itself short of revenue. Certainly the idea of fairness underlying the proposal is very much a part of the administration’s outlook, and it fits neatly with a liberal suspicion of charity that has gained traction in recent years, and that withholds even two cheers from American philanthropy as it is now practiced. This is a matter that should be of concern to everyone, not just those who work for and support nonprofit institutions, and not just givers who rightly feel themselves the implicit objects of improper Oval Office criticism. The war on philanthropy that appears to be developing is a challenge to the vitality of our civil society and a serious threat to the non-governmental “mediating institutions” (as sociologists call them) that have always been a particular hallmark and glory of American society.
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The specific indictment against private philanthropy goes something like this: Because the Treasury forfeits some $30 billion every year in various tax exemptions for charity, government has a responsibility to see that this “subsidy” (as Representative Xavier Becerra of California calls it) is justified by the use to which the money is put. Government, in this view, should not be in the business of subsidizing, say, gifts to the San Francisco Opera by residents of posh Hillsborough Heights, or the vanity projects of a closely-held family foundation, or additions to Harvard’s multibillion dollar endowment so that (wink, wink) it will admit a donor’s child. Former Labor Secretary Robert Reich argues instead that the deduction system should be calibrated so that givers receive a full deduction for poverty charities and only half a deduction for the Public Theater. According to Peter Singer of Princeton University, gifts to the arts cannot be justified at all while other problems exist in the United States.
Sure, the argument continues, private charities and civil-society foundations do a lot of good, but all too often they are vehicles for money laundering or dressed-up consumption that do not benefit the truly disadvantaged. This anarchic system needs to be nudged in the right direction—a little more redistribution here, a little more regulation there—to ensure the best kind of outcome. Taxing charity, according to Peter Orszag, would be paid back to society and the struggling nonprofits themselves in the coin of national health care. The critics seem to feel that there is enough wealth in this country to alleviate social problems and still leave plenty of money left over to pay for gilded plaques at the overcapitalized opera house.
The most notable campaign against the philanthropic status quo has been waged by the California-based Greenlining Institute, a nonprofit that seeks greater “racial and economic justice” by attempting to force greater minority representation in government, commerce, and higher education, mostly by publicly shaming or suing companies into doing the right thing. (The institute’s name is a play on the practice by banks of “redlining” poor neighborhoods as bad credit risks; “most of our money,” its director has boasted, comes not from donations but “from lawsuits.”)
After a Greenlining study found that a mere 3 percent of private grant money in California went to minority-led causes, the group waged a concerted campaign on behalf of state legislation to require foundations with assets over $250 million to disclose the race, gender, and ethnicity of board members, staff, business contacts, and individual grantees (at one point sexual orientation was also included), and to report the amount and percentage of grants to organizations in which 50 percent or more of board members and staff were minorities.
The bill passed the California state assembly and was being debated in the state senate when a settlement was reached with the Foundation Coalition, an umbrella group of California’s largest foundations. It dutifully pledged to support “capacity-building” and “leadership-development activities” of minority-led institutions to the tune of several hundred million dollars over the next few years. With this triumph secured, Greenlining has promised to undertake similar efforts in a number of states and on the federal level.
