The ‘Giving’ Season

The ‘Giving’ Season

What’s so bad about big-ticket philanthropy? Nothing—except that it lets the wealthy decide how to spend money that would be the Treasury’s.


It’s that time of the year. On November 7, the New York Times launched its ninety-ninth Neediest Cases Fund campaign. Three days later, in an article headlined "The rich are different from you and me. They give more," reporter Jan Rosen summarized the latest Bank of America Merrill Lynch study of "High Net Worth Philanthropy," which, like previous studies, praised the wealthy for their generosity (though noting that, in 2009, they gave a median of just 3.4 percent of their income to charity). In a second "Giving" article published that same day, Stephanie Strom discussed the status of the "Giving Pledge, a commitment by 40 of the wealthiest Americans to give away at least half of their fortunes, about $600 billion."

Queried on the "emerging debate" the pledge had stimulated "about the influence that wealth has in the country today and the fears that philanthropy is being used to bend public policy," Strom noted that pledge signers like Bernard Marcus, co-founder of Home Depot, were dumbfounded by it. "All this money is going for charity to help people—what kind of numbskull would find something wrong with that?"

Pardon me for acting the Grinch in this "giving" season, but I feel obligated to call attention to the fact that under current federal tax codes almost all of those who give (and itemize their deductions) are eligible for and receive a tax deduction of up to 35 percent. When Mr. and Ms. Rich Alumni make a $1,000 contribution to their private university, or to their church, or to fix up the park across the street, or to subsidize the concert hall they patronize, it costs them only $650. The remaining $350 comes from the taxes they would otherwise have had to pay on that $1,000. I’m delighted that Harvard was able to raise $596 million last year, but if we assume that most of it came from those in the highest tax bracket who itemized their deductions, that $596 million breaks down to about $387 million from the donors and $209 million from the Treasury in forgone tax revenues.

In early 2009 the Obama administration proposed a decrease from 35 percent to 28 percent on the top rates for deductions for mortgage interest and charitable donations, claiming that this adjustment would generate $318 billion in taxes over the next ten years to help pay for healthcare reform. The suggestion was no sooner voiced than it was killed by Congress after withering criticism from both sides of the aisle. The outcry about messing with the charitable tax deduction was particularly raucous. The charitable deduction has become so sacrosanct that not even President Obama’s bipartisan debt-reduction commission—which has called for limiting or eliminating mortgage-interest deductions—dared suggest any comparable adjustment to the rates for charitable deductions.

The philanthropic sector, fed in part by the charitable deduction, has grown beyond all expectations in the past quarter-century. So too has the influence it wields over public policy. In 2009 charitable giving totaled more than $300 billion, or 2.1 percent of the GDP. Though Bill Gates and Warren Buffett have become the beneficent faces of twenty-first-century philanthropy, foundations like theirs account for only about 13 percent of total giving. In 2009 fully 83 percent, or more than $250 billion, was given by individuals and estate bequests. Some 70 percent of this total came from the 3.1 percent of Americans with incomes greater than $200,000 and/or assets exceeding $1 million.

Where does this money go? Some to disaster relief or to feed, clothe and shelter the poor—but not very much. Former Labor Secretary Robert Reich claims that only about 10 percent of charitable giving goes to the poor and needy. A third goes to religious organizations; 13 percent to education; 7 percent to hospitals, healthcare organizations and research; 4 percent to arts and culture; 3 percent to international peace and relief efforts; 2 percent to environmental and animal-related causes.

Although it is never easy to quantify giving, closer scrutiny of individual, as opposed to foundation, funding indicates that much of it goes to causes that directly or indirectly benefit the donors. Individual donors are more likely to give to the church or synagogue they or members of their families attend, to their alma maters, their children’s private schools and the museums and cultural institutions they patronize. To bring the matter closer to home, those who live near Central Park give money to the Central Park Conservancy, not to rehabilitate Rufus King Park in Jamaica, Queens, and to the Metropolitan Museum of Art or the Metropolitan Opera, not to the Cultural Collaborative Jamaica or to the Queens Symphony.

From left and right, there have been calls to revise the charitable deduction. From the left, Reich suggests we eliminate the deduction for all donations except those that directly benefit the poor. Thus, a gift to the Salvation Army would be tax deductible, but not necessarily one to Harvard or to the Metropolitan Opera. From the right, Senator Charles Grassley wants to review and possibly rescind the billions in tax breaks that nonprofit hospitals receive until those hospitals demonstrate that they provide the larger community with "significant, measurable benefits."

Defenders of the charitable deduction argue that any downward adjustment will lead to a substantial reduction in the amount given to charity. And that may well be true. But is a reduction in the income, assets and expenditures of the philanthropic sector such a terrible thing, especially when we take into consideration that every $100 donated to charity by a high-income person means $35 less to the Treasury?

The question we have to ask in the end is, Who do we want to decide how our money is spent: wealthy donors or our elected representatives? Does wealth confer on those who have accumulated it special wisdom or enhanced compassion? No one would claim that our elected officials are solons or saints. But I, for one, would rather see a democratically elected body, accountable to the voters, make basic decisions about our schools, healthcare institutions and cultural priorities.

A century ago, at the dawn of the age of philanthropy, there was much more questioning of the wisdom of accepting, let alone celebrating, the rich and their charities. The protest against decisions made by Andrew Carnegie, John D. Rockefeller and Russell Sage to give millions to private foundations was such that in 1912 Congress organized a Commission on Industrial Relations to investigate whether those foundations posed "a menace to the Republic’s future" because they concentrated so much wealth in the hands of unelected and unaccountable trustees.

We have grown so accustomed to the accumulation of wealth in the hands of the few and to the evisceration of the "progressive" element in what used to be called the progressive income tax—and we are so reliant on grants from foundations and the wealthy—that we no longer ask the questions that theologians, labor leaders, workers, populists and professors did a century ago.

We may applaud the efforts of humanitarian philanthropies that support progressive organizations—and even some weekly opinion journals—but we must not lose sight of the larger global impact of giving and the increasing power accumulated by unregulated, untaxed foundations. Isn’t it time to at least inquire about the long-term effects of the charitable deduction? Not to do so is equivalent to sitting quietly on our deck chairs as the wealthy and their billion-dollar foundations are given huge tax subsidies to assist them in bankrolling tax-exempt charitable organizations that support such causes as outlawing abortion and birth control, defunding public schools, abolishing inheritance and income taxes, ending gun control, withdrawing funding from the United Nations and other international organizations, eliminating environmental protections, ridiculing climate change science and combating climate change initiatives, repealing healthcare legislation and deifying Friedrich Hayek.

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