The Philanthropy Wars

Full disclosure - as I noted when I opened this blog, I work for a non-profit.

A lot has been made about Obama's proposal to limit the tax deductions that rich people get when they are contributing to charity. Folks who study philanthropy at Indiana argued that the plan would reduce charitable giving by "several billion dollars" a year with the implication that this is a bad thing.

Of course folks in the philanthropic world are just like any other organized interest that receives a government granted tax advantage. I see them as no different than farmers who get checks to not plant crops. They are going to produce reports that defend their positions. And like farmers they produce a "good" but it's less tangible than soy beans.

Then yesterday this piece in the WSJ's Opinion section argues that some "activists" are interested in forcing non-profits into giving to specific causes regardless of donor intent. So if donors gave money to an organization with the explicit purpose of promoting Beanie Baby appreciation, the National Committee for Responsive Philanthropy would like to see 50% of that money going to lower income and other "marginalized" groups. So what's more important, donor intent or broad social goals that have nothing to do with original donor intent? It's been a big question in philanthropic circles for a while.

But there's a political side to this stuff that has been simmering for a while as well. For a number of years these folks have been going after certain foundations based on their ideology. Originally it just looked like they wanted it known that some foundations were right-wing. Now it seems they want to redefine who ought to be allow to called a "charity" and receive the tax benefits that accompany that title.

Non-profits, like limited liability corporations, exist because the state has carved out a unique tax situation for them. In theory governments do that because they deem the work and "goods" produced by philanthropic organizations to be both important in a free society and somehow underprovided by both the government and for-profit sector.

Of course the state has the right to wonder if giving broad tax breaks to foundations, some of which will promote Beanie Babies and other malaria eradication, is worth it. The key point is that the existence of foundations rests on the whims of the government - and governments change hands.

It now seems that the worm has turned. Folks within the administration and in society at large are wondering what constructive role philanthropy, that doesn't fit certain ideological criteria, can play. Or they're just plain hostile to what they see as the unfair advantages given to rich donors to promote public policies free from having to pay taxes. Or they may simply believe that, as is the case in Europe for example, government should step in and play a much larger role in providing the "goods" that non-profits previously produced because government can do a better job of providing those goods.

In some ways a thorough re-examination of what a non-profit is, what it's tax status should be, and what activities they can engage in is a useful enterprise. Foundations last year gave more than 42 billion dollars in grants. That's a really big number, and Europeans now think that foundations are nothing more than intermediaries to dodge taxes. If that's true, and no "good" is provided, than the state has a right to re-think the tax benefit it provides.

But that tax advantage shouldn't be used to skew public debate. For example, labor unions now support a wide range of liberal think tanks (which are all non-profits) that have emerged in the past ten years. These guys are a good example who receive about 30% of their funding from unions. As lobbying groups, they are now engaged in a fight with conservative groups over the future direction of American society.

It's pluralism, and I think it's a fair fight that should be based on the merit of the ideas. The notion that one side should somehow be prohibited from benefiting from the tax code because you don't like their ideas strikes me as pretty ridiculous. I mean conservative groups aren't denying the Holocaust or arguing for a flat earth. They have legitimate positions that deserve a fair hearing in the public sphere, just as the left's positions do. Any attempt to legislate those views out of the debate is not only contrary to the values of any free and liberal society, it's also doomed to fail because a lot of folks believe in those positions rightly or wrongly.

And finally, as this article from the Washington Post shows, even conservative, stodgy, old non-profit institutions like the Roman Catholic Church can adapt to changing times and different incentives. Try to put them out of business by changing the tax code, and they will simply pursue their goals in other ways that the "smart people" cannot possibly imagine.