March 7 2012
Heather R. Higgins
In the midst of public debates on fairness, tax rates and debt reduction, there is a fallacy, deliberately promoted by some, that undermines honest discourse. It is this: private charitable contributions should be classified and treated as "public money." If allowed to perpetuate, this bait and switch could lead to real and negative consequences for every charitable organization and donation made in this country.
The argument goes that because charitable organizations are tax exempt and donations to charitable organizations are tax deductible, the government misses out on some potential revenue. Lost revenue constitutes a subsidy, and subsidies, as we know, are done with government money. This argument relies on the semantic slipperiness of the word "subsidy," eliding its different meanings, and more deeply assumes that all our income first belongs to the government, which only chooses to let us keep some of it.
Two noted legal scholars, John Tyler from the Kauffman Foundation and Evelyn Brody from the Chicago-Kent College of Law, set out to make a definitive, legal case for what are, and are not, private charitable assets in this country. Their findings are required reading for anyone who wants a clear exposition of law and history on this point. Clearly, America enjoys a history of strong legal support for, at a minimum, maintaining the current system we have that protects donor intent and philanthropic freedom.
The authors originally published their findings back in 2009 in the book How Public is Private Philanthropy? Separating Reality from Myth. (In full disclosure, I am a member of the board of The Philanthropy Roundtable, which commissioned the book.) They recently re-released their findings, adding important legal decisions (including a Supreme Court case, Arizona Christian School Tuition Organization v. Winn) that strengthen the case for private charitable dollars remaining private charitable dollars. The authors raise serious questions to consider for anybody who gives, receives, or is thinking about giving to charity.
Why does this matter? One current point of contention comes from political officials who wish to commandeer private resources to support their view of the public good -- and then take credit for it. States appropriately have oversight of philanthropic enterprises in order to ensure the organizations are pursuing charitable purposes. This serves donors, recipients and the community well. But we are increasingly seeing state officials go beyond this appropriately limited role as a means to go after revenue or to pursue political gain under the guise that charitable organizations are "public" because they have state charters. The authors resoundingly prove that although charities have state charters, this does not make them any more "public" bodies than publicly traded companies. It just means the organizations must obey the law and be responsible for what they say they are going to do. Period.
But the real meat and potatoes over this "public money" debate is centered around tax exemptions and charitable deductions. Some claim that because charitable organizations are tax exempt and receive tax-deductible contributions, those benefits qualify activists and the government to have a say in their decision making and operations.
This perpetuates a fundamental misunderstanding of how much of a tax benefit one receives from making a charitable contribution. At the highest levels, 2/3 of every dollar donated to charity could have been spent on something that wasn't charitable. Indeed, charity flourished in this country long before there even was an income tax and the concern about deductions, because most charitable giving isn't driven primarily by tax considerations. Donations to charitable institutions receive tax benefits as recognition that these are private monies that could have been spent on self, that instead are pursuing public purposes.
Herein the next challenge: who defines public purpose? We enjoy a broad definition of public purposes, but certain self-styled nonprofit watchdogs would very much like to limit what qualifies in order to give preference to the causes and types of organizations they hold most dear.
So soup kitchens over art and music programs? Social justice over inner city education? Homeless shelters over medical research? ACORN over the environment?
Who would ultimately do the picking? What would be their criteria? With the thousands of charitable organizations in existence, do we really want these decisions politicized and manipulated?
Tyler and Brody demonstrate a solid legal basis for anyone asking themselves these questions. America's appropriately limited relationship between philanthropy and the government is precisely what has made it so vigorous, varied, and responsive; we should continue to favor private investment into communities, not overrun them with "public" preferences and favoritism.