Don’t Look a Gift Horse

Posted by on 11/11/09 in America, Debt, Government, Philanthropy

In the 1970’s, the owner of a processing plant traditionally gave each employee a turkey for Thanksgiving as an expression of appreciation. One year, in the midst of contract negotiations, the union reps added the turkey into the total compensation package. The plant owner insisted that the annual turkey was a personal expression of thanks—in short, a present—rather than an entitlement. The union dug in its heels. Realizing that his gift was no longer seen as an act of kindness, the insulted owner ceased providing the Thanksgiving turkeys altogether. In this case, only the turkeys won.

We are concerned that the nonprofit sector—one of America’s most dynamic sectors—is under attack by the very community it serves. There are at least four actual or potential policy shifts that have emerged that could potentially undermine if not dismantle the incentive system that has made charitable giving an indispensable part of American life.

Mistake 1:  Reduce Tax Deductions for Charitable Giving
Early in 2009, proposals abounded to cap the tax deduction on charitable giving, reducing the tax benefit of charitable gifts for taxpayers in the highest tax brackets. At first, we thought it simply a misguided attempt to boost short-term tax receipts. But a flurry of white papers and articles lauded the change, claiming that tax deductions have no material impact on charitable giving. One think tank claimed that tax deductions for charitable giving are subsidies to the wealthy since they can take a larger deduction than others who give less or do not give at all. It takes a lot of intellectual gymnastics to view a tax deduction for a charitable gift as a subsidy in the pejorative sense, but clearly there are some policy wonks who are quite flexible.

Mistake 2:  Force Foundations and Endowments to Increase Annual Spending
Senator Charles Grassley, Warren Buffet, and Pablo Eisenberg in last Saturday’s Wall Street Journal have all clamored for foundations (and in some cases endowments) to spend more money now rather than protecting their long-term spending power. For Grassley, Eisenberg and others who seem to advocate changing government policy after donors have made their gifts, we find their audacity rather shocking regardless of their intentions.

They, like Buffet, appear to be motivated at least in part by a genuine desire to see problems solved now, to see money spent on current needs rather than endowing the ability to address needs into the future. For Buffet, he is the donor of his money so it is his call; we would never step between him and his intent. But since he has been so public in his denunciation of perpetual time horizons for foundations, we’d like to call some of his thinking into question.

We find it most curious that Buffet would run his philanthropic business so differently than his commercial business, Berkshire Hathaway. Imagine Buffet buying Burlington Northern, then announcing to the public that he was giving the company 10-15 years to realize its full potential, then liquidating the businesses before he dies. How would shareholders feel about that business strategy? Would they be impressed by his business acumen? How likely is it that Burlington Northern would prove to be a winner?

Why, then, would it be reasonable to expect hunger, poverty , or other intractable problems to be solved simply by throwing tremendous dollars at the problem over a short time frame? What if the best way to address hunger proves to be crafting a multi-generational solution that requires constant funding? If so, then Buffet’s “spend it now” strategy seems short sighted.

Complex problems require a long-view. Managing a perpetual time horizon for philanthropic efforts is one of the few ways in America that we actually plan for the needs of future generations.

Mistake 3:  Set racially and/or economically-based quotas for board membership of foundations.
Several groups believe that the boards of foundations should reflect the communities they serve in racial and economic composition. There are numerous permutations of the argument, but the bottom line is that some believe that there should be federal or state control of foundation board membership.

Wow. Imagine any other sector where government officials can mandate trusteeship. Even corporations in sectors that benefit significantly from government as funder/customer/protector (e.g.  banking, agriculture, transportation, information technology, aerospace, health care, etc.) retain ultimate control over their boards. In what other industry would we formally reduce qualification for board leadership to anything less than the ability to serve as effective fiduciaries of the organization? Why don’t we mandate that the Senate and the House (let alone every government agency) take the exact same steps, subverting qualifications for demographics?

The biggest disconnect about this concept is the presumption that some people deserve the right to run organizations funded by someone else. How many families would fund foundations if they lost control of the ability to select the most appropriate board membership? What would happen to community foundations and other public charities if their leadership were set by demographic quotas rather than by sound judgment, technical expertise, and loyalty to the mission?

Mistake 4:  Empower the government to determine how foundation monies should be spent.
We recently attended a nonprofit conference where some nonprofits expressed the argument that too much charitable giving goes to universities, museums, arts organizations and religious organizations rather than to organizations directly addressing poverty, hunger, homelessness and similar concerns. Some of these nonprofit leaders believe that if the government directed how foundation money could be spent, then their organizations and constituents would benefit. By extension, “less worthy” charities would receive less.

How presumptuous! Sure, we’d all be happy to decide where all of the country’s charitable giving should go. Oligarchy seems compelling when you are one of the oligarchs. That said, absolute power corrupts absolutely, so maybe having a few people set spending policy for the rest of us is not such a good idea. Charitable giving is such a large part of our economic and social system precisely because people can give to those causes that most resonate with their personal ideals and values. Take that freedom away and ask yourself, “Why should people give? How would government directed philanthropy be any different than what we already do through payment of taxes?”

Taking it a step further, we would strongly call into question the accuracy of “academic” papers that claim human services receives little funding. How do you classify a gift to a university that funds a scholarship to an otherwise disenfranchised student? Or funds a professorial chair for research into hunger or arms control or women’s rights? What about a church that funds a soup kitchen or provides economic assistance to unemployed congregants? The alleged research strives to organize infinitely complex social matters into simplistic boxes. Should we use this research to radically alter philanthropy, then bad social policy would be the result.

All four of these mistaken arguments assume that private donations should be controlled by the general public, and that the government is a better allocator of resources than the private sector. We strongly disagree. Sure, we have witnessed mismanagement and inefficiency in the philanthropic sector; yet at the end of the day, we believe that American philanthropy is generally innovative, thoughtful, and responsive to local, national and global needs. That character has arisen in large part because donors, trustees and philanthropists have a stake in making their gifts count.

We are in a state of economic crisis. Fear and scarcity can lead us to make poor policy decisions, some of which would cause irreversible harm. As we seek to stimulate genuine, sustainable economic growth, let’s protect the essential role that philanthropy plays in crafting a vibrant, compassionate society in which everyone has the opportunity to serve. Private generosity is the result of a system that rewards individual initiative and promotes collective responsibility. Stifle either one, and we will be the poorer for it.