To Be (a charity) or Not To Be, That is the $40 Billion Question

By    Dec 20, 2013
Photo: Nils Olander

Lincoln Center offers the country’s longest-running free outdoor festival. Photo: Nils Olander

Editor’s Note: With “Comments We Can’t Ignore,” we addressed the need to more effectively demonstrate the value of the arts to the general public in response to Robert Reich’s “What ‘charity’ should really mean.” Here, Marc Vogl offers his thoughts on charities and tax policy.

Reich makes a surprisingly baseless charge when he says that the tax deductions claimed by people giving their money to charities is a $40 billion hand out  “going largely to wealthy people who use much of it to enhance their lifestyles.” He takes an illogical leap when he intimates that if the deductions were outlawed the government might spend an extra $40 billion on welfare, school lunches and Head Start, and comes to some very ill-defined conclusions about what gets to count as a charity.

Reich begins with the observation that rich people give away more money (and thus get a larger tax deduction) than poor people.  Nothing shocking there, and pretty consistent with the alarms Reich has been ringing for years about how little disposable income the lower and middle classes have anymore (and thus how little extra they have to give to charity).  But, without citing any evidence, Reich proceeds to assert that a large portion of the money the rich give away goes to opera companies, symphonies, museums and Ivy League schools where they like to ‘hobnob’ with other rich folks. It’s a fair point to say that rich people patronize certain institutions because they’re elite, but the capacity of these organizations to be more democratic — to provide free admission,  scholarships, education programs on and offsite – is a function of someone paying for it. Limiting the ability of arts organizations and private universities to raise money from those who have it (i.e. the wealthy) to put on programs and provide services for those who don’t only widens the gap culturally, educationally and, I’m sure Reich would agree, politically and economically too.

Secondly, Reich (who as former Labor Secretary knows a bit about the non-linear way in which the budget process works in Washington), seeks to draw a straight line between the $40 billion the Federal Government is not collecting each year (because of the charitable tax deduction) and the budget shortfalls for social programs — like TANF and Head Start.  Of course, if the tax deduction were abolished and, instead of paying $40 billion to the 1 million plus non profits in America, individuals sent that money to the IRS, one might find 1 million more aggressive lobbyists petitioning government (federal, state and local) for more public support to replace that missing money or thousands of non-profits may simply close up shop, leaving government to figure out how to serve the students, clients and patrons of non-profit organizations more directly.  Or, the government might just spend an extra $40 billion on corporate tax breaks or some new aircraft carriers. No one knows where that “extra money” would go, least of all Robert Reich.

Finally, Reich ranges into some pretty sketchy territory by saying that The Salvation Army is a charity but the Guggenheim or Harvard Business School is not. While that kind of distinction might pass a first-look smell-test, the next million examples get murky. If charities only exist to serve the poor then are human rights groups charities? (Certainly some political dissidents are wealthy.) What about environmental organizations? (Is climate change more of a “poor” issue than an “everybody” issue?) Is a free, city-funded museum eligible for a charitable contribution but a private university-based one is not? Does it matter whether the visitors are rich or poor? How rich? How poor? What if the organization does more than one thing? Are the low-income serving programs of a college eligible for tax-deductible support but specialized research is not?

Revising the tax code is something I can get behind, but in his parting shot Reich hopes that in that process Congress defines what a “real charity” is. To me it would be a mistake to open that debate by pitting arts organizations, educators, social workers and activists against each other.