Notes from the Left Coast

Drummond Pike’s Blog

Madoff. What more is there to say. Pretty soon, we’ll be saying “so-and-so pulled the most amazing ‘madoff.’” Poor Mr. Ponzi may end up being left by the wayside, eclipsed by the shear scale, the unreal duration, and the depth of betrayal exhibited by the now jailed Bernie. But, as we all rue his very birth, I think it worth asking a question about just how and why so many charities and their assets went down the drain.

These charities that invested much or, in the case of several, all their assets with the now notorious Mr. Madoff have exposed just how poorly they oversaw the investment process. Two questions emerge. How could regulators have failed to expose the fraud long before it was made public? Second, are the standards for charities in this regard adequate for the quasi-public nature of charitable funds? The first I will leave to the myriads of people addressing it (though I will be avidly consuming every article I can find on the subject). The second question, though, fascinates me. My conclusion? The answer is a simple “no.”

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The Chronicle on Philanthropy reports on their website this week that the leaders of the Council on Foundations and Independent Sector have come out publicly in opposition to the President’s budget proposal that proposes in 2011 to reduce the tax savings on charitable gifts from top rate-payers’ current 35% to 28%, the lower rate of taxation paid by the vast majority of taxpayers. The example is often given for the high income donor giving $100,000 to a charity of her or his choice; under current law, the donor would save $35,000 in taxes, and in the future regime, this would be reduced to $28,000 for the same gift. The argument of our colleagues in philanthropy is that this will lead to a reduction in charitable giving, though I haven’t seen a study that supports this empirically. If true, I suspect the influence would be most likely marginal; market changes are far more of an influence on charitable giving practices. And, to be sure, no one is suggesting a change in the most important factor: the avoidance of capital gains when gifts are made of appreciated stock.

Let’s look at the other side of the equation. What’s so wrong about doing this? Let me start with the matter of basic equity. Why should two taxpayers, both giving the same $10,000 gift to the same charity, receive differing tax benefits because one earns more money than the other (and therefore pays a higher tax rate)? In some ways, the lower-earning individual is giving away more value relative to net income (and likely net worth as well).

Second, let’s look at just what this proposal is intended to help – the creation of a program for universal health coverage in America. This would address a profound social tragedy, and the deep shadow of embarrassment in which the US lives internationally, if we could achieve it. Wouldn’t it make sense if the philanthropic sector, contrary to expectation, embraced this policy initiative and asked, instead, “how can we help?” Perhaps sacrificing a bit of the privilege we experience, living outside the realm of the taxable economy as we do, in order to contribute to the final outcome would connect us to the deeper social good. After all, aren’t we really supposed to be about the public good?

Let’s instead support the proposal. If it succeeds, 45 million Americans will, for the first time, have access to health care – something that all our grants for many years could never finance.

Also of interest:

hr676.org: