The Undermining of American Charity
nybooks.com
nybooks.com
Not to mention all kinds of corruption where charity rents private land or uses another company to _. Or charity A takes X% off the top and hand it to charity B who takes Y% off the top.
As a middle-classer giving >10% of income to charity, it's helpful to not have that be taxed and enables more to go to the charities.
A more reasonable solution would be a cap on the total amount able to be a tax break. This would prevent the mega-rich from creating fancy tax-avoidance schemes, while enabling the charities and regular folks to procede as usual.
Also, DAF's are a really bad idea for receiving tax breaks, as the article points out.
Sell milk? Why not set up a trade association to promote it. It's just promoting healthy living after all.
why should I subsidies whatever you want to have
happen beyond that point?
For example, if I donate $1000 to a university, higher education is $1000 better funded. Whereas if the government taxes me $330 and gives that to the university, then I spend the rest of the money on hookers and cocaine, higher education is only $330 better funded.
If you're a conservative, you might also think the government is inefficient and most of that $330 would be wasted in the bureaucracy; that most donors are basically like you and hold your views because charity is a christian virtue; or that donations allow donors to choose efficient charities in a competitive market, driving down waste. If you're a liberal, you might think most of that $330 will be spent on costly foreign wars and private prisons; that most donors are basically like you and hold your views because charity is about putting the good of that many above yourself; or that donations are key to supporting causes like animal welfare and vegetarianism that are unlikely to get state funding.
Needless to say, the above assumes charities are basically moving towards the same public good the government is trying to achieve. If I donate to support schools with extremist religious views or to support the families of Palestinian suicide bombers, that's a different matter.
Edit: And complete alignment of charities with the views of government isn't required. If the tax deduction turns $330 into $1000, the charity only needs to be 34% aligned with the government for the outcome to be better; so for example $1000 donated to a religious school that spends $500 on textbooks and $500 on bibles is better than the government giving $330 of textbooks.
I agree, if this is the rationale for charity tax deductions, that there should be strict auditing for sham charities and charities that are wildly out of alignment with the public good.
So, I don't get the point? Is this one of those cognitive dissonance things where you are supposed to accept two things that can't both be true?
The second half of this theory is obviously unsound when the definition of "charity" is not limited to functions that would otherwise be performed by the government and which directly reduce government expenditures in those domains.
It is especially ludicrous when the definition of charity for which subsidies are provided includes, e.g., religious institutions, which perform functions that the government is Constitutionally barred from performing, which are obviously not functions that the government would otherwise be required to perform.
(The first half -- that providing a public subsidy for an action encourages that action -- is true, but it doesn't make a lot of sense for that to be an income-weighted subsidy. Were the second half sound, the first half would be better served by a tax credit for, or proportional to, the amount of donations, rather than a tax deduction.)
Even in areas where it looks like things align say non religious textbooks failing to teach evolution has very real and very negative results, just look at antibiotic resistance. The long term impacts of that may very well outweigh all positive effects of charitable giving in the US.
And it's not just education. Handing out AIDS medications in poor counties sounds great! Doing so poorly may quickly make those same medications useless.
Thought experiment: what would the charitable landscape look like if charitable donations deducted directly from tax burden, not from taxable income? (Perhaps with some upper limit.)
That said, I don't think the "donor-advised funds" mentioned in the article make sense; the tax break should occur when actually donating to a registered charitable organization, not just when setting the money aside for an eventual donation.
Waste is insidious. The US government spends more per person on healthcare than Canada and get's far less for it's money.
Apart from that, taxation already burns up a fair bit of people's goodwill; it's a lot harder to get people to donate when they're already involuntarily "donating" to a wide range of causes they don't support. A tax break for charitable donation gives people the ability to support causes they actually do support.
Further, overhead is only part of the problem. Many fund crap.
That's an incredibly entitled attitude (specifically, "entitled to other people's money"). Paying less in taxes is not equivalent to "taking money" from others. If you want to take less money from everyone, decrease taxes, or eliminate actual tax loopholes and deductions that don't provide a net good in the world (or serve any function at all other than rewarding those who bought and paid for them).
Let's setup a charity to lower the drinking age. I am sure we can get some donations from here and there.
Not at all. Taking away a tax deduction is equivalent to raising taxes, and will do absolutely nothing to decrease taxes for anyone. Now, if you wanted to propose a bill that eliminates a tax deduction and simultaneously lowers the tax rate to keep it revenue-neutral, then at that point you could argue for the benefits of that tax cut. But a tax increase in any form defaults to becoming more revenue, and tax cuts occur separately. (I'd love to see those two things inherently connected by law, but that hasn't happened.)
Also, if you actually proposed that bill, opponents of it would reasonably ask, of all the sources you might use to fund your tax cut, why you decided to start by raiding charitable donations instead of a thousand different items in the "expenses" column. Do you really believe that, of all the possible ways to fund a tax cut, the most important would be to target charitable giving?
> Further, your sidestepping the crap argument.
If you think some charities shouldn't receive 501(c)3 status, I'd agree, and I'd argue for stricter review processes. If you think all charities shouldn't, then I invite you to make that argument to the general public and see how they respond to it.
If you did absolutely nothing else it would reduce government debt. Which reduces future taxes.
I understand your position, and I'd actually favor a tax structure that has a much lower rate and almost no deductions (making everyone's taxes far simpler than even the one-page 1040-EZ, and completely automatic). That would leave people more than enough for charitable giving and many other things. But unless that comes as a package deal eliminating all deductions and lowering taxes accordingly, I wouldn't support eliminating a tax deduction for charitable giving while leaving the myriad other deductions.
Of course our GDP and tax rates has grown over time, but not nearly as quickly as debt interest. So, without doing excessive analysis we would probably have a national surplus if literally nothing else changed in the tax code or spending.
Granted, arguments about lowered GDP and other knock on effects are reasonable. But, suggesting no long term tax breaks seems unlikely.
The burden (the cost source of the tax) exists. How the burden is served can leverage individual self-interest to create, maintain, or change behavior (tax deducations). A change in available cost sharing tactics (taking advantage of a burden reduction as it exists or does not) is not a change in the burden. It is not the same as raising taxes (ie tax rate).
I am not interested in stepping into how terminology between rates and fixed fees is confused across a multitude of localities.
The ones that are incredibly efficient are the ones that deliver on their mission well for the amount of dollars that go into them; this may or may not correspond to a low share of money spent on administration.
In charities -- and the same is true for public agencies -- people love to complain about high administrative overhead, but then also love to turn around and complain when ineffective administrative oversight results in non-administrative uses of funds being wasteful or ineffective, asking why controls weren't in place to prevent that.
It provides a major motivation to spend wealth via charities. The extent to which that corresponds to doing good to others is what's in question.
> Thought experiment: what would the charitable landscape look like if charitable donations deducted directly from tax burden, not from taxable income? (Perhaps with some upper limit.)
Even worse, I would think.
The tax break is equivalent to a matching program coming from public funds. Thought experiment: if you were setting up a matching program that used public money (i.e. tax income), what would your criteria be? Is that an appropriate use of public funds at all? I can see that some causes might be good enough to contribute public funds to (though in that case why not spend tax money directly on that issue, rather than via a private foundation?), but any and all organizations that happen to be structured as charities?
No, not even remotely. It's a mechanism to reduce public funds and leave more money in people's hands. In accounting terms, a tax deduction doesn't belong in the "expenses" column; it decreases the "revenue" column.
> Thought experiment: if you were setting up a matching program that used public money (i.e. tax income), what would your criteria be? Is that an appropriate use of public funds at all?
Almost never, no. The only case I can think of that would ever be appropriate might be as a means of allowing people to direct spending in a particular area already considered within the purview of government, allowing people to select from a variety of competing services while amplifying their spending power to allow them to afford something considered a necessity. As a means of re-introducing competition to improve quality, it might make sense. (But only after carefully determining that the expenditure in question should actually fall within in the scope of government.)
Want to get Justin Bieber to play for your small down? Don't worry you can get that subsidized! Just call it an art's festival.
If the government would otherwise be financing the festival, then yes, otherwise no tax credit, and IMHO, no tax break, should be given.
Remove/reduce the tax break for donations to a charity you control.
It at least would be desirable to stop it from being a deduction and make it a credit at some percentage of donations, about equivalent to the income tax rate on the median dollar of income nationally.
That would, at least, remove the current issue where the public is effectively subsidizing the charities favored by wealthier donors at a higher rate than those favored by less-wealthy donors.
They do? All of them or just some?
I feel like it's more likely that the same people would have issues with the university abuse too.
Kidney & Urology Foundation of America is a great example:
Total Overhead: 91.9%
Management & General Expenses: 38.8%
Fundraising Expenses: 53.1%
CEO Compensation: $132,642 (31.7% of revenue)
While some of those extreme cases may be problematic, I think that there is a risk of putting too much weight on administrative cost ratio (with low ratios being "good") as a metric.
Its easy to reduce administrative costs by simply not putting effort into making sure that the way funds are spent is effective at achieving the nominal goals of the organization, but I don't think anyone who thinks things through would think that makes a charity "better". You need better metrics to answer questions of charity quality.
Software shops that don't invest in any of these things end up producing crap. Software shops that over-invest in these things end up navel gazing instead of getting shit done.
The line between reasonable and unreasonable will shift from context to context and from organization to organization. There's no silver bullet or magic metric.
Ditto for charities. Running a survey that costs more than your actual charity work in order to determine if some strategy is working might be a complete waste of resources. But it might also make a lot of sense. E.g., before dumping 10x the initial investment into that strategy, or before convincing 5 other large charitable organizations to double down on the new strategy. But sometimes it's the tail wagging the dog and/or a failure of leadership. It's impossible to tell from dollar amounts alone.
No universal one that crosses different missions, sure.
OTOH, if you can quantify progress in achieving an organization's mission, you can create a mission-specific measure of effectiveness with which dollars are spent. (And if you have competing organizations with similar missions, you can use such a metric to compare them, though obviously that doesn't extend to comparing charities with different missions unless you can also quantify the relative value of the missions.)
If the a non-profit organization is the size and complexity of the US government, than a salary equal to the salary of the Chief Executive of the US government is quite appropriate, sure.
The way the companies operate is exactly the same: try to make as much money as possible to donate it back into the charitable trust. But a lot of it goes to perks and bonuses for executives, along with increased marketing expenses to continue the "donation" growth.
(And to the extent that the argument is that you don't need to pay $400k to get a qualified/motivated CEO, then that's true of any company--being non-profit has nothing to do with it.)
Again, this isn't a reasonable argument. The cost of labor does not magically disappear just because the employer is a non-profit instead of a for-profit. Teachers, clerks, and accountants don't magically cost less when they are paid with tax payer dollars. (Incidentally, administrators -- on average -- do cost substantially less in the non-profit sector.)
Actually, charity's pay people less than market rates in other positions.
It's not magical, though. And it's not because the charity is "funded by tax payers".
Sometimes the salaries are discounted because the charity can find someone who "believes in the mission" (sound familiar?).
Sometimes the salaries are discounted because that's all the charity can afford. If the charity can't find someone willing to take the pay cut, then it ends up subsisting on below-average performers. See hospitals, for example. If they don't pay market rates for doctors, they probably have sub-par doctors. If your charity can't sell its mission as part of the compensation package, then it has to cough up.
The point is, no one is going to take a pay cut just because, as GP put it, they're "funded by tax payers". Why the hell would anyone take a pay cut just because their job is funded by tax payers instead of by the Gates foundation?
Cut the tax break, fine, but then we need the government to intervene and provide assistance for citizens.
Or, you know, churches.
The idea that the tax subsidy is justified by the fact that subsidized charities are displacing costs that would otherwise need to be born by the government would probably be more supportable if:
(1) tax subsidized charities didn't perform functions that the government is Constitutionally barred from performing (viewing the subsidy as an alternative means of performing government functions, would make subsidizing "charities" to do such barred tasks a way for government to evade its Constitutional limits), and
(2) the tax subsidy were the same for all donors (e.g., a fixed proportion credit) since each dollar given would displace the same amount of government funds no matter who gives it, rather than escalating for wealthier donors.
Tax exempt status may or may not be for any given operation (lots wouldn't pay any, or many, taxes even if they weren't tax exempt), but tax deductibility of donations to an organization is very clearly a form of subsidy, and one which increases with the marginal income tax rate (and thus, with the income) that would be paid by that organization's donors before considering the deduction for their donations.
A tax is an effectively positive tax rate. A subsidy is an effectively negative tax rate. A tax rate which is effectively zero is neither strictly positive nor strictly negative, so is neither tax nor subsidy.
In order to make the argument you seem to be making, you must be holding government revenues from taxes to be constant, which makes tax cuts and tax increases a zero-sum game. If someone is taxed less, someone else must be taxed more. But I do not agree with your assumption that the government seeks to keep its revenue from any one particular tax constant when considering changes to tax law, or that it must necessarily even consider the revenue impact at all.
The goal in this particular case actually seems to be to influence the behavior of those who pay the tax in a particular way, and the revenue is mainly a pleasant (for them) afterthought.
All 501(c)(3) charities are funded by taxpayers by means of the tax subsidy provided by the deductibility of donations to the organization (which is a separate issue from the tax exempt status of the organization itself.)
Tax exempt non-profits that are not charities may or may not be taxpayer funded by some mean, but, the subject of the thread here is charities, not nonprofit organizations more generally.
Underpaying in a non-for profit assumes that they can still get the same quality worker.
A business that operates at 90% of the effectiveness of its competitors is likely to fail completely. A charity that operates at 90% effectiveness will just produce a bit less good work in the world.
In many cases, executives at non-profits make MORE than their for-profit counterparts simply because there aren't exactly shareholders, and people who sit on the boards of non-profits tend to be less experienced than corporate board members (often non-profits are seen as "training" for corporate board membership). This is especially common in health care. It's not universally true by any means, but it's common enough to be a real problem.
I always thought non-profits are for poor do-gooders. This experience definitely gave me a dose of reality.
Clearly, the financial industry is making money off these products, but the article makes it sound like people are misusing these things to pocket avoided tax.
If your marginal rate of taxation on income is, say, 35%, then you give up only $650 in disposable income to donate $1,000 to charity. Without the deduction, someone in that circumstance who could afford to give $1,000 with the deduction could only give $650.
Or, looked at a different way, someone with that tax rate who "gives $1,000" to charity is really giving $650, and the government is giving $350.
This situation is surprisingly common; ESPECIALLY with religious charities. John Oliver had a great segment on it; but the problem extends to nonprofits as well (it's just that "religious" charities can wave the "discrimination against religion" flag). Basically, if you set up a religious nonprofit and funnel a lot of money through it, there's very little oversight from anyone about what you do with that money.
And yes; people do use these types of charitable trusts to pocket avoided taxes. The legal complexity of it all precludes anyone who's not High Net Worth from using them (it's simply not profitable to pay lawyers to do the paperwork for less than a whole lot of money).
However, donating such assets directly can be a hassle to do and relies on cooperation from the charity; the DAF has people who specialize in this and will take care of it for you. This allows you to get the biggest possible deduction with minimal hassle.
This is the gist of most of the tax law complaints in the article: the DAF doesn't enable you to do anything you couldn't already do, but it makes everything easier to do, including the things that the author wishes you couldn't do.
[1] https://www.irs.gov/publications/p526/ar02.html#en_US_2015_p...