Op-Ed Philanthropy Chronicle: End the charitable tax break and eliminate the conflict of interest built into great philanthropyBy Jeffrey Cain:
The genius of American philanthropy, it is often said, is that almost all Americans, at all income levels, give. But the tax exemptions and deductions in the Internal Revenue Code aren’t for all Americans, the vast majority of whom don’t itemize their federal income taxes or claim the charitable deduction. Few will ever start their own foundation or open a donor-advised fund. Most do not have a tax accountant, philanthropic advisor, or private bank account.
Instead, the formidable body of tax-exempt laws, policies, and regulations created over the past 100 years provides the framework for Greater Philanthropy. It’s not just America’s richest philanthropists and biggest foundations. It is, rather, the charitable giving system that grants tax breaks to donors in exchange for their charitable contributions. And it’s a system fueled by the conflict of interest inherent in those tax laws.
Since most surveys show the public’s trust in nonprofit institutions in historic retreat and the number of households that give up declineIt seems reasonable to ask: What is the future of tax-incentivized Greater Philanthropy?
Modest attempts at change have so far met formidable resistance. Consider philanthropists Laura and John Arnold’s initiative to speed up charitable giving [more here, here, here, and here], which would increase donations by promoting greater accountability and correcting inefficiencies in tax laws. …
[T]Arnolds’ initiative hasn’t exactly gone anywhere. Legislation Influenced by the Proposition — the Charitable Efforts Acceleration Act — languishes in Congress. And for Big Philanthropy, the plan was dead on arrival. Of the 85,000 private, family, and community foundations in the United States, the Initiative to accelerate charitable giving website it lists fewer than 20 members of the foundation. Foundations from both liberal and conservative viewpoints have come out against it. The Council of Foundations opposes legislation based on the Arnolds’ proposal because it adds “complexity and costs for foundations and donors.” The Philanthropy Roundtable warned that “this proposal would seriously impede the ability of Americans to contribute to causes that matter to them.”
The Arnolds’ proposal has met with the same buzz from Big Philanthropy as the limit on deductions included in the Trump administration’s 2017 tax cuts. A flurry of reports, press releases and opinion pieces predicted the collapse of charitable donations if the proposal became law. That didn’t happen. In 2019, Americans contributed $450 billion to charity, the second-highest amount at the time in inflation-adjusted dollars. “People donate when they have the most after-tax income and when the economy is strong,” Tax Foundation reported in 2020, “not when they are induced to do so by the tax rate.”
Why so much bipartisan opposition among America’s elites to relatively minor changes to the tax code? Why are nonprofits funded by George Soros, the Gates Foundation, and Charles Koch walking in unison when it comes to opposing changes to tax-incentivized Big Philanthropy?
The rationale is the conflict of interest built into the charitable exemption from the tax code. Under this system, the same nonprofit organizations that philanthropic organizations are required to fund can, in turn, use their tax-exempt dollars to advocate, educate, and even lobby in support of tax-exempt charitable laws that, in turn, benefit major donors to nonprofit organizations. In other words, philanthropists can use their tax-advantaged funds to advocate for increased tax-incentivized charity laws through the tax-exempt nonprofits they support. And they do. …
Lawmakers and the professional philanthropic class should stop playing cat-and-mouse and instead embark on a bold new project: eliminating the conflict of interest inherent in tax-incentivized Greater Philanthropy by ending exemptions and deductions. charity prosecutors of all kinds. This change would lead wealthy Americans to emulate the giving habits of the 90 percent of Americans whose charitable donations are made with after-tax dollars. Removing the cap on the charitable exemption will usher in a new era of increased giving, and allow the independent sector to finally live up to its name.
https://taxprof.typepad.com/taxprof_blog/2023/02/end-the-charitable-tax-exemption-and-remove-the-conflict-of-interest-horned-into-big-philanthropy.html
