LA Philanthropy Watch

The Association of Fundraising Professionals sent out a member email alert yesterday (”Act now to protect the charitable deduction!”) asking AFP members to phone or email their U.S. Senators and Congressperson to urge rejection of any limits on charitable tax deductions.   The link provided talking points and a draft letter.  (Editor’s disclosure: I have been an AFP member since 1991.)

As even casual readers of this blog know, I am an advocate of health care reform. A few days ago, I highlighted E.J. Dionne’s defense of a cap on charitable deductions as a reasonable and just way to help extend affordable health care coverage to uninsured Americans.  I’ll add a commentary today.

AFP, the Council for Advancement and Support of Education, the Council on Foundations, the Association for Healthcare Philanthropy, and the American Association of Museums are among the associations and organizations that signed a letter to Senator Max Baucus opposing caps on itemized deductions for charitable giving.

I disagree with these organizations on this issue; my reasons are straightforward:  I am committed to health care reform. There is a cost to extending health care coverage to Americans who cannot afford health insurance for themselves or their families. The proposed cap on charitable giving that Dionne discusses – so that a $1 contribution would result in a tax offset of 35 cents instead of 39.6 cents – is hardly unreasonable.  (The current rate is 35 cents, though it is scheduled to go up without the cap.)

Only the nation’s highest earning taxpayers (households with annual incomes of $370,000 or more) would be affected by the cap Dionne discusses.  Yes, nonprofit organizations positioned to receive major gifts from this rich cohort would likely experience diminished fund raising results.  (See the Center on Budget and Policy Priorities for an estimate of the cost to nonprofits of Obama’s original proposal – not the more modest cap Dionne cites; and a defense of this proposal for funding an extension of health care coverage: this group can afford marginally higher taxes.)  But the cost would be a relatively modest price to fulfill Dionne’s “moral imperative” to extend health care coverage.

It is tempting to regard opposition to the cap by these influential “charitable leaders” or “do-gooders” (both phrases are Dionne’s), as an anomaly – an instance, perhaps, of their somehow losing sight of their larger (charitable) mission.  “If even groups whose very mission is public-spirited can’t take an exceedingly modest risk to extend health coverage, how can we expect anybody else to pay a little more for a moral imperative?” asks Dionne.

We should resist this temptation.

In their letter lobbying Senator Baucus, these leaders voice an appeal on behalf of “charitable organizations” and the “charitable sector.”  They use the words “charities” and “charitable” twenty times in six short paragraphs, invocations which call to mind organizations committed to assisting the poor and disadvantaged.  The letter opens with an allusion to “so many Americans relying on the charitable sector,” and later adds, “Charities have seen an increased demand for their services as individuals and families struggle with financial uncertainty.”

But not all charities are created equal.  Most of the signatories of the letter represent influential organizations, mostly headquartered near Washington, DC, with predominantly well-off members (whether institutions or individuals).  These associations have far less affinity with small and mid-sized food banks, homeless shelters, community clinics, and legal service agencies – that is, charities that are both struggling financially and serving people who are struggling financially – than with large, stable, even well heeled organizations.  Furthermore, it is the large, stable, well heeled organizations – with fund raising budgets and staffs, cache in the community, and perks and recognition to offer to contributors of major gifts, principal gifts, and mega-gifts – that are far more likely to have donors in the highest tax bracket and to be adversely affected by the modest proposed cap on charitable contributions.  It is predominantly these colleges and universities, medical centers, museums, and so on for whom these “charitable leaders” speak.

There’s nothing wrong with this.  Big, stable, well heeled nonprofits are community assets.  They have as much right to lobby their U.S. Senator as Exxon Mobil, the Business Roundtable, or the US Chamber of Commerce does.  But let’s not glorify what they are doing (for the “charitable sector”) or regard it as an anomalous straying from a commitment to social justice.  It’s just special interest lobbying.

“If the uninsured can’t count on the do-gooders to help them, where else can they turn?

The question arises because certain leaders of the sector of our society devoted to civic endeavors moved this week to block a perfectly reasonable way of raising some money to extend health coverage to those who don’t have it.”

So begins E.J. Dionne’s column (headlined, “Uncharitable Charities”) in this morning’s Washington Post (and featured by Philanthropy Today).  I am in complete agreement with Dionne on this issue.

First a quick primer: President Obama has proposed health care reform that would extend health insurance coverage to the 46 million or so Americans who lack it; further, he has pledged that his reform bill will be revenue-neutral (that is, it will not increase the federal budget deficit as, for instance, the Bush tax cuts and the war in Iraq have done).  Since low-income individuals and families often cannot afford insurance, subsidies are required; so, sources of revenue must be found to fund these subsidies.

Two Senators, Jay Rockefeller and John Kerry, have proposed a cap on charitable tax deductions for the nation’s highest earners.  This proposal is, in Dionne’s words, “far more limited than a sensible idea along the same lines” that Obama proposed some months ago, because it would not lower today’s highest deduction rate (currently 35 percent); it would, however, limit deductions for “families with taxable incomes of roughly $370,000 a year or more” to the current 35 percent rate going forward.  Without the proposed cap, tax deductions for the highest-income Americans will increase in 2011 (when tax rates are scheduled to rise) to 39.6 percent.

Essentially, to fund a portion of the cost of health insurance for Americans who cannot afford it, Rockefeller and Kerry propose capping a tax deduction for the nation’s highest earning Americans.  The result would be that donors in the highest income category would be allowed to deduct only 35 cents for each dollar contributed to a 501(c)(3), rather than 39.6 cents.

Leaders of the nonprofit sector have dutifully gone to bat for this group with a letter to Senate Finance Committee Chairman Max Baucus opposing this proposal.  I invite anyone interested in this debate to read Dionne’s column and the letter from the nation’s nonprofit leaders.

Finally, I have written about this issue several times, including in two previous posts: “Has President Obama Declared War on Philanthropy?” and “Tough Times, Not So Tough Decision.”  The first is a reply to a conservative critic of Obama’s tax proposal – David Billet writing in Commentary.  The second is a response to the president of the Association of Fundraising Professionals (an organization to which I have belonged since 1991) who defended AFP’s opposition to Obama’s original proposal.  She is, of course, among the signatories on the Baucus letter.

Dr. Hahn Cao Yu, Vice President of Social Policy Research Associates (SPR) of Oakland, spoke to the monthly luncheon of the Greater Los Angeles Chapter of the Association of Fundraising Professionals on Tuesday.  SPR worked closely with the California Endowment to prepare a Foundation Diversity Policies and Practices Toolkit, which was released at the annual conference of the Council on Foundations in May.

The Toolkit (available as a PDF online) is essentially a concise how-to manual for foundations to institutionalize their commitment to diversity, not only in grantmaking, but in other areas, such as governance, staffing, contracting, and investing.  Drawing on the work of 34 foundations and 11 additional philanthropic organizations, the Toolkit offers examples – such as policy statements, self-assessment forms, grant proposal instructions – of how to put diversity policies into practice.

Dr. Yu noted that the Toolkit was neither a manual of ‘best practices,’ nor a prescription for other organizations.  Foundations – and I will add: any nonprofit organizations – with a commitment to diversity in any of the areas mentioned above might find the experience of other foundations illustrated in this Toolkit useful.

Advancing Philanthropy (the bimonthly publication of the Association of Fundraising Professionals) includes a ‘President’s Report’ by Paulette Maehara, AFP’s president. The topic of Ms. Maehara’s report in the May/June 2009 issue is Obama’s recent tax proposal, which would lower the charitable tax deduction from 35% to 28% for individuals earning more than $250,000 annually. In her seven paragraph report (titled, “Tough Times, Tough Decisions”) the first six paragraphs set out the case against this proposal:

• One mission of AFP is to support public policies that are “ideally beneficial for fundraising and philanthropy or, at the very least, not detrimental.”
• In this challenging time for nonprofit organizations, “little changes and fluctuations in the economy, donor perceptions or incentives are quite likely to make a significant difference.”
• Thus AFP is “particularly sensitive” to proposals such as Obama’s.
• Although some development professionals have argued that the proposed change is not “that significant,” it would in fact “directly – and negatively – affect how much existing donors might be willing to give.”
• Some have noted that the decline in charitable giving would be “only minor,” but AFP replies that the proposal would have resulted in an estimated decrease in giving of nearly $4 billion in 2006 and a projected drop of $9 billion in 2011.
• Others have suggested that “charities need to do their part too,” but the demand for charitable services is greater than ever; seen in this light, the proposal “seems pointless and self-defeating.”

In the final paragraph, which I will quote in full, Ms. Maehara reveals (what was left unstated earlier) that AFP has decided to oppose this proposed change:

“Leading in public policy means making tough decisions based on how such decisions will affect the entire profession and sector. Making the decision to oppose this proposal wasn’t easy, and it wasn’t done in haste or without serious consideration. Ultimately, however, we believe it was the best decision and will do the most to help the sector in these challenging times. No doubt there will be even tougher decisions down the road, and we’ll continue to strive to make the best choice for the long-term benefit of the entire profession.”

While I admire Ms. Maehara’s consummate diplomacy, and I am certain that AFP decision-makers didn’t act “in haste,” I submit that far from being a “tough decision,” this was among the easiest decisions ever made by AFP or any professional organization. AFP’s members expect it to represent the interests of development professionals and the nonprofit organizations they serve.

And that is just what AFP did. It is not the mission of AFP to balance the interests of fundraisers and nonprofits with others in society. There is a bigger picture here – in issues of tax fairness, social justice, the richest haves vs. the have-nots, finding a way to fund universal health care (none of which were mentioned in Ms. Maehara’s discussion) – nonetheless, the top 1.4% income group in this country gives a bundle to charity. And no one disputes that collectively they would  give less if the tax incentives were reduced. (For perspective: their giving totaled $81.26 billion in 2006, according to the Center on Philanthropy at Indiana University.)

It is no more the role of AFP to take an altruistic or utilitarian stance vis-à-vis this proposal, than it is the role of the Sierra Club or the Business Roundtable to give equal weight to the interests of its opponents. A decision to endorse Obama’s proposal, or even not to take a stand at this stage of the debate, would have been virtually inexplicable – “pointless and self-defeating,” in Ms. Maehara’s words.

It is possible for a development professional or a nonprofit executive to step back and regard the big picture, and even to oppose one’s professional interests (as opposed to the broader public interest or principles of social justice or one’s commitment to health care for all). But that’s not the business of AFP – at least not at this stage of the debate, when an isolated initiative (which conflicts with the organization’s mission and is not inextricably linked to an appealing proposal late in the legislative process) can be opposed with virtually no blow-back.

Disclosures: i. I have been a member of AFP since spring 1991; ii. I worked full-time on Obama’s campaign from late summer 2008 through Election Day; and iii. nothing on Obama’s agenda is higher on my wish-list (as a public policy enthusiast) than universal health care.  See my earlier post on this tax proposal (before I was aware of AFP’s opposition).