The question is from the Chronicle’s Give & Take blog, which links to David Billet’s affirmative response in his essay, “The War on Philanthropy,” (from the July/August 2009 issue of Commentary). This post constitutes a response to Billet’s argument.
As I will argue, President Obama’s tax proposal – to cap charitable deductions at 28% as a down payment for health care reform – has merit and (contra Billet) Obama has no antagonism toward philanthropy.
I. Cheers for the Volunteer Spirit
Let me begin by acknowledging some common ground with David Billet. In his views on the nonprofit sector we hear familiar echoes of Alexis de Tocqueville:
“In democratic America, what charity is and what it ought to do have been redefined in this spirit from the bestowing of alms to the performance of public-spirited works of all sorts by voluntary associations of citizens. Over the past century, such associations have grown and gradually coalesced into an economic ‘sector’ of their own, albeit one that is not dedicated to the pursuit of profit. The chamber of commerce, the soup kitchen, churches and synagogues, the Berlioz Society, the university, Commentary—these are all voices in the chorus of American nonprofits, which collectively account for 11 percent of the overall U.S. economy.”
I can agree with the sentiments in that passage and in his later remark – “Philanthropy is a key element in the sustenance of a civil society in which a free people are free to invest their energies in the causes that animate them…” – which celebrates the role of the nonprofit sector. But this pean to voluntary activity appears to be just a rhetorical trope on the way to his indictment of the Obama administration.
II. Billet’s Indictment of Obama
First, let me sketch Billet’s reasoning – with ample quotes to give the full flavor of his argument.
Billet notes that nonprofit organizations have been hit hard by the current economic crisis. He continues, “It was therefore surprising, and instructive, that at the same time the Obama administration was extending bailouts to troubled industries thought to be systemically or strategically important, it also presented for national consideration a change in tax policy that seemed like nothing less than a direct assault on the ravaged coffers of nonprofits. For almost a century, about as long as the U.S. has levied a significant tax on income, government policy has encouraged charity by exempting donated dollars from its reach. But in February, the administration announced that it would seek to raise revenue for its ambitious spending programs by reducing the charitable deduction for the highest two income-tax brackets by as much as 30 percent—this, when their marginal rates will already rise respectively to 36 and 39.6 percent in 2011.”
Billet mocks the “moral attitude” Obama projects toward the nonprofit sector, and continues, “Certainly the idea of fairness underlying the proposal is very much a part of the administration’s outlook, and it fits neatly with a liberal suspicion of charity that has gained traction in recent years, and that withholds even two cheers from American philanthropy as it is now practiced. This is a matter that should be of concern to everyone, not just those who work for and support nonprofit institutions, and not just givers who rightly feel themselves the implicit objects of improper Oval Office criticism. The war on philanthropy that appears to be developing is a challenge to the vitality of our civil society and a serious threat to the non-governmental “mediating institutions” (as sociologists call them) that have always been a particular hallmark and glory of American society.”
At this stage, Billet invokes the views of a string of individuals and institutions on the left side of the political spectrum, including Los Angeles Congressman Xavier Becerra, Princeton philosophy professor Peter Singer, the Greenlining Institute, and the National Committee for Responsible Philanthropy to illustrate the threat liberals pose to the nonprofit sector.
Finally, Billet arrives at his inescapable conclusion:
“And this gets us closer to the unavoidable point: The role of private institutions in providing public works is something that discomfits the public sector, which time and again finds itself shown up by the competition.
The hundreds of billions of dollars that the government transfers every year to alleviate social problems have not solved the problem of poverty; government does not do it well, and often the act of subsidizing poverty has the unfortunate effect of exacerbating rather than ameliorating it. Virtually wherever public and private groups take up the same task, the private group outperforms, whether it is the Federal Emergency Management Agency versus the Red Cross in post-Katrina New Orleans, Meals-on-Wheels before and after it was adopted by the federal government, or church-run rehab clinics achieving better recovery rates than government clinics that spend ten times more per patient. This is hardly surprising, given that the private sphere enjoys the energy of individuals passionate about their work, and has greater flexibility than a bureaucracy to be nimble, to take risks, to adjust, to weed out corruption, and to move on to the next pressing task.
… In this light, the President’s proposal to limit the tax deductibility of charitable contributions while increasing the amount of money government receives in the form of tax receipts takes on a more ominous coloration. It suggests that Barack Obama believes it would be fairer for all if the government were to do as much as possible, and that the tasks of helping the less fortunate and keeping the national conversation as full-throated and diverse as possible would be better managed under the auspices of Washington.”
III. The Conservative Critique of Government
We have indeed arrived at “the unavoidable point” – but it is not the fecklessness of government, or envy for the nimbleness of the nonprofit sector, or the President’s conviction that government should “do as much as possible.” The unavoidable point is the conservative critique of government – and a loathing of taxes to support it. This fervent hostility, rather than any public-spirited celebration of voluntary activity, animates the whole argument.
The language, tone, and focus of Billet’s essay reveal a greater concern with tax policy as it affects Americans in the top tax-brackets, than for the strength and vibrancy of “American nonprofits” or “American philanthropy” – and certainly reveal no fervor for “keeping the national conversation as full-throated and diverse as possible.”
This essay is no more and no less than full-throated opposition – still strong and implacable after more than 50 years – to health care reform. Access to health care, of course, is not part of Billet’s argument. Better to leave it unmentioned. For it is clear throughout that Billet has a view of the role of government (and of the privileges of wealth, of tax fairness, and of how a just society provides medical care to its citizens) that is fundamentally at odds with any proposal for health care reform intent on extending access.
There are critics on the left, as Billet maintains, that have challenged “American philanthropy as it is now practiced.” On another occasion I will look more closely at some of these critical views – which are far from the mainstream of contemporary political discourse and far from prevalent among the leadership of the nonprofit sector. For now, though, it is enough to note that neither Barack Obama, nor anyone who speaks for the Obama administration, has given any indication of agreement with these points of view. To whatever extent these critics threaten philanthropy as we know it, by no stretch can we ascribe this threat to Obama.
As for Billet’s contempt of government, what can we say? He informs us that in spite of government spending, we “have not solved the problem of poverty.” Well, no; the poor are still among us. Is that a reason to abandon public policies to help lift them up? There are in fact two extraordinarily successful government anti-poverty programs – Social Security and Medicare – which have eliminated the endemic poverty that existed among the elderly a half century ago. Not incidentally, both programs are strongly progressive in their impact.
But never mind the tut-tutting about ineffectiveness, it is not the failure of government programs that conservatives most fear – it is their success. And it is the prospect of a successful health reform bill that prompts conservatives’ frenzied opposition, not the possibility that health care reform may fall short of achieving its aims.
As for the invocation of Katrina and the abject record of the second Bush administration as proof, in principle, that government cannot succeed – it takes ones breath away.
There is no conservative plan to extend health care coverage to the uninsured and underinsured in this county (or to provide better options for insured Americans, or improve health outcomes, or bring costs under control, or enhance American competitiveness). Dan Miller offers these comments in a guest post : “There’s a vast policy apparatus on the progressive side of the aisle built around health care, with industrious wonks digging into every nook and cranny. Meanwhile, the right has…nothing. ” Liberals have worked for a decade and half, after the stumbles of the Clinton administration, to craft a politically feasible proposal to reform health care. “Meanwhile, the right has basically abdicated its role in the conversation. It has not and as far as I can tell will not treat health care reform as any kind of priority – every major player on the right is sitting on the sidelines. If we’re lucky, we’ll get two GOP Senate votes. And this after not one but two elections in which the right was beaten by historic margins. ” (I found the link to these comments via Kevin Drum.)
IV. Obama and the Nonprofit Sector
On June 30, the President hosted a group of nonprofit leaders at the White House. His welcoming reference to “do-gooders” evoked laughter, and he noted his own experience “as a community organizer in Chicago … going door to door, meeting with anyone who would talk to me, asking people about their struggles and what an organization could do to help.”
What he had to say hardly constituted a “war on philanthropy” or any “ominous” designs on the work of the nonprofit sector:
“And finally, I want to thank all of you here today for everything you’re doing to find new solutions to some of our oldest, toughest problems. I know what you do is not easy. I know that for many of you, the hours are long, the pay could be better — let’s face it. But I also know the difference that each of you make. I know the lives that you change every single day. You teach us that there’s no such thing as a lost cause if you’re willing to be creative, and challenge the conventional wisdom, and take some risks — if you’re willing to try, and fail, and then try again until you find something that works. And today, I want to recognize that pioneering spirit and thank you all for the contributions that you’re making to our communities.
What you all do is important in any year. But at this particular moment, when we’re facing challenges unlike any we’ve seen in our lifetime, it’s absolutely critical, because while we’re working hard to rebuild our economy and help people who are struggling, let’s face it, there’s only so much that Washington can do. Government can’t do everything and be everywhere — nor should it be.
… So if anyone out there is waiting for government to solve all their problems, they’re going to be disappointed. Because ultimately, the best solutions don’t come from the top-down, not from Washington; they come from the bottom-up in each and everyone one of our communities.”
V. Charitable Contributions and Health Care Reform
If tax breaks for charitable giving are reduced, charitable giving is likely to decline. Nonprofits throughout Los Angeles (and the nation) will feel the effects. What then are we to make of Obama’s tax proposal? Why, if not harboring hostility toward philanthropy, single out charitable contributions? Well, although one wouldn’t guess it from the most aggressive and prominent condemnations of his plan, the focus of his proposal was not on philanthropic activity; the proposal targeted the tax deductions of the highest-income Americans.
The President proposed to cap itemized deductions at 28 percent – for taxpayers with incomes over $250,000, subject to tax rates of 35 or 33 percent. According to the Center on Budget Policy and Priorities, only the top 1.2 percent of American tax households would be affected by this proposed change (and fewer than 2 percent of taxpayers with income from small businesses). The cap would apply to all itemized deductions, including, for instance, mortgage interest expenses, but as Matthew Yglesias has noted, critics have seized on charitable contributions. “Naturally, the very rich and their political allies prefer to emphasize the charity angle over the big house angle.” And that’s what “The War on Philanthropy” is about.
Obama has pledged to reform health care and to pay for it (instead of relying on deficit-spending), while not raising taxes on anyone earning less than $250,000 a year. The proposed cap on itemized deductions fulfills this pledge by focusing on the nation’s highest-earners. Americans at all income levels will continue to claim tax deductions for charitable giving – but with a limit on the highest-income taxpayers that matches the limit on those with more modest incomes. Obama makes the case for this proposal in a pair of quotations from Billet’s article.
VI. Obama’s Defense in His Own Words
In arguing that Obama is at war with philanthropy, Billet presents Obama’s own words. In the first quotation, Obama responds to critics that claim his proposal is a tax on charity:
“…if it’s really a charitable contribution, I’m assuming that [the tax exemption] shouldn’t be the determining factor as to whether you’re giving that $100 to the homeless shelter down the street. And so this provision would affect about 1 percent of the American people. They would still get deductions. It’s just that they wouldn’t be able to write off 39 percent. In that sense, what it would do is it would equalize. When I give $100, I’d get the same amount of deduction as when some, a bus driver who’s making $50,000 a year, or $40,000 a year, gives that same $100. Right now, he gets 28 percent; he gets to write off 28 percent. I get to write off 39 percent. I don’t think that’s fair.”
By way of transition, Billet mocks this “new pot of money to direct toward worthy societal aims” and offers the second Obama quote:
“I think it is a realistic way for us to raise some revenue from people who’ve benefited enormously over the last several years. And, you know, ultimately, if we’re going to tackle the serious problems that we’ve got, then, in some cases, those who are more fortunate are going to have to pay a little bit more.”
Billet continues: “Thus, the plan would eliminate an unfair privilege for the rich without hurting the poor—or, at least, without hurting the poor who receive charity from entirely selfless people who are certain to maintain their level of giving no matter what the federal government does. ‘There’s very little evidence,’ Obama concluded, ‘that this [program] has a significant impact on charitable giving.’”
Billet then performs a slight of hand. He quotes economist Martin Feldstein’s Washington Post op ed, which concludes that a “substantial body of economic research” suggests that a cap of the size Obama proposes for individuals in the top brackets “can be expected to reduce the total giving of these donors by about 10 percent.”
“In other words,” concludes Billet, “the President’s proposal would reduce the amount of money given to charity by at least 10 percent.”
Whatever the merits of the research Feldstein cites – and his figure is more than twice as high as the Center on Philanthropy’s estimate for the highest income taxpayers – his conclusion is about individuals in the highest-tax bracket, not about total philanthropic giving in the United States, which includes contributors from every tax bracket. Billet’s figure – 10 percent – is more than four and half times the Center’s estimate for the projected decline in overall giving.
VII. Just the Facts, Ma’am
The Center on Philanthropy at Indiana University analyzed how two elements of Obama’s tax proposal – the charitable gift deduction rate and the income tax rate for taxpayers with income above $250,000 – would have affected giving in 2006 (the most recent year for which tax data are available). “The Center estimates that the two changes combined would have resulted in a reduction of total itemized giving by the highest income households of 4.8 percent in 2006, or a drop of $3.87 billion in itemized contributions by those households. Total itemized giving by households in the highest income categories in 2006 was $81.26 billion.”
“Our estimates suggests that if these proposals had been in place in 2006, total itemized charitable giving by households would have dropped by 2.1 percent,” said Patrick M. Rooney, Ph.D., interim executive director of the Center on Philanthropy.
He continued, noting that the tough economic environment would depress charitable giving more than a change in tax rates:
“Charities and the public need to understand that in the current economic environment, which is creating difficulty for some nonprofits and their constituents already, this public policy change is likely to have an additional negative effect. However, changes in personal income and wealth, both of which have declined in the past year, have a greater impact on charitable giving than do tax rate changes.”
The Center on Budget Policy and Priorities has an assessment of the recent funding proposal from the House of Representatives to fund health care with a tax surcharge on the highest-earning taxpayers (rather than limit itemized tax deductions); the Center’s analysis provides data that illustrate why health care reform advocates have focused on the tax liability of the highest-earning taxpayers in seeking a source of revenue.
“Very high-income households have benefited handsomely — both absolutely and compared to the rest of the population — from both recent trends in pre-tax incomes and recent changes in tax policy.” Congressional Budget Office data show that the growth in average real after-tax income from 1979 through 2006 was: 11 percent for the bottom quintile; 18 percent for the second quintile; 21 percent for the middle quintile; 32 percent for the fourth quintile; and 86 percent for the top quintile. The growth experienced by the top 1 percent of the nation’s households was 256 percent. At the same time: “The effective federal tax rate for the top 1 percent of households — i.e., the share of their income that they owe in taxes — fell substantially, from 37 percent to 31.2 percent.”
VIII. Health Care Reform Is Overdue
The biggest of the major gifts / principle gifts / mega-gifts to philanthropy each year are overwhelmingly from the top 1 percent of the nation’s highest-earning individuals and families. It is true that limiting their itemized deductions (on mortgage interest or anything else, not just on charitable giving) will somewhat depress their giving. Tacking a tax surcharge on high incomes – even a surcharge that didn’t kick in until the $500,000 level or $1,000,000 level or $3 million level – will somewhat depress giving. Nonetheless, the proposed limit on itemized deductions (or the proposed surcharge, for that matter) is a reasonable and measured initiative to fund health care reform – regardless of opponents’ objections that it indicates hostility to philanthropy or the nonprofit sector.
The health care crisis represents a moral imperative. As Senator Edward Kennedy wrote recently of his experience with health care:
“…I have enjoyed the best medical care money (and a good insurance policy) can buy.
But quality care shouldn’t depend on your financial resources, or the type of job you have, or the medical condition you face. Every American should be able to get the same treatment that U.S. senators are entitled to.”
The photo is from the March 6, 2009 White House Forum on Health Reform.
