NCPA - National Center for Policy Analysis


October 30, 2009

The stars are aligning for government to capture funds that would otherwise have gone to philanthropy and for government itself to pick charity winners and losers.  The result could be a more bureaucratic, less innovative non-profit sector, says Howard Husock, the Vice President, Policy Research and the Director of the Manhattan Institute's Social Entrepreneurship Award.

Little-noticed in the discussion of the Senate Finance Committee health care bill was a proposal floated by an influential group of Democratic Senators (including West Virginia's John D. Rockefeller IV and Massachusetts' John Kerry) to quietly raise additional billions in taxes by limiting the value of itemized deductions -- such as contributions to charity:

  • The proposal would hold steady the deductions' value (at 35 cents on a dollar) even as the top tax rate rises in 2011 to more than 39 percent (as the Bush tax cuts expire).
  • When a similar proposal was advanced early this year by President Obama, the long-time head of the National Bureau of Economic Research, Martin Feldstein, estimated it would lead to a yearly $7 billion drop in charitable giving.
  • Such a fall would compound big losses that have already hit charities; the Chronicle of Philanthropy reports that six of 10 United Way chapters saw a decline in giving last year, totaling $4 billion.
  • Although Americans donate about $300 billion in total annually to charity, these sorts of hits are not small change.

The implicit assumption of the proposed change: that government will do better things with that money than will philanthropy.  The Obama Administration has shown a willingness to act on just that belief, says Husock:

  • It has, for instance, announced the establishment of a new White House Office of Social Innovation -- which will make grants (totaling $50 million) directly from the White House to individual non-profits.
  • Some non-profit "social entrepreneurs" have supported the idea -- tempted by the possibility of using government grants to grow.
  • But it's crucial to note that, as is typical when government calls the shots, only certain types of organizations working in select areas will qualify -- including "energy efficiency, civic engagement, and poverty reduction" programs.

This government-led giving contrasts sharply with the wide-ranging, sometimes quirky, but historically creative nature of American philanthropy, says Husock.

Source: Howard Husock, "Government Takeovers: Is Charity Next?", October 29, 2009.


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