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This is a stark example of muddled leftist thinking.
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At this year’s World Economic Forum at Davos, billionaire Michael Dell, the 25th-wealthiest man in the world, weighed in on new proposals to tax the very wealthy. Dell said he was “much more comfortable” giving through his private foundation “than giving…to the government.” He’s not the first billionaire to confuse his obligations to society and conflate charitable giving with paying taxes. (On what basis does the author claim Dell is confused? Dell's statement is pretty clear. He would prefer to choose for himself where his money goes.
The author himself seems confused. He writes that Dell has an obligation to society. That is a moral claim. Dell does not have any obligation to society. He does have a legal obligation to the IRS.
Dell does not conflate giving with taxes, the Left does. The Left continually claims that Christians, for example, are not Christ-like because they do not support leftist compassion programs. That is, if you're opposed to anti-poverty programs, you hate the poor.)
Indeed, the discussion about solutions to most social problems are too often sidetracked by stories of beneficent billionaires and their charitable deeds. Lost in a fog of generosity is the recognition that philanthropy is not a substitute for a fair and progressive tax system and robust public investments in poverty alleviation, infrastructure, economic opportunity, and social protection. (This is an astonishing claim. First, it is the tax system that substituted itself for charity, not the other way around. Government inserted itself and made itself the agent of compassion.
Second, there is no comparison at all between people giving voluntarily to the recipients of their own choosing versus the government extracting money from people via coercion. The free choices of individuals determining for themselves where to spend or give their money is not a matter for government.
Third, the author biases the comparison by giving glowing descriptors to taxation, like "fair," "robust," "opportunity," and "protection." This is particularly egregious, since government programs are none of these, while charity is much more efficient and notably effective in achieving its goals.)
To be sure, there is strategic philanthropy in the United States that sustains a vibrant independent sector. (The author offers a weak concession.)
But that sector is in jeopardy, thanks to the increasingly top-heavy nature of philanthropy and the ways that the super-wealthy are creating a taxpayer-subsidized extension of their private wealth and power. (This is a meaningless sentence.)
Philanthropy mirrors the wealth inequality trends of society overall, with more wealth and therefore more giving clout concentrating in the hands of billionaires like Dell. (Wealthy people having more money to give is a tautology.)
Charitable giving vehicles, such as donor-advised funds, are now part of the menu of tax avoidance strategies that the ultra-rich use to stash their wealth. (The author uses the phrase "tax avoidance" to prejudice the reader. Everyone engages in tax avoidance, which is the use of deductions and credits in the tax code to lower one's tax obligation. Those deductions and credits are strategically deployed by government to encourage certain desirable activities. Charity is one of those.
This is different than "tax evasion," which is illegal.)
The risk in this increasing inequality (That is, because the rich give more, it is unequal. This is a nonsense statement. And inequality has increased since time immemorial, including under the Obama administration.)
is not only to the independence of the nonprofit sector, (What requirement is there for the nonprofit sector to be independent? Further, the nonprofit sector is governed by many laws and regulations. It is most certainly not independent.)
but also for our democracy and society as a whole.
The list of philanthropic abuses goes beyond President Trump using his personal foundation to illegally funnel tax-exempt funds to campaign consultants or toward the purchase of paintings of himself. (The author does not document these accusations.)
The ways in which philanthropy is being abused include:
Self-serving policy advocacy. Some wealthy donors, especially those in the Koch brothers’ network, are “weaponizing philanthropy,” using their considerable wealth and power to undermine democratic institutions and rig the rules of our economy in their favor. (George Soros, Tom Steyer, Michael Bloomberg, Larry Ellison, Steven Spielberg, Reid Hoffman...
Influencing policy is not philanthropy. Simply because an organization is tax-exempt does not make it a charity. The is a category created by government, so it is government that deserves the author's wrath.)
As journalist Jane Mayer documents in her book Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right, wealthy donors are funneling tax-exempt funds to think tanks and advocacy groups to further a wealth-protection agenda in the political arena. (Which again is a government-created scenario. People are simply taking advantage of the law. The law is the problem, not the people.)
Corruption of higher education. Wealthy parents (every one a leftist) bribing college coaches, test proctors, and others to rig college admissions, while funneling funds through tax deductible foundations, is only the tip of the iceberg of abusing the charitable giving system. (It is illegal to do so, sir.)
Daniel Golden, a former Wall Street Journal reporter and author of The Price of Admission: How America’s Ruling Class Buys Its Way into Elite Colleges—and Who Gets Left Outside the Gates, chronicles the “wealth effect” on college admissions and how charitable donations open doors for affluent family members to gain admission. (Should "elite colleges" be open to everyone regardless of ability to pay? Is there a reason these colleges are called "elite?" That is, the definition of "elite" is something exclusive and limited by certain criteria. An organization that caters to everyone is by definition not elite.)
Distortion of K-12 public education. Foundations in affluent public school districts enable parents to make tax-deductible contributions to support their children’s schools, compounding inequalities between school districts. (Again, government created this. But the author keeps blaming the rich for doing legal things. Apparently he believes that people should not be able to donate to schools because schools having money is a bad thing.)
This effectively does an end run around state efforts to create equitable school funding approaches that shift financing away from local property taxes. (Darn that free choice.)
Self-dealing foundations. Some foundations pay family members to serve on boards, staff foundations, and subsidize family reunions, in the form of board meetings. (Foundations are private organizations who choose for themselves how they are structured. These are legal arrangements.)
Other philanthropy at least pretends to be geared toward solving social problems, (Is this the only purpose of philanthropy?)
providing symbolic or token contributions to solving large, complex, and systemic problems. As Anand Giridharadas observes in his new book, Winners Take All, billionaire philanthropy is funding hundreds of solutions to social problems, while defining the terms of the debate to exclude such strategies as progressive taxation and expanding worker rights. (That is, they're not including leftist initiatives unrelated to charity.)
Perhaps surprisingly, Republicans have been quicker to call for oversight of the charitable sector than Democrats. ("Surprisingly?" The author is shocked that rich leftists manipulate the system? Would it be because leftists play to win at all costs and use every available exception and loophole to the fullest?)
As part of his tax reform proposal, now-retired Republican representative Dave Camp suggested rule changes governing charitable giving in the last Congress. But most lawmakers, including progressives, have largely maintained a laissez-faire attitude toward the philanthropic sector. (The author continues to conflate charity and tax-exemptness.)
Half a century has passed since the last significant reform to the rules governing philanthropy. Progressive lawmakers should advance a philanthropic reform agenda beginning with modernizing rules and charity oversight practices.
At its root, fixing philanthropy is vital for the future of our democracy. For every dollar a billionaire donates to charity, we the people chip in anywhere from 37 to 57 cents in the form of lost tax revenue, (No, not sending money to government is not a cost to government.)
depending on how aggressive the donor’s tax avoidance strategies are. In other words, taxpayers effectively provide matching funds for the donation priorities of private donors, whether for a new wing of an art museum or a brand-new performing arts center at a private high school. (All tax deductions have this effect in pursuit of government's desire to encourage certain activities and discourage others.
The author needs to make some effort to show that a person's money is best given to the government over any and all other considerations.)
The public interest in charity oversight rests on this partnership; if a donor doesn’t want government oversight and public accountability of their charitable giving, they should simply forgo the charitable deduction. (The author has not established that people want to give to charity without accountability.)
If we are to have any hope of taking back our political system from the grips of the super rich, there needs to be strong, unified trans-partisan support for a philanthropic reform agenda that boosts the independent sector, encourages broader giving, protects our democracy, minimizes gaming and tax-avoidance, and prohibits self-dealing.
TOP-HEAVY PHILANTHROPY
According to Giving USA, charitable giving increased in 2018 to $427.77 billion, slowing slightly after a decade of significant growth due to volatility in the stock market at the end of 2018 and the 2017 Trump tax cut that reduced the number of itemizing households. Foundations increased their giving by an inflation adjusted 4.7 percent to $75.86 billion. But increases in donations mask a troubling undercurrent.
As a report I coauthored, “Gilded Giving,” revealed, donations by low and middle income givers have been steadily declining over the last 10 to 15 years. (And who was president during the majority of that period?)
Almost all the growth in giving, enthusiastically trumpeted by Giving USA over the last decade, has been the result of growing mega-gifts, donations over $1 million.
In the early 2000s, households earning $200,000 or more made 30 percent of all charitable deductions. By 2017, this high-earner group accounted for 52 percent of donations. And the total share of charitable deductions from households making over $1 million dollars grew from 12 percent in 1995 to 30 percent in 2015, according to IRS data.
Reflecting the concentration of wealth, the superrich have created foundations at a rapid pace. The number of grant-making foundations (Grant-making does not mean philanthropy.)
grew from 64,845 in 2002 to 86,203 in 2015, a 28 percent increase. And the amount of assets held in those foundations doubled over that same period. (Could it be that the initiatives favored by leftists to confiscate more and more wealth has created an incentive to fund non-profits?)
Giving by foundations quintupled between 1985 and 2015, growing by more than 441 percent (from $10.8 billion to $58.46 billion). In comparison, giving by individuals grew only 109 percent from 1985 to 2015 (from $126.47 billion to $264.58 billion). Foundations made up only 7 percent of all giving in 1985; they make up 18 percent of all giving today.
Meanwhile, the percentage of households that give to charity has declined significantly. Between 2000 and 2014, the proportion of households giving to charity dropped from 66 percent to 55 percent. (As government intrudes more and more into peoples' finances, it only makes sense that they can't afford to give as much as they used to. Government has created a scenario where people are discouraged from giving to charity.
The author's own language is indicative of this hostility. He has made it clear that money is better taken by government rather than given privately to those in need.)
Giving trends by middle and modestly affluent donors track the economy’s larger economic insecurity indicators. For example, small-donor declines are highly correlated with the declining homeownership rate, stalled wages, and growing personal debt. It makes sense: If people feel less economically secure, they are less likely to give to charity. (Well, duh. This is another tautology.)
As the donor base shrinks to the wealthy and affluent, the resulting philanthropy reflects the social priorities of advantaged groups. (Yet another tautology. People give to causes they believe in. Why would they donate to causes that are hostile to their sensibilities?)
As Catholic University law professor Roger Colinvaux warns, “Philanthropy will increasingly become a self-serving vanity project for one segment of society, and less worthy in a true philanthropic sense.” (Now the motives are the giver are to be examined. Apparently the author wants to legislate morality.)
According to Giving USA, charitable giving increased in 2018 to $427.77 billion, slowing slightly after a decade of significant growth due to volatility in the stock market at the end of 2018 and the 2017 Trump tax cut that reduced the number of itemizing households. Foundations increased their giving by an inflation adjusted 4.7 percent to $75.86 billion. But increases in donations mask a troubling undercurrent.
As a report I coauthored, “Gilded Giving,” revealed, donations by low and middle income givers have been steadily declining over the last 10 to 15 years. (And who was president during the majority of that period?)
Almost all the growth in giving, enthusiastically trumpeted by Giving USA over the last decade, has been the result of growing mega-gifts, donations over $1 million.
In the early 2000s, households earning $200,000 or more made 30 percent of all charitable deductions. By 2017, this high-earner group accounted for 52 percent of donations. And the total share of charitable deductions from households making over $1 million dollars grew from 12 percent in 1995 to 30 percent in 2015, according to IRS data.
Reflecting the concentration of wealth, the superrich have created foundations at a rapid pace. The number of grant-making foundations (Grant-making does not mean philanthropy.)
grew from 64,845 in 2002 to 86,203 in 2015, a 28 percent increase. And the amount of assets held in those foundations doubled over that same period. (Could it be that the initiatives favored by leftists to confiscate more and more wealth has created an incentive to fund non-profits?)
Giving by foundations quintupled between 1985 and 2015, growing by more than 441 percent (from $10.8 billion to $58.46 billion). In comparison, giving by individuals grew only 109 percent from 1985 to 2015 (from $126.47 billion to $264.58 billion). Foundations made up only 7 percent of all giving in 1985; they make up 18 percent of all giving today.
Meanwhile, the percentage of households that give to charity has declined significantly. Between 2000 and 2014, the proportion of households giving to charity dropped from 66 percent to 55 percent. (As government intrudes more and more into peoples' finances, it only makes sense that they can't afford to give as much as they used to. Government has created a scenario where people are discouraged from giving to charity.
The author's own language is indicative of this hostility. He has made it clear that money is better taken by government rather than given privately to those in need.)
Giving trends by middle and modestly affluent donors track the economy’s larger economic insecurity indicators. For example, small-donor declines are highly correlated with the declining homeownership rate, stalled wages, and growing personal debt. It makes sense: If people feel less economically secure, they are less likely to give to charity. (Well, duh. This is another tautology.)
As the donor base shrinks to the wealthy and affluent, the resulting philanthropy reflects the social priorities of advantaged groups. (Yet another tautology. People give to causes they believe in. Why would they donate to causes that are hostile to their sensibilities?)
As Catholic University law professor Roger Colinvaux warns, “Philanthropy will increasingly become a self-serving vanity project for one segment of society, and less worthy in a true philanthropic sense.” (Now the motives are the giver are to be examined. Apparently the author wants to legislate morality.)
WAREHOUSING WEALTH IN DONOR-ADVISED FUNDS
Wealthy individuals are using charity mechanisms called donor-advised funds, or DAFs, to claim substantial tax benefits, while often failing to move funds in a timely way to independent nonprofits addressing urgent social needs.
Originally a creation of community foundations, DAFs are holding accounts designated specifically for charitable giving. DAFs have been recently adopted and aggressively marketed by a number of for-profit Wall Street firms, such as Fidelity Investments, Goldman Sachs, Charles Schwab, and Vanguard. And their clients are responding by putting an increasingly significant amount of money into DAFs.
There is currently no legal incentive to move money out to charities once it has been put into a DAF. And, in the case of Wall Street–sponsored DAFs, there are often financial incentives for staff at the DAF, and for fund managers and client advisers at its for-profit affiliate, to keep money in the fund. As a result, funds may sit in the DAF for years, or potentially forever, before being donated to active charities addressing community problems. (Sounds like another problem caused by government.)
DAFs are now the fastest-growing recipients of charitable giving in the United States. Donations to DAFs increased from just under $14 billion in 2012 to $23 billion in 2016—a growth of 66 percent over five years. In contrast, charitable giving by individual donors nationwide grew by just 15 percent over the same five years.
In 1992, the biggest recipients of charitable gifts in the United States were the American Red Cross, the American Cancer Society, and the United Way. Starting in 2016, the largest recipient of charitable giving in this country was the Fidelity Charitable Gift Fund. And in 2017, six of the top 10 recipients of charitable donations were DAFs.
As currently structured, DAFs foster a wealth preservation mentality among donors, rather than incentives to move donations to qualified charities. (Again the motives of the givers is a matter of government concern...)
This delays the public benefit from those donations, which has an opportunity cost for society. DAFs also open up loopholes for both donors and private foundations to get around tax restrictions and have little transparency and accountability.
HOW WE FIX THIS
The last time Congress overhauled the legal framework for the philanthropic sector was in 1969, a period of relative equality in US history. Philanthropic reform should have several objectives:
"Public interest" is what someone with power says it is. So if you want to donate money to a charity that advocates against abortion, for example, it will be against the "public interest" if the author has his way. It would be inevitable that only leftist causes will be in the "public interest.")
Congressional progressives should convene hearings and advance reform legislation. They will have to push back against the power of the donor class and an entrenched group of organizations focused on defending the imbalanced status quo, what Peter Buffett calls the “charitable industrial complex.”
Most of these philanthropic reforms will not directly address the overarching problem of concentrated private wealth and power. (Hmm. Before, the author wrote, "The risk in this increasing inequality..." Now he says that everything he has written to this point has little to do with addressing his actual objective. We thought this article was about some sort of problem with how the rich gave to charity, now we find out that he really wants to talk about fixing wealth inequality.)
For this, we need a plutocracy prevention tax program that includes a wealth tax, a stronger estate tax, restoration of progressive income taxes, and a 10 percent tax surcharge on all income, including capital gains. (That is, we need government to take away more of peoples' money. Is anyone surprised that the solution is a plethora of tax increases, as if putting more money in the hands of government has ever solved any problem?
In fact, it is gargantuan amounts of money in the hands of government that it at the root of the problem. "Plutocracy" results from a powerful government that is corruptible by outside influences. If we were to return government to its constitutional boundaries, it would be limited in its power and corruptibility.
And we need to note that changing how the rich are taxed will not only have an effect on their philanthropy, it will have absolutely no effect on the middle class and poor. They will not start to give more simply because a rich guy is paying higher taxes.)
Here are some of the steps we need to take to get to a more equitable philanthropic system: (Even though the author admits that philanthropy reform has little to do with inequality, he nevertheless persists in wanting to change the charitable system.)
The last time Congress overhauled the legal framework for the philanthropic sector was in 1969, a period of relative equality in US history. Philanthropic reform should have several objectives:
- Promote pluralism and a vibrant independent sector outside of political, state, and corporate control.
- Reverse top heavy philanthropy trends by modernizing the incentives and rules to encourage broader giving by wide segments of society, especially the non-wealthy.
- Ensure the timely flow of funds for public benefit while discouraging the warehousing of wealth.
- Align tax and charity rules with the public interest and protect the integrity of our tax system.
"Public interest" is what someone with power says it is. So if you want to donate money to a charity that advocates against abortion, for example, it will be against the "public interest" if the author has his way. It would be inevitable that only leftist causes will be in the "public interest.")
Congressional progressives should convene hearings and advance reform legislation. They will have to push back against the power of the donor class and an entrenched group of organizations focused on defending the imbalanced status quo, what Peter Buffett calls the “charitable industrial complex.”
Most of these philanthropic reforms will not directly address the overarching problem of concentrated private wealth and power. (Hmm. Before, the author wrote, "The risk in this increasing inequality..." Now he says that everything he has written to this point has little to do with addressing his actual objective. We thought this article was about some sort of problem with how the rich gave to charity, now we find out that he really wants to talk about fixing wealth inequality.)
For this, we need a plutocracy prevention tax program that includes a wealth tax, a stronger estate tax, restoration of progressive income taxes, and a 10 percent tax surcharge on all income, including capital gains. (That is, we need government to take away more of peoples' money. Is anyone surprised that the solution is a plethora of tax increases, as if putting more money in the hands of government has ever solved any problem?
In fact, it is gargantuan amounts of money in the hands of government that it at the root of the problem. "Plutocracy" results from a powerful government that is corruptible by outside influences. If we were to return government to its constitutional boundaries, it would be limited in its power and corruptibility.
And we need to note that changing how the rich are taxed will not only have an effect on their philanthropy, it will have absolutely no effect on the middle class and poor. They will not start to give more simply because a rich guy is paying higher taxes.)
Here are some of the steps we need to take to get to a more equitable philanthropic system: (Even though the author admits that philanthropy reform has little to do with inequality, he nevertheless persists in wanting to change the charitable system.)
- To receive tax-exempt status, foundations must typically spend a minimum of 5 percent of their value toward their mission. The first step toward reforming our philanthropic system is to ensure that this 5 percent minimum foundation payout is meaningful, not a fig leaf. We should also eliminate overhead from minimum 5 percent payout requirement, reducing the incentive for excessive internal spending on salaries, travel and accommodations for board members, internal programs, and other administrative costs—and incentivize more funds moving to active charities. In addition, we should prohibit grants to donor-advised funds (DAFs) as qualifying toward this 5 percent payout, which fails to move money to active charities., and close loopholes that count certain kinds of program-related and impact investments to be considered as grant payouts.
- Provide a tax incentive to increase foundation payout. Foundations currently pay an annual 2 percent federal excise tax on income their investments earn in a given year. This excise tax should be restructured to encourage larger annual disbursements as follows: If a foundation pays out below 5 percent in annual grants, the excise tax should be raised to 3 percent. When a foundation pays out a higher percentage, between 6 and 8 percent, the excise tax should be 2 percent. Any foundation that boosts its payout over 8 percent should pay only a 1 percent excise tax. (Waaaait. Tax cuts incentivizes certain behaviors? Tax cuts encourage economic activity?)
- Require that donor-advised funds pay out donations within three years, or allow the tax benefit to be taken only after the distribution of funds to an active charity, not a DAF.
- Encourage giving by all, with a tax credit for those who dig deep and give more than 2 percent of their Adjusted Gross Income. (Waaait. The author just told us "In other words, taxpayers effectively provide matching funds for the donation priorities of private donors..." I thought it was bad that this happens. Now the author wants more subsidization by the taxpayer?)
- Increase scrutiny over donations of non-cash appreciated assets to prevent abuse of the charitable deduction. Revise rules for donations of certain forms of appreciated property (art, jewelry, real estate) to prohibit gaming the system.
- Reduce risk of self-dealing by eliminating compensation for foundation board members and trustees and require independent boards. If a charity is truly a public interest organization, (What requirement is there that a charity be a "public interest organization?") by virtue of its advantaged tax status, it should not have a board composed entirely of family members and paid staff. Charitable foundation boards should have independent boards, with rules similar to those governing public corporation boards in many states.
- Establish a lifetime cap on charitable deductions. Bill Gates will never pay taxes on the over $100 billion he will donate to his tax-exempt foundation. A lifetime cap of $500 million would not discourage billionaires who are motivated by generosity from establishing charities. (Undocumented assertion.) But it would limit the extent to which charitable giving reduces taxes to zero.
- Ensure Congress doesn’t pass the “Johnson Amendment” that would overturn the rule that prohibits charities from engaging in more directly partisan politics and campaigns. (Hmm. So a charity must operate as a "public interest organization" but should be muzzled as far as advocating for its cause?)
- Require disclosure of donors to 501(c)4 corporations as a primary mechanism for dark money donations. While donors to 501(c)4 corporations don’t claim a tax deduction, they can anonymously give unlimited funds to influence issue work and campaigns. While left and right groups take advantage of this system, the whole system would benefit by transparency.
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