Friday, February 15, 2008


Assuming a sliding tax deduction is an idea whose time may have come (I first published on this 20 years ago) the real problem is who qualifies and who decides? Though far from perfect, the nearest tool may be the revised form 990 - the tax return most non-religious charities are obliged to prepare if their receipts exceed $100,000 or their assets are over $250,000.

This tax return - open to the public - unlike yours (presumably) offers basic information about charitable purpose, sources of funds, other financial information and a list of the board. These are primitive measures of efficiency. What the 990 does not tell us is whether the charity is effective. And the 990 won't tell us how aggressive the charity has been in seeking private funds.
Though it's not p.c. to mention it, there is a dependency culture in many social/human service agencies. They have come to depend on government grants and contracts so they expend few resources and little effort on raising money - until crunch time (cuts in funding) which by then is usually too late.

Why then should a sliding tax deduction for donors be used to bail them out? The only possible answer is that these charities are serving people who benefit from their help and in the normal course of philanthropic behavior charitable donors don't give much to human service agencies.

There are three core questions on which the sliding deduction allowance might rest:
  1. What do the charity's numbers look like going back five years?
  2. What are their sources of funds?
  3. How much of that total comes in contributions - i.e., private philanthropy?
I'm sure there are other considerations as well. What about animal shelters, the environment, religiously sponsored health and welfare agencies (e.g. the Salvation Army is the largest charity in the US but files no tax return because it is classified as a religious body)? Should overseas charities or struggling arts groups be included? Who's in? Who's not?

And who is going to decide? In our society the marketplace ultimately decides who is in and who is out. There is not too much subjectivity. But there the idea that the federal government should be in the business of regulating charities far more than they are now (through the overburdened under-resourced IRS) is not appealing. The states have made a mess of charity registration and regulation so there is an understandable reluctance to bring in the feds. But I don't see any other way.

In addition to toughening up reporting and not leaving behavior entirely up to important but essentially unenforceable codes of ethics to which the industry subscribes, federal oversight might be the best way to sort this out. As you may have read in an earlier post, I hope a new president will convene a White House Conference on Philanthropy early in his/her term, and I hope the concept of a sliding tax deduction will be an essential agenda item! What do you think?

Tuesday, February 5, 2008

A Sliding Tax Deduction for Charitable Gifts?

Do charitable donations really reach those in greatest need? Human service agencies have seen a decline in support in the last several years reports Giving USA Foundation an organization that charts philanthropic trends each year.

Most such charities rely on a mix of (predominantly) public money - restricted grants and contracts - and modest private support. Many are little more than de facto pass-throughs for government money and as a rule they have a tough time raising private funds.
  • They can't build wealthy and powerful boards because there is little to no cachet in board membership. The movers and shakers gravitate to bling, high prestige and major visibility and without leadership by example money doesn't flow.
  • Poverty is not attractive; even Mother Teresa wondered if she could really make any difference in the slums of Calcutta. Can we?
  • Donors identify more strongly with causes they feel they benefit directly from - like local hospitals, arts organizations, "alma mater" the green movement and so on.
  • It is often (wrongly) assumed that government money reaches the poorest of the poor. It may but only if one believes that a melting icicle is the same thing as a mighty stream.
  • These charities have not invested adequately in building structure for generating private support, many because they don't have the funds. Others rely on the public funding spigot and put their effort into getting those contracts because public money brings the greatest return. But that money is almost always restricted and what is needed most are unrestricted funds. Most major donors who are not directly involved (like board members) resist providing it because they feel (often rightfully) that there's no real accountability.
Is there a way to incentivize private support for human service agencies?

Every charitable tax deduction confers the same benefit to the donor. But what if that were not so? What if donations to the neediest human service charities carried a bigger tax deduction and a greater benefit to the donor?

The next post will try to make the case for a sliding tax deduction. Meanwhile if you have a thought you'd like to share, please post a comment.