Wednesday, November 14, 2012

Dysfunctional Do-Gooders

“The nonprofit sector, which roots for the underdog, supports tax breaks to the wealthy because charitable deductions help us.”
--Jan Masaoka, CEO of the California Association of Nonprofits (quoted in the Bay Citizen)

Corruption or Rational Response to an Irrational Premise
Non-profit organizations are often the strongest advocates for the neediest Americans, yet they also tend to be strong advocates for tax breaks for the nation’s millionaires. From their perspective, this is not a corruption, but an expedient: they desperately need money and the wealthy are the ones most able to provide it. Not only do the rich have more disposable income to give away, but the tax system provides incentives for them to give to charities by allowing them to write-off their donations.

This may seem paradoxical, but only because charities and non-profits start with an irrational premise. Some believe they can solve a social problem by giving money or services to its victims, while others accept the social problem as a natural or unsolvable reality and hope only to lessen the suffering through assistance to the victims. In either case, donations become the primary goal since the rest of their goals are unachievable without money, while the actual causes of the problem are either ignored or tolerated as a normal or acceptable part of reality.

Charities are Big Business
The issue of dwindling charitable donations came to the fore in this year’s presidential campaign when Mitt Romney insisted he could lower the deficit while maintaining low tax rates for the rich by slashing their deductions. Obama’s 2013 tax plan also included a cap on charitable deductions for those in the highest tax bracket. Both plans would reduce incentives for the wealthy to donate and likely result in reduced revenues for non-profits.

Charities received almost $300 billion in donations last year, according to a recent study by Bank of America. 0ver70% of this came from individual donors and half of that came from the wealthiest 3% of U.S. families. Therefore, any threat to the charitable donations tax deduction could significantly affect revenues for nonprofits. Martin Feldstein, a Harvard economics professor believes that ending this deduction would result in a 40-65% drop in donations to nonprofits.

While most charities are non-profits, they often have large payrolls and sometimes even have officials who earn six-figure salaries. This is particularly true for hospitals and other large non-profits. However, even smaller non-profits have employees who are dependent on the donations for their modest incomes. Furthermore, many people choose to work for non-profits rather than the private sector in order to help people in need and thus they are very invested in keeping the donations rolling in, regardless of where they come from.

Charity Perpetuates Need
Charities exist to help people in need. Helping the needy is compassionate and good. However, charities seldom ask why their clients are in need, nor do much to end that need. On the contrary—if they ended the need, they would end their entire reason for being and put themselves out of business. Instead, most use their donations to feed their bureaucracies (e.g., employee salaries, lawyers, lobbyists, rent), provide handouts and services to clients, and do public outreach and education (to encourage a constant influx of donations).

If the goal is ending poverty or hunger, then the charity’s goals should also include ending income and wealth inequality. This cannot happen by taking money from the wealthy, which only perpetuates the wealth gap and the illusion that they are doing good for society. Similarly, if the goal of a non-profit hospital is to provide quality healthcare for everyone, then they should fight for a single payer healthcare system that provides access for everyone while keeping costs low, rather than charging exorbitant fees to those with insurance and begging for handouts from donors for the indigent and poor.

Supporting tax breaks for the wealthy has the opposite effect. It increases the wealth gap by reducing wealthy individuals’ tax liability and it discourages social investment in solving social problems by ensuring that charities stay in business to provide handouts. Thus, people can continue to rationalize not providing free or subsidized housing for everyone who needs it so long as there are homeless shelters and soup lines.

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