Philanthropy at Gunpoint?

In a recent op-ed piece in The Chronicle of Philanthropy, Mark Rosenman writes, “… few people in the nonprofit world seem aware of a new legislative proposal that could add $35-billion a year or more to [charity] programs perhaps including their own organizations.”

Rosenman is referring to a new tax proposal by Sen. Tom Harkin (D-IA) and Rep. Peter DeFazio (D-OR) that would impose a financial-transaction tax modeled on one adopted by the European Parliament and soon to be implemented by 11 of its member nations in order to slow flash-trading.

The Harkin-DeFazio plan, called the “Wall Street Speculators Sales Tax,” “has drawn the support of over 40 national nonprofit organizations and labor unions but has not caught the imagination of local and regional charities or the major coalitions that represent nonprofit groups,” according to Rosenman.

While I encourage you to read Rosenman’s op-ed article as well as the comments, many made by me in a tense exchange with Rosenman, I’ll share with you here what’s wrong with Rosenman’s support of the new tax plan:

1. The Wall Street Speculators Sales Tax will NOT benefit the nonprofit sector as it currently stands. Harkin and DeFazio introduced the tax plan to generate revenue to reduce the deficit. Right now, there is no reason to believe that even one cent would flow through to the community benefit sector. Rosenman initially misleads his readers on this critical point and does not provide clarification until the comment section.

2. Even if Congress could be persuaded to give the new revenue to the nonprofit sector, it raises a number of questions. Who would decide which charities should receive the money? On what basis should those decisions be made? Given that so many large charities employ lobbyists, would the new government spending go to those with political influence or those with vital programs that produce desired outcomes?

3. More government funding is not necessarily a solution to our problems. The federal government is already spending an enormous amount on the nonprofit sector. Government spending on nonprofits has grown from $100 billion a year in 1962 to an astounding $3.6 trillion in 2012, according to a report in The Wall Street Journal by James Piereson, a Senior Fellow at the Manhattan Institute and President of the William E. Simon Foundation.

If a 36-fold increase in government spending on the charity sector since 1962 has not produced the desired result, will an additional $35 billion do the trick? At what point will government be spending enough on the charity sector?

The charity sector’s enormous appetite for government money (really taxpayer money) has created an interesting dynamic. Piereson points out that many of the charities that receive the most government funding turn around and lobby the government for even more money and for higher taxes! This kind of dynamic is created when nonprofit organizations start being funded like and acting like government agencies rather than charities.

The nonprofit sector’s reliance on government funding is dangerous. It encourages institutional laziness, a loss of independence, a lack of public responsiveness and, perhaps, aligning mission with government objectives rather than constituent needs.

Marvin Olasky observed in his book The Tragedy of American Compassion, greater government involvement in and funding of the social services sector historically has led to a pullback of private support for such organizations.

I’ve served on the boards of social service agencies, most recently for an organization helping children.

Piggy Bank by Images_of_Money via FlickrThe social service agency received virtually all of its funding from the government in the form of grants and contracts. At that time, the agency was meeting just a quarter to a third of the need in the community. But, to its credit, the agency eventually set the goal of meeting the needs of 100 percent of the community. The organization recognized that it would never be able to achieve this goal if it continued to be so dependent on government funding. Therefore, the agency launched a major, sustainable push for private funding.

An interesting thing happened. As private funding grew, the organization’s service capacity also grew. With a strong, compelling case for support, the agency has now raised the necessary resources to meet the needs of everyone in its community! While government funding is still important, the organization has achieved a healthier more sustainable funding balance that allows it to serve far more people and serve them better.

Richard Freedlund, on the greatergoodfundraising blog, states, “The problem is, if your budget is so dependent on government funding and not donors, you really do not fit the definition of a charity.”

4. The proposed tax would affect more than the wealthy. Rosenman stated that the new tax would primarily impact wealthy and institutional investors. However, that’s like a tuna fisherman saying his nets primarily catch tuna, and we should not worry about the dolphins also caught in the nets. The fact is institutional investors represent mom and pop investors and pension funds for working Americans. The majority of people in the US own securities.

Rosenman says the tax really won’t add up to much money for these small investors, so I shouldn’t worry about them. But, I had another idea. I asked my 86-year-old mother what she thought about the new tax idea.

Before I tell you what my mom said, let me just mention that for a huge chunk of her life, she was poor. I’m talking coal-stove heat, no bathroom plumbing poor. Together, she and my dad worked hard to put food on the table and a roof over our heads. As a result of a strong work ethic and a commitment to saving, she now has a modest nest egg, some of which she invests in mutual funds.

Here’s what my mom said about the new investor-tax proposal with Rosenman’s suggested modification for charities:

I’m already taxed out. I’m on a limited income. I wish the government would stay the hell out of my business at this point. A few cents here and there adds up when you don’t have an income. You work hard all your life to get to a point where you have some security and then the government raises taxes. I give what I can to charity and decide which ones I support. But, charity begins at home.”

I understand my mother’s concern. She has seen the cost of medical care continue to rise despite Obamacare. Her property taxes continue to rise. Food, heating oil, and gasoline are costing more. Now, Harkin and DeFazio, with the enthusiastic support of Rosenman, want to take even more money away from my mother so the government can decide how it should be spent and, if Rosenman gets his way, which charities should get the money. 

Rosenman isn’t too concerned. He actually thinks the proposed tax rates should be even greater to bring them in-line with Europe. His thinking reminds me of a torture scene described by Alexander Solzhenitsyn. A prisoner in the Soviet gulag is stripped and chained up outdoors in Siberia. First, one mosquito lands on the man and bites him. But, how much can one tiny mosquito eat? Then, a swarm of thousands of mosquitoes attacks the doomed prisoner.

Rosenman might be right when he suggests the new tax is not big. By itself, it wouldn’t be. However, on top of all of the other taxes we pay and the increased living expenses we face, it becomes a burden — maybe not for Warren Buffett but certainly for my mother and folks just like her.

By the way, if Rosenman’s plan for redistribution to charities is adopted, I suspect it will not mean one new dollar for charity for every new dollar of tax revenue. Some of those tax dollars will undoubtedly stick to the government.

5. We do not need new taxes. What we need is responsible spending and pro-growth policies. By the way, I’m talking about pro-growth policies that have actually worked, more Clinton-era than Bush-era thinking.

President John F. Kennedy, a Democrat, certainly realized that “a rising tide lifts all boats.” Government should be looking at what it can do to grow the pie rather than what it can do to simply take more pie away from some folks and give it others.

Instead, of looking for a clever way to create a new tax that might possibly fund charities, the government should encourage private philanthropy. Unfortunately, President Obama’s plan to cap the charitable giving deduction would do the opposite and could cost the nonprofit sector $5.6 billion a year!

In addition, government should encourage business practices that help end poverty (Paul Polak and Mal Warwick have a new book coming out that looks at how business can reduce poverty. It’s aptly titled: The Business Solution to Poverty.) And government should address the systemic problems that led to the Great Recession including holding to account those individuals, companies, and agencies responsible.

Government has a role to play when it comes to dealing with society’s problems. Government should provide a safety net. However, America was founded with the idea of limited government. Yet, our federal government already spends a greater percentage of Gross Domestic Product than communist China! That’s according to the 2011 Index of Economic Freedom  by The Heritage Foundation and The Wall Street Journal.

Government expenditures in the US were 38.9 percent of GDP while in China they accounted for 20.8 percent, according to the report. Interestingly, the tax burden in the US was 26.9 percent of GDP while in China it was 18.0 percent.

Let’s make sure government plays, not just a role, but the right role. Let’s make the pie bigger so everyone can benefit.

I should also point out that when people earn money, they pay taxes. When people sell their stock, they pay a capital gains tax. When they spend the money from the sale of their stock, they pay sales tax (assuming the person lives in a state with a sales tax). People are paying taxes already. It’s not like they’re investing tax-free.

6. We need a nonprofit sector that does its job and is not afraid to stand on its own feet. Over the past 50 years, government funding of charities has increased 36-fold to $3.6 trillion. Isn’t that enough? If not, what number do you have mind?

Philanthropy should be voluntary. It’s the American way. People support causes that are important to them, with their own money. Forcing “philanthropy” at gunpoint is wrong. Forcing my mother to take money out of her small savings to hand it over to a charity of the government’s choosing is wrong.

Government has the power, through force if necessary, to compel people to pay taxes. If the government requires people to pay an additional tax so it can redistribute the money to charities, the government is most certainly forcing those taxpayers to give those dollars to charity. Giving to charity should be voluntary rather than coercive.

Why should the government forcibly take someone’s money, not to fund government work, but to give it to charity?

Let charities make the case for support and ask for it.

7. If the intent of the new tax is to reduce flash-trading, let’s find better ways to accomplish this. Flash-trading by computer programs has received a fair amount of media attention lately. It’s a problem. A French diplomat’s op-ed in The New York Times, revealed that the financial tax in Europe was really designed to slow or minimize computerized flash-trading done by financial insiders who don’t pay the normal transaction fees. The tax was designed to slow such trading and level the playing field. If that’s the goal in the US, let’s find a more direct and impactful way to achieve that end.

While I’m certainly not a Bush-conservative, I’m also not a Rosenman-liberal. The tax proposal he endorses is ridiculous on the surface. But, he’s asked the nonprofit sector to take a stand. So, I will.

I’ve worked in the nonprofit sector for over three decades. I’ve held leadership positions on our professional association boards, locally and nationally. I’ve served on nonprofit boards. I’m a generous donor. I volunteer my time. I now take this opportunity to publicly announce, once again, that I will not vote for any politician that votes in favor of this new tax, and I will not donate to any nonprofit organization that advocates for it.

Rosenman is right. The time has come for us to take a stand. I’ve taken mine.

That’s what Michael Rosen says… What do you say?

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5 Responses to “Philanthropy at Gunpoint?”

  1. Don’t worry, I’m not suffering from split-personality disorder. I’m not actually initiating a comment on my own behalf about my own post. Instead, I’m helping out one of my readers who has experienced some technical difficulty. I’m posting his comment below:

    A.D. Shore (@OnePageWriter = https://twitter.com/OnePageWriter) says:

    Very good, honest, professional take. I come from a very progressive view, and still think you are right.

    The public doesn’t trust taxes, and we can’t trust that our sector would get the lion’s share. And I doubt my favorite advocacy efforts would be anyone’s pet project…so change would likely come up short-changed again.

    I tried to explain my alternative. For food justice, we should link revenues to food purchases. My Nickel-a-Meal Campaign seeks to do that to turn the process of buying junk food a food empowerment action.

    BURGERS AGAINST OBESITY. I discuss it because it correlates with your points.

    Fast food relies on massive small dollar transactions. If we tapped in through participating fast food outlets, we could get a nickel extra for each ATM/credit card purchase. These coin charges would be over and above McWhatever’s take and without fees. The nickels could be electronically transferred to regional food empowerment projects via The United Way, community banks, foundations, etc. as fast as they were made. Which helps with revenues and keeps government slowness away.

    The key fact is instant and automatic revenues to the healthy food projects. So each purchase has a voice. Food outlets would have to hear customer comments and we’d get better food. You can read about it at http://AngrySodas.wordpress.com.

    What’s important is this is a blended values, multi bottom line project. It’s not government, and it’s tied to direct issues.

    Getting the rich to pay more of ill-gotten financial transactions is a necessary step. I believe there are transactional ways to do this too, just as there can be philanthropic and government SUPPORT for empowerment.

    You and Granny make a good case for that!!

    Hands off my money, sure; hands on my burger works for me.

    Good writing too.

    Allan

    • Allan, thank you for your comment and kind words. I want to applaud your creative BURGERS FOR OBESITY campaign. It’s an interesting private-sector effort that I hope folks will take the time to learn more about. Regarding your statement, “… hands on my burger works for me,” I need to make sure you understand my position. I’m only fine with that statement as long as we’re speaking figuratively. The minute someone tries to actually lay hands on my burger, things will quickly turn ugly. :-)

      Thank you for the good conversation here and on Twitter. Even when we disagree, we’ve been able to do so with respect and humor. And we’ve been willing and able to hear the other person out and consider their views. I greatly appreciate all of that.

  2. Michael, your commentary gets better and better. Very thorough analysis to which I can add little. I believe forced philanthropy through taxes, fees, and levies will be the beginning of the end of philanthropy as we know it. The key component of any philanthropic endeavor’s success is that the giving be VOLUNTARY. Each gift comes with strings. The giver, acting as steward, determines whether the charity has a goal worth supporting in the first place, and then decides whether to give and or renew that giving based the charity’s demonstrable success in achieving that stated goal. Institutionalizing philanthropy in any way, whether it be forced levies and taxes, or “socializing” the missions of charities by some central authority’s definition of “Common Good” (per Mark Rosenman) will be a disaster for private philanthropy. One early symptom will be that people will give less voluntarily, since they rightly can say “I gave already through my stock transaction fees” — and they will be right.

    • Steve, thank you for taking the time to share your thoughts. I greatly appreciate your insights. The idea that increased government funding of the nonprofit will result in a profound change in philanthropic behavior is not a silly fear. You’ve identified something that is a central theme in the Marvin Olasky book I referenced. Of course, some might suggest that that is exactly the cynical plan of some in Washington as it would ultimately make the nonprofit sector increasingly dependent on and, therefore, controlled by Washington. There is clearly an ongoing attempt to redefine core American values. It will be interesting to see where the effort leads.

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