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.
The 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:
read more »