If tax preference is meant primarily to encourage boldness, it doesn’t seem to be working.
March 1, 2013
With Responses From
Mar 1, 2013
3 Min read time
Tax preferences don't seem to be working.
Whatever I think of his specific arguments—and while I have a few quibbles and suggestions, I think he’s on the right track—the very fact of Rob Reich’s essay is significant.
That is because today’s philanthropy critics are isolated and, like almost everything else in American society today, divided. Some on the left urge foundations to do more on behalf of social justice, including diversifying their own boards and staff. Some on the right want foundations, and indeed the state, to do less in the social sphere. They want to fill the gaps in the safety net with individual charity, not extend the reach of the social compact.
It’s been almost a hundred years since Louis D. Brandeis and others at the dawn of the progressive era sounded a more fundamental alarm about the new Rockefeller and Carnegie philanthropies, then widely seen as a kind of money-laundering operation for labor-bashing capitalists with blood on their hands. These early critics questioned the role of foundations in a democracy.
In acknowledging that the record of foundations leaves much to be desired and that the tax deduction for charitable giving is not something handed down on tablets from Mount Sinai but instead a societal choice to reduce the tax burden of the rich in order to encourage their giving preferences, Reich renews the vital century-old discussion.
That is contribution enough, but I wish Reich had gone further in suggesting responses to the problem.
He thinks that foundations’ tax advantages might be justified by a notion of pluralism—that foundations are especially favored in order to enable them to take risks that corporations and the public sector don’t. That’s a plausible argument, and certainly one foundations make for themselves all the time, citing, for instance, Carnegie’s role in the groundwork for public television, or the Rockefeller Foundation’s support for the green revolution. But few bother to examine these claims on behalf of foundations with rigor, and the same list of “greatest hits” appears again and again. Courageous risk-taking is not what most people associate with foundations, their boards and senior leadership often calcified with establishment types. If tax preference is meant primarily to encourage boldness, it doesn’t seem to be working.
Whenever the philanthropic establishment’s prerogatives are threatened, it rises up in resistance.
Existing accountability mechanisms aren’t working either, but when Reich explores possible solutions, he strangely omits the press. It’s an easy oversight to make, since so little media scrutiny is applied to foundations. But as it happens the period of tremendous growth in the philanthropic sector—particularly the rise of a mega-foundation such as Gates, which can by itself steer policy on education reform or global health—has coincided with a significant decline in the resources devoted to investigative journalism. When I started at Atlantic Philanthropies six years ago, the New York Times and Financial Times had journalists dedicated to philanthropy and the nonprofit sector. No more. As philanthropy’s power has grown, independent scrutiny of it has waned. The Ford, Knight, and other foundations, alarmed at the decline in investigative reporting, have provided support for nonprofit news organizations such as Pro Publica, or even for-profit ones such as the Los Angeles Times and Washington Post, but, for obvious reasons, these foundation-supported initiatives are not likely to cast their gaze upon their benefactors.
Finally, Reich suggests that there is too much clutter in the proliferation of small foundations and wonders if there ought to be a minimum asset size. He makes this suggestion in the spirit of encouraging innovation and risk-taking, with greater possible impact. But the proposal seems misplaced. True, a lot of smaller foundations are not very bold, and often somewhat self-serving and idiosyncratic. But they do promote a kind of pluralism. I’d be more interested in policy ideas aimed at the maximum size of foundations, which would boost pluralism while ensuring that no foundation has disproportionate power. Limiting the lifespan of foundations, or perhaps mandating governance measures, such as community representation, might also enhance public accountability and responsibility.
These ideas are very far from current public discourse and even further from adoption. Entrenched power fights hard for its interests. Whenever the philanthropic establishment’s prerogatives are threatened—as in recent proposals by President Obama during the health care and fiscal cliff fights to raise revenue by capping charitable deductions at their Reagan-era levels—it rises up in resistance, just like the oil companies and mortgage lenders do when they see legislation that threatens their interests. It will be very hard to bring about self-criticism in the field, much less reform. But articles such as Reich’s are a start.
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