Partner Policy Schools Philanthropy & Non-Profit Organizations Politics and Governance University of Texas at Austin

Why Should We Bother Debating the Business of Giving?

A Partnership Piece from the University of Michigan’s Ford School of Public Policy

Photo Credit: Andre da Loba from the New York Times

On its surface, the nature of philanthropic giving hardly seems to demand the need for public concern. With ISIS causing terror from afar and anti-vaccination parents sowing the seeds of discord from within, surely the idea of debating the subject of tax-deductible contributions to charitable organizations sounds trivial.

But when there are over 1.45 million tax exempt organizations in the U.S. that together accounted for 5.3% of the total GDP in 2014, and when more than two thirds of US citizens are engaged in some sort of charitable giving, it becomes difficult to deny that philanthropy occupies an incredibly important part of the American economic system. Nevertheless, for the economic impact of the industry, charitable giving currently lacks a necessary degree of public attention. Can anyone name a private foundation besides the Carnegie, Ford, Gates, or Rockefeller foundation?

The vast majority of press and research is focused on these very recognizable names. Though they do good work, focusing on those organizations which garner outsized influence also poses problems. These foundations constitute a very limited subsection of all private foundations, and they are a poor sample of foundations in general. Contrary to popular belief, few private foundations hold hundreds of millions of dollars. In 2012 individuals donated over four times the amount that foundations such as these did – a fact that may surprise many and, by extension, suggest a collective misunderstanding of philanthropy as it exists today.

However, researchers still shy away from the study of philanthropy because of the belief that it is a private decision outside the scope of public scrutiny. But philanthropy is a public issue, since these contributions are tax deductible; that is, a portion of the money donated to these organizations would have eventually become federal government revenues. The Congressional Budget Office estimates that from 2010 to 2014 the charitable tax exemption was in reality a $230 billion indirect government subsidy.

Things haven’t always been this way. During the so-called golden age of philanthropy, when Rockefeller and Carnegie were giving away vast sums of their wealth, there was no such tax deduction. This is not to say that we should not have a subsidy in place; I think we ought to. But what this does show is that the way government deals with charity needs attention. In a political climate where any government spending is suspect, shouldn’t we at least have a conversation about a massive subsidy that is going to individuals who, by definition, are wealthy enough to give money away? For context, our government fiercely debated spending $426.5 billion on unemployment insurance recently.

One major factor behind the lack of public attention is the small number of philanthropy-focused programs at universities. The Once Upon a Time Foundation, based in Fort Worth, TX, has been attempting to tackle this problem by providing an innovate approach to the study of giving. Through the Philanthropy Lab program, this foundation gives grants to universities across the country – including the University of Texas – that put students in the shoes of philanthropists. Students in the class are allowed to determine how they would like the grant to be allocated, per their professor’s instructions. Each class is run differently, providing students with access to a multitude of lenses through which philanthropy can be evaluated. Providing university students with this unique opportunity allows them to struggle with the moral quandaries that foundations face in their day-to-day operations, while giving them a deeper understanding of the business of giving. More importantly, classes such as these can provide these students with the knowledge required to start a national debate on our government’s attitude towards philanthropy.

With so much public money going to subsidize charitable donations, the Philanthropy Lab program should serve as a template for further study of giving. Expanding these efforts will be essential if we’re serious about evaluating this poorly discussed tax deduction.

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