Sunday, December 28, 2008

The word, "Earmark," is the new Boogie Man!

Following on the heels of an "emotionally word-charged" political campaign season, an opinion column published in the Wall Street Journal on December 24, 2008, raises the word, earmark, once again. The writers of an op-ed column entitled, Congress Targets Philanthropy, take a swipe at California Democratic Congressman Xavier Becerra's characterization of the tax-exempt benefits received by tax-exempt foundations as "a 32 billion earmark." Capitalizing on the Congressman's unfortunate word choice, i.e., earmark, the writers of the op-ed column attempt to marginalize the congressman's calls for greater racial diversity in grantmaking (in earlier blogs, we have referenced the congressman's calls for greater racial diversity on the boards of nonprofits and in grantmaking).

The tax exemption foundations enjoy, says Mr. Becerra, is a '$32 billion earmark.' As he explains: 'I have an obligation to make sure that those $32 billion that would have gone to the federal government are used for a . . . public good.'

The writers state that Congressman Becerra and others now see private and community foundations as "political treasure." The writers claim that Congressman Becerra is inflaming (i.e., by using the boogie man word, earmark) the debate over the tax-exemption of foundations so that he can "direct" foundation's resources to suit his own preferences (again, in earlier blogs, we have referenced the congressman's calls for greater racial diversity on the boards of nonprofits and in grantmaking).

The column further makes reference to remarks Congressman Becerra allegedly made at an annual meeting of the Council on Foundations where he is to have "complained about the lack of grants to racial minorities[, and that he further stated that,] '[w]e're not trying to mandate something,' he told the audience about his colleagues' foundation plans in Congress, but 'we will, if you don't act.'"  (For an earlier article capturing the views of the congressman, see the Cohen Report in the Nonprofit Quarterly, January 2008)

The writers of the op-ed column urge Congress to back-off of foundations and the supposed earmark strategy, arguing that a study has found that $1 dollar of foundation spending accounts for $9 dollars of direct economic benefits received by communities across the United States.  The study, funded in part by the Philanthropic Collaborative (a newly-formed coalition of charities, foundations and elected officials) found that, "[for the $43 billion that foundations spent on grants in 2007, they created direct economic benefits of $368 billion." The study also found that these "nonprofits . . . consistently outperform government programs, . . . saving taxpayers a bundle."

The writers opine that their preference for resolving the issue of taxation of tax-exempt foundations would be:

to eliminate most charitable deductions in return for a simpler, flatter tax system. Also eliminate the estate tax, a primary source of distorted tax behavior, and surely charitable giving would continue even with fewer foundations. Americans gave money to charity before the tax deduction existed, and we're confident they'd continue to do so. We also wish foundations had to give away all of their money over a fixed period of time, so they couldn't be captured by interests that don't agree with a donor's intent.

The debate over the charitable tax deduction and philanthropy will continue for the foreseeable future on Capitol Hill and the opinion pages of the Wall Street Journal.

Just in case you are wondering, I am in favor of retaining the charitable tax deduction, but enhancing the deduction for targeted types of giving that more closely track need-based, rather than aesthetic, charitable giving.

AMT

http://lawprofessors.typepad.com/nonprofit/2008/12/the-word-earmar.html

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