So as it turns out, even social-equality-loving nonprofiteers can get enlisted over to the side that says rich people shouldn't pay more in taxes, even though these individuals are now earning much more and paying much less in taxes than they were two decades ago. A recent debate raised by a post on Blue Avocado has inspired me to get in writing a few basic facts--a list of the nonprofit sector's limitations--that I think any nonprofit person should consider before they go to battle on behalf of the super-rich:
- Nonprofits are not elected, nor are they in any way accountable to the public. I would submit that there's a big philosophical dissonance when you argue that only those who can afford to pay should be making decisions concerning the common good. This is what happens when nonprofits are the primary providers of social services.
- It does not take any issue expertise to give to a nonprofit. Say what you will about public servants: their careers are invested in public service. Of course, foundation professionals are often subject experts; but even at their best, they are primarily answerable to someone who is unlikely to be an expert on the issues of our time. And foundation giving only accounted for 14% of total giving last year. The rest, presumably, took place without expert input.
- People who earn more give less of what they have. This is confirmed both by charitable giving stats and by behavioral studies of cooperativeness among people in different income brackets. When you leave people absolutely free to decide how generous they want to be, those who have the most will not choose to contribute as much as others. I find it hard to imagine what, other than progressive taxation, can successfully break this segment's overriding behavioral tendency toward stinginess.
- Giving tends not to be rationally or strategically considered. I don't think even the most sanguine foundation executive could successfully argue that people always give to the causes that are most in need. For one thing, it's not the point. People give for sentimental reasons. The prevalence of "impact philanthropy" these days is the exception that proves the rule: we usually give to whatever cause is confronting us, without regard for strategy. Too often, the problems that a rich person doesn't see are the problems that never get addressed.
- The budget crisis is real. Putting blind trust in politicians to resolve a budget mess isn't wise, but failing to resolve it means crippling society in ways that will hurt nonprofits--and all of us--before long. Even if today's low taxes do support the proliferation of major gifts, I think it would be short-sighted to argue that the current tax structure is sustainable for the American experiment as a whole.
As for whether the Obama administration is right in wanting to cap the charitable tax deduction for households earning over $250,000--there I'm much less convinced. Certainly I think it's critical to raise more tax revenue from those who can afford it. But as long as the tax rate remains somewhat near where it is today, the social sector will be reaping close to $3 for every $1 forgone by the government as long as charitable tax deductions remain unlimited. Assuming the wealthiest donors are motivated substantially by tax deductability, that's a return on investment that's hard to beat.
But the idea the rich shouldn't pay more taxes on their incomes and capital gains--when no connection between progressive taxation rates and and charitable giving has been established--is not a smart position for nonprofits to take up, no matter how indebted they are to their wealthiest patrons. Nonprofits are crucially important to our society, but a successful society also requires a functioning government (in part to fund many of these nonprofits), and that is exactly what is slipping away from us. I think it will take nonprofit employees' understanding of the big picture, especially when jobs at our organizations are at stake, to prevent our becoming a part of the problem, instead of the solutions we're all so eager to see.