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Wall Street Journal


The Solyndra-ization of Philanthropy

October 28, 2011

By Howard Husock

There can be no doubt now that the Obama White House believes that one important way to improve the economy is for Americans to give less to charity. In the collection of proposals he calls his jobs bill, the president has—for the fourth time in his administration—proposed to limit the value of the charitable tax deduction, cutting it back for those earning more than $250,000 to just 28% of a donation, from 35%. Although Senate Majority Leader Harry Reid dropped that proposal from the Senate version of the jobs bill, it remains in the White House set of recommendations to the deficit-cutting congressional “super committee.”

By raising the cost of giving (by $70 for each $1,000 donated), the proposal, if enacted, would almost surely lead to a significant decline in overall charitable giving. In a study released Wednesday, the University of Indiana’s Center on Philanthropy estimates that in 2013—when both higher tax rates and the decreased charitable deduction would take effect—overall philanthropy would decline by 1.4%, or $2.43 billion. This would compound already sharp declines in charitable giving due to the poor economy (individual donations dropped by 2.7% between 2009 and 2010 alone). The Indiana estimate echoes similar findings on the same subject by the Congressional Research Service in 2010.

A drop in prospective donations is bad enough. Much more worrisome are the assumptions of the latest tax proposal and a White House initiative called the Social Innovation Fund. While the former assumes that the money diverted from charity can be put to better use by government, the latter adds the notion that government funds should themselves be directed to nonprofits, some previously independent of government. The other assumption is that private philanthropy should follow along, matching government dollars.

In combination, this amounts to what can be called the Solyndra-ization of philanthropy, in which the government would brand select social-service organizations with the Washington seal of approval, and thus signal that private charitable capital should be directed to the same organizations. Here’s how the Solyndra-ization would work:

As with the Department of Energy’s “green jobs” investment in the failed solar-power firm, funds gathered by Washington, thanks to the cap on the charitable tax deduction, would be diverted from potentially higher and better uses—in this case, charitable uses. In its 2010 study, prompted by a previous Obama proposal to limit the charitable deduction, the Congressional Research Service found that donations to health institutions (hospitals and research), arts and education—the areas most favored by the affluent—were most likely to decline. Ironically, the increased tax revenue expected from the cap then was meant to fund the Obama health-care plan, a plan partly dedicated to reducing health-care costs. Reducing philanthropic investment in health-care research might not be the best way to help do that.

Of course, the White House has not proposed the charity tax cap specifically to reduce charitable giving to a select set of causes, but rather to raise tax revenue generally. Yet the administration’s Social Innovation Fund is predicated on the idea that it can better direct dollars to nonprofits than can private donors left to their own devices. This is the other half of the Solyndra comparison—government guiding private dollars, too.

For fiscal years 2010 and 2011, the Social Innovation Fund has made grants totaling $95.6 million. The grants go to so-called intermediary organizations, including local United Ways, which must agree to match government dollars. Crucially, they must also concentrate their subsequent grant-making in three areas, in what the fund, describing its 2011 grant competition, calls its “targeted issue” areas: “economic opportunity, healthy futures, and youth development.” Grants that have gone through the intermediaries have ultimately made their way to some 138 direct-service organizations focused on “affordable housing, homelessness, obesity, early education and literacy.”

One cannot help but pick up the scent of the politicization of philanthropy herein—these are, in large part, a laundry list of causes associated with contemporary liberalism. Obesity, of course, is a particular concern of Michelle Obama’s. And there is no mention here, for instance, of healthy marriage or teenage sexual abstinence, despite what might well be considered their links to “healthy futures.”

In any event, tethering private philanthropy to government in this way clearly risks—or even guarantees—that promising new ideas will be overlooked in favor of politically fashionable (or partisan) ones. Even more broadly, though, government-directed giving could shut down an historically important social safety valve through which those with dissenting views about the best ways to ameliorate social problems can act on them.

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