Saturday, March 04, 2006

American Charity Short Changes the Poor

Thanks to Nathan Kaufman from my Saturday morning BUILD group for this link to a very interesting article from the Stanford Social Intervention Review entitled, "A Failure of Philanthropy: American Charity Short Changes the Poor and Public Policy is Partly to Blame" . The paper is written by Robert Reich who was U.S. Secretary of Labor during President Clinton's first term.

He brings up a point that I had never considered. I'll try to summarize, but you really should read this eleven page article.

Most of the philanthropic giving in America goes to fund education, the arts and religion (to pay for facilites and internal church operations) rather than to organizations and institutions that help the poor. Social welfare groups receive only 2% of charitable gifts and social service organizations, 9%. Since people with wealth get the largest tax deduction for those gifts, charitable giving really mostly benefits rich people!! Ouch!!

Here's an example...

A school district in a wealthy community collects ten million dollars for its local school. The rich contributors get 35 cents on every dollar back in their pockets in tax deductions and their kids have a terrific school. This takes three and a half million dollars away from the tax base that could have helped to fund the nearby school in a poorer neighborhood.

Since the qualifications to be considered a 501c3 organization are quite loose, a $1,000 donation to support baldness research is considered as valuable to the IRS as your gifts to fund feeding hungry people through Breakthrough Urban Ministries.

The author, Rob Reich gives some ideas for changes in social policy that would redirect funds to help the poor.

"We should stop kidding ourselves that charity and philanthropy do much to help the poor," says Reich.


Anonymous said...

"Philanthropy does such a poor job of channeling money to the needy that it would not be difficult for the government to do better."

This is an interesting statement in the Reich link. What do people reading this blog think of this statement?

Arloa Sutter said...

Great questions!

I don't think the government would do a better job if they were given the money directly, but I do agree with Reich that changes in public policy would channel more money to the needy...

"In order to channel charitable giving toward equality enhancing
organizations, Congress could give additional tax advantages for programs redressing poverty. In 2001, President Bush urged Congress to adopt such a measure – a targeted tax credit to individuals who make donations to organizations that spend 75 percent of their budget on direct services for the very poor. (Bush also suggested, unfortunately, taking money from TANF to offset the cost of the tax credit.) Alternatively, Congress could make subdivisions within the 501(c)(3)
category – poverty-redressing organizations in one subdivision,
others in another – with smaller incentives for giving to the latter. Furthermore, organizations that tend to worsen inequalities might be removed from the 501(c)(3) category altogether. People could still make donations to them, but they would not receive any public subsidy."

Anonymous said...

"Furthermore, organizations that tend to worsen inequalities might be removed.."

A standard such as "tend to" is very grey. Some might perceive removal from the list as arbitrary and "persecution". It is a nice idea in theory but hard in practice, and might be subject to many errors.