Charity Tax Credits: Federal Policy and Three Leading States
Charity Tax Credits: Federal Policy and Three Leading States, paper presented by Margy Waller, Former White House Senior Advisor for Welfare and Working Families
Mark Anderson, Arizona State Representative (R)
Robert Boisture, Counsel, Independent Sector, and Member, Caplin & Drysdale
Sharon Daly, Vice President for Social Policy, Catholic Charities USA
Michael J. Horowitz, Director, Hudson Institute Project on Civil Justice Reform and Project on International Religious Liberty
E.J. Dionne, Jr., Co-Chair, The Pew Forum on Religion and Public Life, and Senior Fellow, the Brookings Institution
This report was prepared with the generous support of The Annie E. Casey Foundation.
MELISSA ROGERS: Good morning. My name is Melissa Rogers. I’m Executive Director of the Pew Forum on Religion and Public Life. The Forum is a project supported by The Pew Charitable Trusts, and we’re very grateful this morning to have Luis Lugo, and Kimon Sargeant of the Trusts with us, and of course very grateful for their support of this project.
The Forum serves as a platform for research and discussion of issues at the intersection of religion and public affairs. We seek to be a true forum for the fruitful exchange of ideas rather than placing ourselves as an advocate for any one perspective on the issues.
The Forum is fortunate to have as its co-chairs E.J. Dionne, a senior fellow at the Brookings Institution, and columnist at the Washington Post; and Jean Bethke Elshtain, a University of Chicago professor. Jean unfortunately could not be with us today. We greatly appreciate the partnership of Brookings, the University of Chicago, and Georgetown University in this project.
We are pleased today to be able to host a discussion on charity tax credits. As part of his faith-based initiative, President Bush proposes to encourage states to provide a credit for contributions addressing poverty. This part of President Bush’s faith-based initiative is very important, but as yet has received less media attention than proposals regarding government grants, contracts, and vouchers, and even a proposal to enlarge the federal charitable deduction for non-itemizers.
We are so glad today to help present a paper written by an expert in this field, Margy Waller, and to follow it up with a panel discussion amongst some very distinguished voices on this topic. We’re also very grateful to Carol Thompson and Mike Laracy of the Annie E. Casey Foundation, who are with us today. We thank Casey for its generous support of this report, and also its collaboration in this event.
Finally, let me thank each of you for your participation in the Forum. At this point, I’ll turn it over to E.J. for remarks and introduction of our panelists.
E.J. DIONNE: Thank you very much, Melissa.
Melissa always uses that line – the Forum is fortunate to have as its co-chairs, et cetera – and no one ever says, but it’s true, the Forum is fortunate to have as its executive director Melissa Rogers.
Thank you very, very much, Melissa.
Welcome to all. Welcome to Luis Lugo who is, in many ways, the inspiration behind this whole project.
It’s very exciting to have this discussion today because it is my strong impression that in the debate around the president’s initiative on faith-based organizations, the charity tax credit has actually often gotten lost in this public discussion, and yet it is potentially one of the most important aspects of it. It’s even potentially controversial if it were talked about enough. And we are very, very lucky that Margy Waller, who is for my money one of the best policy analysts around, has written a very, very thoughtful paper which, in keeping with provocative, we hope and trust will provoke lively conversation with this great panel.
I want to announce that Sharon Daly is on her way. Somehow she got into a fender bender on the way here. And so this room is full of enough lawyers. Anyone who cares to represent Sharon in this case can meet her in the back of the room after the event. But we do have a representative from Catholic Charities who will pinch hit for Sharon if she is still stuck on the Beltway, or wherever she is, and we’re very grateful for that.
I would like to introduce the panel. Margy Waller, who will be offering our paper was Senior Advisor for Welfare and Working Families at the White House Domestic Policy Council in the last administration. Before going to the White House, she was a senior fellow for social policy and director of the Working Families Project at the Progressive Policy Institute. She was director of public policy at the United Way of America, and director of policy development, public-private ventures in Philadelphia. Margy is one of those people where, this is important in Washington, when people talk about smart policy analysts behind those people’s backs, they always say how good Margy is. And I believe that very strongly.
We’re also very, very happy to have Representative Mark Anderson, a Republican who represents Western Mesa in the Arizona State Legislature. It’s very, very good that he’s here because his legislation on this subject has really become a model for charitable choice proposals around the country, and he has been active on this and many other issues related to abstinence programs, counseling, and mentoring programs for young fathers, marriage legislation, and so we’re very, very glad he’s here. And he owns a travel and marketing business. So, after their lawyers get their money out of Sharon Daly, they can go to him and arrange for their next vacation.
Robert Boisture is counsel to Independent Sector, an important group that represents an alliance of nonprofit organizations. He is also a member of the firm Caplin & Drysdale in Washington, D.C. He is an expert, you’ll be glad to know, on tax exempt status, charitable contributions, private foundation rules, legal responsibilities of charitable boards. In short, he can represent all of us, everyone in this room.
And I will hold off on introducing Sharon until we can warmly welcome her when she arrives, or I will be glad to introduce our friend from Catholic Charities who will pinch hit.
Margy, welcome and thank you very much.
Oh, wait, I’m sorry. You know I did a terrible thing here, hold on, Margy, I’m sorry.
This is surely last but not least, because Michael Horowitz agreed to pinch hit at the very last moment, and I am very grateful to him. And I hope he knows that. He is director of the Hudson Institute’s Project on Civil Justice Reform and the Project on International Religious Liberty. Those of you who have followed this issue of religious liberty around the world know that Michael has really been one of the strongest and most consistent voices on this from the beginning. He has also been involved in this debate over the president’s faith-based initiative in a fascinating way. He has particular interest in this aspect of the president’s initiative. He earned his LLB from Yale. He was chairman of President Reagan’s Domestic Policy Council on Federalism and was co-chairman of the Cabinet Council’s Working Group on Legal and Tort Policy.
As a person who helped us out at the last minute, I should have introduced you first instead of last, Mike, and I apologize. Thank you.
MARGY WALLER: Thanks, E.J.
I’m glad that you’re co-chair of this Forum because I really do think that you’re probably the best introduction in town, and I appreciate all the nice things you have to say.
Good morning. I am very glad to be here today to talk about this issue, although I will say I just got back from a week in Paris, and another week there would have been great, which would have meant I couldn’t be here today, but in Paris there is basically butter for breakfast, cheese for lunch, and melted cheese for dinner, and great bread to go with all of those things every day. And then wine with lunch, wine with dinner, and then there’s chocolate mousse, and some great ice cream in Paris. And you get the idea. So that’s what I did all week.
E.J. DIONNE: We have a cardiologist in the audience.
MARGY WALLER: And I have to say, if I did get the opportunity to stay for another week, I would really have been starting this talk with one of what you all may have heard of my good friend John DiIulio’s sort of patented fat jokes that he makes at the beginning of his speeches, that would have been me. So I guess it’s good in the end that I’m here making this conversation happen rather than in Paris eating more.
So I just want to echo Melissa’s thank you to the folks at Casey Foundation for their support of the paper, and also to the Pew Forum for sponsoring this discussion today. And finally to, I have kind of an informal group of advisors who gave me some great editing suggestions and ideas for the paper, so especially to them.
My research and the resulting paper evaluate the Bush administration’s charity tax credit proposal. And I evaluate it really based on the stated goals of the administration’s initiative, to stimulate charitable giving, to scrutinize charitable services for effectiveness, and to support anti-poverty programs. So stimulate, scrutinize and support.
So let me begin by just elaborating on Melissa’s description of the charity tax credit proposal. What are charity tax credits? It’s an additional tax benefit to taxpayers who make contributions to certain charities. Instead of the usual tax deduction, they get dollar for dollar credit against their taxes for all or part of their charitable contribution. Generally, the credit proposals recommend credit of 50 to 100 percent of the contribution, and the credits are capped at a maximum of $50 to $500 per taxpayer or filer.
The federal proposals for the charity tax credit usually share many characteristics in their definition of eligible charities. For example, eligible charities have to make a minimum expenditure, and that is usually about 75 percent of their annual organizational expenses for what’s defined as anti-poverty programs. Those expenditures are usually defined to exclude things like administration expenses, management, influencing legislation, legal services, and fund-raising. Poor individuals to be served, the poverty programs that are eligible usually have to serve households below a certain income level, often about 150 percent of the federal poverty level.
What’s the specific Bush proposal? States, of course, as Arizona has provided us with the example, can already create charity state tax credits, they don’t need any kind of federal permission to do it. The Bush proposal creates a financial incentive to states create charity tax credits by helping to cover the revenue lost by giving those credits back to taxpayers, by letting states use their welfare block grants, their TANF, Temporary Assistance to Needy Families block grant, to cover the cost of that lost revenue. The proposal is intended to expand charitable giving with those states charity tax credits for donations to poverty fighting programs.
In the paper, I reviewed the history of charity tax credit proposals, and personally I think this is sort of the most interesting part of the paper. I know other people are interested in what we found is happening in some of the states, but I think the history is important to evaluate what the goals are and what the intentions are, and what some of the possible outcomes might be. Originally, part of the devolution revolution conversation in the mid-’90s, charity tax credit proposals were part of the effort to turn welfare spending, federal welfare spending, into block grants, to take a number of federal entitlement programs and other anti-poverty programs and fold them into a block grant that would go out to the states. It was promoted by groups like the National Center for Policy Analysis, the National Center for Neighborhood Enterprise recently featured in the Washington Post, and the Beacon Hill Institute. By shifting those welfare grants to states, they then proposed that each taxpayer, each federal taxpayer, would get an established share of the federal welfare budget in the form of these block grants. The taxpayer could receive a dollar for dollar tax credit for donations to qualified charities. The states’ block grant then would be reduced dollar for dollar for each of those contributions. So the state would have less to spend in its programs while the non-profits would be getting charitable contributions from the individual taxpayers.
Since these proposals were made in the mid-’90s, members of Congress have proposed some form of charity tax credit legislation in every Congress since then. Last year, and in the last Congress, Senator Rick Santorum proposed permitting states to offset 100 percent of their losses from state tax credits with up to 50 percent of their federal funds from six different federal anti-poverty programs, TANF, childcare funds, community service block grant funds, the Leahy energy assistance program, workforce development funds, and the community development block grant. At FY2000 funding levels, the total available for state credits from those funding sources would have been nearly $30 billion.
This year, Representatives Kolbe and Knollenberg have introduced a legislation entitled the Eliminate Poverty Tax Credit of 2001. It creates a federal tax credit for donations to programs serving the poor and it does not include an offset with federal funding streams, although these two representatives did propose an earlier bill that did include an offset. They told me that in these times, with a surplus, we don’t need to provide offsets for tax credits. But it’s still, they believe, important to return those allocation decisions for federal dollars to individual taxpayers, rather than leaving the money in Washington for lawmakers to decide how they should be allocated. Really it’s not all that different a theory whether you have an offset or not.
There’s only one piece of charity tax credit legislation that’s been signed into law, it’s the community services block grant. States are allowed to use a part of that block grant to offset their losses for state charity tax credits. So far — I think it was passed in ’98 — no state has used that option.
Interestingly, none of these proposals were made with the primary goal of increasing contributions or funds to poverty fighting charities. The primary goal is reducing welfare entitlements and federal allocation decisions in favor of individual taxpayer decisions about which charities to support.
I reviewed charity tax credit legislation and outcomes in three states, Arizona, North Carolina, and Michigan. Arizona’s is the most like the federal proposal, in fact, it’s the only state with a charity tax credit that’s really like the Bush administration proposal. One big difference, I think this is an important distinction, the Arizona program creates what’s called the baseline year. You can’t get the credit as a taxpayer in Arizona unless you make a larger contribution than you made in your baseline year. For most people, that will be 1996. You have to exceed your charitable contributions for which you took deductions in ’96 in order to get the credit in Arizona, and this is really intended to ensure that there is an increase in charitable giving so that the state is using its money wisely.
In Michigan, credit is for contributions to homeless shelters and food banks. And in North Carolina, it is for all charities for contributions made by non-itemizers. Like the Bush proposal, all of these programs in these three states were created to increase charitable giving. That was the states’ purpose. In Michigan and Arizona, interestingly, they were created at times when federal or state-funded welfare benefit programs were being reduced or changed in ways that non-profits anticipated would create additional demand on their services. And so the non-profits themselves were participants and supporters of the legislation because they felt they had to have a way to generate increased revenue to meet what they anticipated would be additional demand.
In North Carolina, the proposal is intended to stimulate giving among non-itemizers, really very much like a different Bush administration proposal to expand the charitable deduction, federal charitable deduction to non-itemizers.
So, now testing these three state programs and what was learned there against the stated goals of the Bush administration initiatives, the first question is, would the charity tax credit stimulate increased charitable giving to non-profits serving poor families? The answer in looking at these states, and actually a fair amount of research that I did is that no one knows. There’s no empirical evidence that charity tax credit increases charitable giving. While claims for the credit in these three states increased every year since they were created, in Arizona the total claims still represent less than a million dollars, and less than 1 percent of filers. In key context there indicate that there could be reasons other than new giving to anti-poverty fighting charities to explain these increases.
For example, contributors who gave the same amount to an anti-poverty program each year before the credit was established and after could claim credit because they make a contribution to an ineligible charity, thereby increasing their overall charitable contributions, but not increasing their contributions to an anti-poverty program. In Arizona, despite their best efforts, there’s still really no way to eliminate the possibility that taxpayers are getting credits for increasing contributions to non-eligible charities.
In Michigan, taxpayers may be claiming credits for contributions they always have given, but each year more and more of them are learning about the credit, and that’s why the cost is going up, or they may be increasing their giving to an eligible charity that is a homeless shelter, while reducing their giving to an ineligible charity like a car purchase assistance program for low income families.
Maybe the administration’s goal with this proposal is to increase giving to a specific subset of poverty fighting charities, faith-based providers. Don Eberly, who is now the deputy director of the White House Office of Faith-Based and Community Initiatives wrote an essay during the 2000 presidential campaign advising the next president that the tax credit is preferable to other means of expanding the role of non-profits because it would channel more funds to faith-based institutions, and would protect the autonomy of charities, including faith-based ones, from state regulation and encroachment. He and other supporters seem to prefer tax credits to the direct grants proposed in charitable choice, because they believe tax credits will keep government out of religious organizations, and may allow for use of the funds to support religious activities.
Finally, the Bush proposal, importantly, would reduce TANF funding available to non-profits in order to offset state revenue losses from the credit. The administration’s budget indicates that states eventually would have to reduce funding for existing TANF funded programs, things that support working poor families, like childcare and transportation assistance. Over time, as states saw their tax credit costs increase, they would have to reduce their spending in other areas to pay for the cost of the credit. As a result, non-profit providers I talked to question the advantage of increasing charitable giving, assuming the credit actually did that, when it would simply be offset by reductions in public funds. In fact, it’s actually possible in sort of worse case scenario, that if the credit did not stimulate additional giving, and social service providers saw reductions in their TANF funding, and no increase in the charitable giving, that overall the sources available to non-profits could go down.
Secondly, would we be able to scrutinize charity tax credit programs for effective delivery of services? None of the states that I’ve talked to had information about the impacts of their legislation. They didn’t know whether it increased giving, whether the giving for which credits were being claimed went to charities in urban or rural areas, what services were funded, what outcomes were accomplished, whether other funding sources changed their allocation priorities after the legislation passed, and so on. In fact, and honestly, in two of the three states, they didn’t even know how much had been claimed for the credit until I pressed them to find out so I could put it in the paper.
There’s an assumption built into most federal proposals for charity tax credits, and Congressman Knollenberg in promoting this legislation this year said it well, and he suggests we should make every American an appropriator. The arguments made by supporters for the charities tax credit mechanism for funding anti-poverty and welfare services suggests that individual taxpayers will know best which local charity should be funded, and the urge further devolution of welfare reform all the way down to the individual taxpayer.
While it may be true that increased charitable giving would result in some additional scrutiny of certain non-profits by donors, this argument overlooks what I think is the important role of elected and appointed officials, those public officials responsible for social service grant programs have the ability and the responsibility to survey the broad system of funding for community services. They know the other public funding sources, they know where there is charitable giving and what its capacity is, and the job of these officials is to assess need in that community and the capacity of providers to meet that need. If public funds like TANF are used to offset tax credits for funding decisions made by individuals, the accountability inherent in the competitive performance based system of public funding is lost.
This, I think, is interesting because the importance of auditing results of public investment is a major focus of the Bush administration charitable choice initiative to let religious organizations deliver more social programs with existing federal funds. Thus, the proposal seems, on the one hand, to recognize the importance of government oversight in charitable choice and, on the other, to dismiss it by encouraging the use of TANF funds to offset the revenue loss from charity tax credits.
Finally, would charity tax credits be a good way to support poverty fighting non-profits? Federal anti-poverty and welfare programs were created in part because poor communities could not meet the needs of their community with local taxation and charitable contributions. Congress has developed complex funding formulas based on assessment of need, and within states TANF funds are distributed based on elected and appointed officials’ sense of how best to address need across the state. The Bush proposal would shift the distribution of TANF from a method that involves assessment of the entire state system to one that is based on capacity and willingness to make a charitable contribution.
People give where they live. They give to charities in their own community. Need does not necessarily correlate to willingness or capacity to give. And except in cases of natural disaster like earthquakes, or floods, or something that creates a lot of media attention, charitable giving generally doesn’t get reallocated across communities. If the administration’s proposal is enacted, TANF resources that today are sent to the poorest communities could be redistributed to places with more wealth and less need.
In fact, the geography of giving is really relevant to any charity tax credit proposal, whether or not it permits offsetting revenue losses with things like TANF, because spending taxes collected as a charitable credit to taxpayers reduces the flexibility of elected appropriators to meet needs across states and communities.
In the months to come, and during the anticipate debate of reauthorization of TANF in 2002, lawmakers should carefully consider the questions of whether the charity tax credit proposal would result in more charitable giving, and whether such an increase would be worth the loss of accountability and flexibility inherent in other uses of these federal dollars. More study of charity tax credits is necessary and, in fact, it’s possible because we have these states that are already doing it.
Still, no matter what design is chosen, it seems unlikely that the proposal would be in the best interest of poor families and children. The most amazing thing to me is that the proposal may be employed as a compromise alternative to charitable choice. The administration has stated again and again that it just wants to get federal resources to effective community-based organizations, especially faith-based and smaller non-profits that have not been able to compete for discretionary funding programs. And the administration wants competition that is based on success and performance based measures. Using the tax credit as what John DiIulio often says, the straw to build bricks, may just mean that the large and the even ineffective non-profits that have the capacity to market their services with the tax credit would get the most benefit. There would be no way to ensure otherwise, or to ensure that the money goes to the providers in the poorest neighborhoods where the capacity to give is so limited.
E.J. DIONNE: Margy has given us an awful lot to talk about. If I could just sort of toss out about four questions that really I think hit home from her presentation. One is, will the credit increase charitable giving, or will it simply give more tax relief to support existing levels of giving?
Second, should the money to support the tax credit come from TANF and existing programs for the poor?
The third is, under the tax credit, will there be less accountability in the use of government funds?
And, lastly, and this was her last point, which I think is very important, will the charity tax credit lead non-profits to spend more on public relations to get people to allocate their tax credit benefits to well-advertised programs, whether or not they are the most effective?
I’m a Catholic and feel guilt easily. And, therefore, because I dissed Mike by almost forgetting to introduce him, I would like to give Mike Horowitz the first chance of reply. And people can speak from here or the podium, whichever they prefer.
SHARON DALY: If you’re feeling guilty, get out your checkbook.
E.J. DIONNE: Welcome, Sharon, you made it.
MICHAEL HOROWITZ: I’m Jewish, and strangely enough, I don’t feel guilty this morning.
I’m delighted really to be the first, because I think the four questions E.J. posed are not the real questions posed by the talk, and I want to try and reset the debate, at least in broader terms as I see them.
Margy Waller’s paper seems to me ought to be retitled. The real title of the paper should be: Hurray for the Status Quo. That’s the real message of her paper. And as I look at her description of what it is that federal officials do in administering this trillion, multi-trillion dollar grant system, she and I may live in different worlds. It’s a system that surveys community needs, it determines the needs and assesses capacity to provide it. It’s accountable to taxpayers. It reviews performance outcomes. It has an accountability inherent in its competitive performance-based system. That’s what public funding does.
Well, that’s not the system I saw when I was general counsel at OMB. It’s not the system I see now. It’s not the system the overwhelming majority of the American people recognize. It’s not the system President Bush believes to exist. And it isn’t the system that Vice President Gore thought existed when he talked about charitable choice in his many speeches, and particularly the speech before the Salvation Army.
Indeed, as I look at Margy Waller’s paper, there is this ultimate final notion stating with this great shock, citing that Tom Daschle who says, well, you want to take public funds away, sure. Who is going to run the police departments and the fire departments? This whole massive grant system has got this inherent quality of being only a government monopoly as police and fire departments are. Let’s leave aside that there is even some measure of privatization in both of those areas, and in sanitation, and elsewhere, but the notion that analogizing these services provided by discretionary government grantees based on decisions made to allocate grants by a vast federal system of agencies is the equivalent of having local police and fire departments run by the government seems to me to express as well as anything I know how divorced Margy’s view of reality is from my view of reality. And I would like to think divorced from reality itself.
And I say this with some passion. I’m a conservative who is a civil rights law professor in Mississippi at the end of the ’60s. And I became conservative, and I became a Republican because I think the modern day state stinks and sells out the poor most of all. The pathology of the inner city has grown exponentially worse precisely with the dollars we’ve given out. And the American people, and Vice President Gore, and lots of us really understand how we have failed to do our intended good. But they’re very adept politically.
When I was general counsel at OMB there was no way we could cut a nickel off of a grant program because we were approached by board members, often good Republicans of charities, which had given up the business of local fund-raising, which had given up the business of going to the American people, but knew the profit of one-stop shopping at a federal agency. And those monies keep going, notwithstanding the performance. So I say, Margy, if you see accountability for performance in the current grant system, you ain’t seeing nothing like what I’m seeing.
Now, let me just make one sort of interesting point about accountability in the system. When I was at OMB I checked at HHS, it’s one federal agency, do you know how many grants HHS gave out in one year, 250,000 grants. Where in the world are we going to get all these wonderful, virtuous outcomes that Margy Walker celebrates in her defense of the status quo?
Now, others have said, and now we talk about the whole charitable choice aspect. I think there is a overwhelming consensus in the American people, expressed as well by Vice President Gore as anyone, that programs that tell people only, you’ve got to rely on yourself in order to make things happen, programs that merely redistribute income and resources, don’t get where it’s at often for the poor, not in all cases, but in enough of them. The notion of a drug program that tells people, you can’t do it on your own, you’ve got to take Christ in yourself. These are programs that seem to work.
But, let me say this, and this gets to the heart of another aspect of what Margy Waller is talking about, I want competition, she wants monopoly. She thinks that the way to have competition is to have competition in the eyes of these GS-11s who dispense 250,000 grants via HHS every year. I want competition based on a comparison between outcomes.
What we have in the school system is interesting, why is there all this pressure for charter schools, vouchers, leave aside what one thinks of them, it’s because of the spectacular record of the Catholic schools not getting government grants, not through want to trying, but not getting government grants, performing miracles on a school string with inner city communities, putting pressure on the public schools to perform. When we contract out, when Steve Goldsmith contracts out sanitation services in Indianapolis what it does is put pressure on the sanitation departments of Indianapolis to perform an awful lot better.
And so one of the reasons I want an alternative to this grants monopoly is to put pressure on the government programs. I don’t want, and some may, to totally replace them. But, I do want the model of faith based programs working as faith based programs. And there we get to the notion of the tax credit aspect. I am relatively indifferent the debate over the TANF offsets, that’s chicken feed in terms of the larger charitable choice programs, allowing people to offset TANF grants in different states.
What I want to do is far more radical. I want a wholesale substitution, particularly for the faith based groups, of the charitable choice discretionary grants with a tax credit system of the sort that Knollenberg and Kolbe supported, of the sort that Dan Coats has supported. And I do so for two reasons. The first is, the current system that’s now proposed, the Ashcroft amendment system, cannot possibly work, because it’s secularizing pressures on faith based institutions are profound, and in my judgment profoundly unconstitutional. The current law provides that no faith based group can provide any kind of services if at the same time it offers sectarian not just proselytization, sectarian instruction, worship or proselytization. And god help us, in the Watts proposal there is even a requirement for the A-bomb of the grants world a certification on pain of perjury by the grantees after the grant that they haven’t spent any money for “sectarian worship” or sectarian instruction.
That kind of pressure on groups to secularize, on faith based groups, has not given them a fair chance to compete, not to be exclusive, but to compete with some of the current secular providers of services for the poor. So I think, if we’re going to have any faith based institution having a chance to show what they can do, getting public resources to expand what they do, we’ve got to do it in a way that doesn’t attach the kinds of secularizing pressures.
There’s a second phenomenon as well, and that’s a phenomenon you all experience, and it’s a reason why you all ought to be fed up with the grant system and moving to a tax credit system yourself. And that is the lawyers that you’ve got, the accountants you’ve got, the overhead of the situation. Many of you honestly understand that you’ve reached a point of dependency on getting the overhead which pays for the home office to such an extent that you need to get the grant not to perform the services, but to keep the overhead payments going so you can have your own salaries, and your own home offices, and your own rent and mortgages paid. I’ve heard that from enough of you to known that’s so, and I experienced and saw it. Why not have a kind of no strings process by which sort of all compete with the American people for support rather than competing on a politicized basis with bureaucracy. You’re going to get more money that way, and you’re going to once again be able to perform miracles and not be here in Washington hustling grants and playing a political kind of game. I think the poor will benefit from that.
Now, one thing that Margy says that really needs to be addressed, and she’s right in this regard, the notion that charitable giving tends to be a local kind of giving, the notion that rich people won’t give money to ghetto communities, to inner city communities. I think those of us who want a tax credit system, because the current system is bankrupt, hopeless, politically failed in the main, you know, perverse in terms of its — there are days in which I pray that the grant system does less harm than good, although I suppose when you spend trillions some good happens. But we’re not getting anything for the kind of investment we’re making. We’ve got to show that the American people will understand where needs are, and make good judgments about those needs.
Let me set up some models here that need to be worked on and established. The United Negro College Fund is a kind of an example. No doubt that Catholic Charities would get far more money than it gets trolling for grants if it went to the parishes, and people were able to say, you’ve got a choice. You can either give your first thousand dollars to Uncle Sam, or you can give it to Catholic Charities. What a wonderful world that would be, and I don’t underestimate the decency of the American people to get the problems of poverty.
I remember the debate over reducing the marginal rate of taxation when I was first in the Reagan administration. Something that was shamefully opposed in the main by the nonprofit community. And I remember going to the annual meeting of Philanthropy Magazine, and people were going out there as if the end of the world was coming, and speakers would come on and say my god, look at what Reagan and Bill Bradley were trying to do. And smoke would come out of their ears as they said, they are asking us to rely on, there would be this pause, the genuine philanthropic impulse in order to survive. And there would be gasps in the audience. Well, that’s not my view of the American people, and I think the philanthropic impulse of the American people is real and it’s there.
Contrast that to what’s happened in two regards, and then I finish for this time. But, one with Catholic Charities, I think the people — I’ve seen the people who work in Catholic Charities. They are caring, profoundly decent people, who are often caught up by the whole government system. I just got an email from a friend of mine, one of the old fashioned liberals who was youth commissioner in Massachusetts. Jerry Miller said he closed down the reform schools when he was youth commissioner and turned it over to grant systems that largely went to church groups. And he said, they did a good job for five or six years. He said he just went back, he said, Roman Catholic priests in Massachusetts for Catholic Charities can’t wear their roman collars. And he said he talked to one of the senior officials of Catholic Charities in Massachusetts and said, that man said to him that he would be freer to acknowledge his faith in Havana, Cuba, than Boston, Massachusetts, receiving government grant funds. I don’t want Catholic Charities under that kind of constraint.
The other is a sort of — for me such a signature story. When I was a big shot general counsel at OMB, and I read something about a Big Sister Little Sister exchange program in the ghettos, and called the head of one of the leading women’s organizations, a kind of socially — an organization that you really thought was in there as a sort of real nonprofit group providing services. And I talked about what a wonderful program it would be to have some of their women attach themselves to some of the young girls in the ghetto on a one on one basis, and how exciting that would be for their people, and what a difference they could make. And this person was so excited about this, and I thought, gee, I was really doing a good job. And I got up at the end of the meeting thinking I’d really accomplished something. And I got this funny look from this woman. And said, Mr. Horowitz, and I said, what’s the matter. She said, Mr. Horowitz, what’s the funding source for all this? And I said, well, gee, I wasn’t thinking of funding. I didn’t come here with grant money. I just thought it would be a neat idea for your organization. And she looked at me and she said, in the most flinty eyed way, Mr. Horowitz, we’re not in this for nothing, you know.
Well, that’s what’s happened to much of volunteerism in America because of a rotten system of grants that is sustained not because there’s taxpayer accountability, but because there’s effective pressured lobbying, by sophisticated, middle class people like us to keep systems going, when we ought to be — I’m not even calling for shattering those systems, because, Margy, I’m prepared not to have any kind of offset program. Let the grant system continue as is, as current level of funding. I’m perfectly happy with that. I just want some competition, I want to hold the feet to the fire of the current system of grantees. And I want to see whether miracles really can’t be performed, once again, as the nonprofit system in my judgment and experience was really doing before they became adjuncts of Washington. I want to see if miracles really can’t be performed on a no-strings basis thanks to the generosity of the American people. I have great faith in it. I don’t know that Margy does, and that’s really the core of our debate.
E.J. DIONNE: I knew Mike would throw the fat into the fire. And I am very grateful that he did. I want to see if I can pose some questions from his point of view. I’ll skip the question, should Margy retitle her paper, and did the moderator ask all the wrong questions. But I think some of the questions he has put on the table also does Mike really think Havana has more religious liberty than Boston?
Would the charity tax credit lead to substantial reform of existing programs, for the poor and allow new ones to be born? Will there really be less accountability under a tax credit system, or will it create new forms of accountability. Will the tax credit system reduce overhead and bureaucracy, and won’t the general philanthropic impulse of Americans produce more and not less public assistance to the poor.
Representative Mark Anderson who has been working on this issue for a long time, I’d like to call on you next.
MARK ANDERSON: I’d like to thank Pew Forum for having me here today. It’s 105 degrees in Phoenix, so if for no other reason it’s good to be here. Someone mentioned when I first walked in this morning, it’s good to have you here, because you’re from the real world, and I assume they meant because I wasn’t from Washington. But, having just finished our legislative session last week, it doesn’t match with my idea of the real world where I just came from.
But I would like to just focus my remarks on three aspects of what Ms. Waller advocated for in her paper. The first question she raised is would the charity tax credit increase giving to nonprofits that serve low income families. And she indicates that there’s no proof of that. And I think in that case that she’s probably correct. But if we look at the numbers and the statistics from Arizona where we’ve had this in place for three years, the Valley of the Sun United Way, which is the Phoenix metropolitan area, reported that in the past 3 years 18,000 donors have given more than $3.2 million to their fund that they set up called the Helping the Working Poor Fund. This is a fund that anybody who gives to that can take the charity tax credit in Arizona, because they farm that money out to qualifying eligible charities.
The first year they record 4,000 and in the second two years over 7,000 each year. So it sounds good. But, then if you look a little more deeply into the Department of Revenue figures, which Ms. Waller did, they report only 2,200 donors the first year, allocating $385,000, and then 3,600 donors allocating $680,000 the second year. The third year is 2,000, those numbers are still coming in. I talked to the Department of Revenue the other day, they said they’re estimating it’s going to be very similar to the year before, around the same number of donors with about the same amount of money.
The only question about these figures is that even the department said they’re actually still looking at the ’98 returns. So these are sort of their best guesses at this point. But it seems there’s some difference between what the Valley of the Sun was recording in terms of dollars, and how many people were actually taking advantage of the credit which they could. But I think the numbers give us something here in that each year the tax credit is increasing, the number of people taking advantage of it, the amount of money going out to these charities is increasing. And I think when you take into account the fact that the Arizona credit does require additional giving, you have to give $200 more than you did in your baseline year, most people find out about this I think probably through their accountant, their CPA, because non-itemizers can’t take advantage of the credit. So I think from that we can probably ascertain, and we probably need to do a study to really determine this, but I think you can guess that a lot of that does result in increased giving to the eligible charities.
The second issue which she raises is the question of whether it’s better to have appointed and elected officials deciding where funds go versus individual taxpayers. This is a significant theme throughout her entire paper. And I have two responses to that. What apparently is the conclusion of that is elected officials have a better grasp of where the money should go. I’ve been in the legislature for seven years, I chair a committee, the Human Services Committee, and I understand the process. And I know that legislators are people, too. They have their preferences, they know how to work the system.
You might ask, was West Virginia really the most needy state in the country for those many years when a certain chairman was the chairman of the Appropriations Committee. I can tell you that if I wanted a pet project funded I can wait until the last day of session in a conference committee, put that pet project in there, it’s in an omnibus bill, everybody has to vote up or down on the whole bill. There’s ways in which legislators can advocate and ensure that their pet projects are funded, and other projects that they don’t like, for whatever reason, are not funded. Legislators are people, as well.
And if you’re talking about the non-elected people, bureaucrats in whatever agency it is, there you have people that are unaccountable even often to legislators. We’re trying to find out the numbers ourselves, the Department of Revenue is a good example. In those kind of agencies it’s hard to really find the kind of accountability that I think she is saying is there. Of course, I would never do that, I’m just telling you what could happen in the legislature.
I think the point was made, too, that appropriated funds are more stable, and they can be counted on. If you’re a nonprofit and you’re looking at that funding coming in, you can budget then, because you know exactly how much you’re going to get, and so forth, from the government. I do have to disagree, and I can recount a very recent and painful experience myself. The governor just last week vetoed funding for three important programs, programs which I was the prime sponsor of and which had been in existence for two or three years. One was a wheels to work program that allocated funds for people to get cars to get to work, a fatherhood program teaching young men how to be responsible fathers, and a marriage skills training program.
Due to the paranoia of one person on her budget staff who thinks we’re going into a 1930s style recession, the governor became affected by that and decided it was very appropriate to veto the funding for these three programs, even though it was TANF federal money, it wasn’t even state money. So these programs that have now been in place for two to three years, were counting on that stable funding source, are now wishing that they had been relying on the generosity of donors in the community.
Let me address just the idea of using TANF funds to offset the state tax credit. I oppose this idea at least until we can make a dent in the real purpose of TANF, which is self-sufficiency, which is to move people who are dependent, who are in poverty, off dependency and on to self sufficiency. Until that happens I think it’s a little too early to be reducing TANF funding, even though it may be going to a very worthy cause of these non-profit charities. I think the key to this whole issue is prevention. And the charity tax credit is simply one tool in the toolbox, it’s not the final answer. The scope of how it’s played out in Arizona will indicate that. At this point it’s still a very small effect in terms of dollars. But I do think there are certain nonprofits that are not willing or effective at getting grant money or state money who could and do benefit from the charity tax credit.
And I think it finally boils down to what’s the most effective use of the dollars. And I think if you ask the average person on the street, if you had $100 would you rather give it to the Salvation Army, Teen Challenge, or a local charity that you know, or would you rather give it to the Department of Economic Security? Where do you think you’re going to get the most bang for your buck? And I think you’d find overwhelmingly that people would rather give it directly to the charity.
So in conclusion, I think our tax credit in Arizona is working well. It needs to be expanded to non-itemizers. I tried to do that two years ago, our budget office estimated that would raise the cost up to $6 million, and so at that point it was not a budget year, we didn’t get it through. The more that we can expand it, I think then we’ll have more information that would be helpful to Ms. Waller and others who are looking at this, including the new administration. I think it’s an effective way to go. It’s not the final answer, but it’s an important tool to help people move to self-sufficiency.
E.J. DIONNE: I want to thank Representative Anderson for his very thoughtful comments. I’m struck that maybe there is a surprising consensus, although I don’t want to overstate that, on what should be the funding source of this, and whether there might be a danger in taking it out of TANF, or other programs. I love the representative’s slogan, the legislators, I believe that, but given the anti-government mood right now some might say very unfairly to be sure, that that’s an inflated claim. But I don’t believe that myself.
And also on this issue of expanding it to non-itemizers. Given the generosity of the very poor to others who are poor, I think that issue is one that very much needs to be on the table.
Just so the audience knows, I’m going — I’ll restrain Margy from responding a bit, because I’d like to — once we finish with the panel I’d like to go straight to the audience, and then we can conduct the debate that way. But, Margy, you will get a right to reply.
Robert Boisture, counsel to Independent Sector. Welcome.
ROBERT BOISTURE: Thank you, E.J. And thanks to all of you. I think it’s very important that we’re here having this conversation. This is a proposal that very much deserves careful thought. Broadly, we at Independent Sector, and Independent Sector’s members have been greatly encouraged over the last several years by the shift in the broader public policy debate, the growing bipartisan recognition of the importance of community based nonprofit organizations, the importance of figuring out ways to increase the resources available to those organizations, and in particular the growing recognition of the unique contribution of faith-based organizations, the delivery of social services to some of the neediest folks in our society.
The broader context that brings us to this particular issue, I think from this perspective reflects a very healthy shift in the way we think about how as a society we organize ourselves to address pressing social service concerns. And I’ll mention, in addition to my Independent Sector hat, in another life I was the director of public policy for the YMCA of the USA. And in that context spent a lot of time focused particularly on the needs of families and youth in low income communities. And from that perspective also have tremendous sympathy for the ultimate objective of trying to increase the resources that get targeted on the needs of those groups.
I’ll also say, having worked for Independent Sector pretty much for 20 years, I’ve been accused of never having met a charitable giving proposal I didn’t like, because as one of the principal advocacy voices for charity one of our main themes has been finding ways through the tax system and otherwise to increase donated support. We believe it’s very important for charities to maintain a strong based of donated support as one of the legs of a three-legged stool, donated support, government support, and program revenue. And so we have great sympathy for the objective of using the tax code to do that. All of that by way of saying that the presumption would have been that I individually and Independent Sector as an organization would have, when we focused on charitable tax credits, done what we usually do, which is say, another good way of increasing incentives for giving to charities.
But as we worked through our analysis of these issues, we didn’t come out there. And I’d like to very quickly give you a sense of why we didn’t come out there. In significant measure it relates to the points that Margy clearly expounded in her paper. But I want to put another concern out on the table, before I circle back to her points, and that is the implications of this proposal in terms of creating what we would view as an unfortunate distinction between more worthy and less worthy charities. From a legal perspective, we have always thought that one of the real strengths of the American law of charities is that the definition of charity is broad. It’s defined essentially in terms of conferring a broad benefit on the community, as opposed to a narrower concept of charity as relief of poverty.
Certainly, relief of poverty is at the core of charity, but American, or the Anglo-American definition of charity has always been much broader. And we see that as its great strength, that the two core principles really that define the charitable tradition in our society are first this broad definition of charity, and second the idea of donor autonomy, or donor choice, that within this broad definition of charity the individual donor is free to decide what he or she believes is the most effective way of advancing the public good. If an individual donor believes that it’s basic medical research, or education reform, or finding a cure to AIDS, we think that the purpose of the charitable tax incentives and the charitable sector is to provide a social framework that encourages that individual donor to pursue his or her vision of the most effective way to target their private resources to advancing the public good.
We think that government shouldn’t get in the business of picking winners and losers within the charitable sector, or trying to argue that organizations, for example, that would be the beneficiaries of this legislation, that is to say that the fairly narrow class of organizations that choose to focus 75 percent or more of their effort on programs specifically designed and targeted on poverty populations is necessarily the best way to advance the public good. As some of my examples, the donor that decides to target on medical research, or strengthening the institution of marriage in the society more broadly, not just in poverty communities, may be contributing as effectively to the greater good.
Having said that, let me move on quickly to a couple of other points. We balance that fundamental belief in the importance of a highly autonomous, free wheeling charitable sector, with the notion that charity can’t do everything, that we need partnership with government, and that government has a critical role to play in mobilizing resources to address social concerns. And from that perspective we share the concerns that Margy has raised about the effects of the charitable tax credit on the efficiency and equity of the allocation of resources to address social concerns. In simple terms, we simply based on our experience question whether donors really know the market well enough to decide to pick relatively more efficient rather than less efficient charities in every case.
And lastly, we share the concern, particularly with the TANF offset, this could actually result in reducing the resources available to the poor, because if credit dollars get soaked up by offsets of existing contributions, then you have to have, or to the extent that they do, you need a very big stimulative affect and increased giving to keep charities whole, so that the increase in giving is at least as great as the reduction in the TANF funds that they would receive directly.
So those are our major thoughts on this. We look forward to discussion.
E.J. DIONNE: Thank you, very, very much.[Applause.]
E.J. DIONNE: You don’t have to answer this now. But, your very thoughtful presentation raises a question, would you or would Independent Sector as an organization support a broad unrestricted charitable tax credit, which I would love you to address at some point.
Sharon Daly made it, we’re glad to say, although I want to thank Pam Smith for having been available if Sharon was still stuck out there. As all of you know, Sharon is vice president for social policy of Catholic Charities USA. She served earlier as director of government and community affairs at the Children’s Defense Fund. She directed the Domestic Social Development Office of the U.S. Catholic Conference. We’re very honored to have you with us, Sharon. Thank you.
SHARON DALY: Good morning. I am so glad to be here. Before I begin my talk, I just wanted to echo the wonderful thought that legislators are people too. Did you notice that in spite of the fact that the last speaker was very brief and concise, that it was the elected official who gave the briefest, most concise, and perhaps most balanced presentation of all. Bravo. I especially liked his points that the charity tax credit is just one tool in the toolbox, and that the charity tax credit should be extended to non-itemizes. I think those are points that many of us could agree on.
Two weeks ago today I was out in Phoenix, Arizona, meeting with 80 of the Catholic Charities diocese and directors across the country whose work Michael Horowitz praised just a few minutes ago. I wish I had heard him already so I could tell them how much he admired their work, and wanted to support what they’re doing. So my remarks this morning come from that discussion with 80 people and the consensus they developed. These are the people who both seek and receive government grants for their agencies, and also seek and receive charitable contributions. So they sort of come at this from both points of view.
I think as a community Catholic Charities agencies are intrigued by the concept of charity tax credits. As always, god and the devil are in the details. And so how this is developed and implemented will be critical for our developing a position I think first of all, Catholic Charities agencies favor public policies, as I’m sure all of you do, that would stimulate private giving, especially to programs for the poor to help them live in dignity, and to help them to fully participate in their families, in their communities, and in society. So not just charity to relieve the pains of having no home, and no food, but to incorporate them fully into our society. And of course that’s why we’ve been so strongly supporting the president’s proposal to create a non-itemizer charitable deduction this year, and I’ve been hearing on the Hill that the White House is not very visible in that fight. So I’m hoping there will be a lot more activity.
The second point I would like to make is that in Catholic social teaching, we believe that all of society, and government acting on behalf of society, has a responsibility for remedial action on behalf of the poor and vulnerable, not just meaning those who are below the OMB official guidelines, but those whose incomes and living conditions keep them on the margins of society. So we believe first of all that both are necessary, that everyone has a responsibility to give through the tax system to support fairer, more just programs and policies, but that does not relieve us of our responsibility for individual giving.
Third, we believe that if there are going to be charity tax credits expanded, they should not be financed by reducing current or anticipated direct government spending on the poor. So we would oppose the use of TANF funds for this purpose, and oppose other ways of cutting government programs in order to finance the tax credit. We think that we should consider charity tax credits in a very targeted way. Colorado, which was not included in Margy’s study, also has a tax credit. Catholic Charities has been very supportive of that program. In Colorado the contributions are targeted to programs for housing and homelessness, for people who would otherwise not have affordable housing. And among the kinds of issues we would like to see charity tax credits focused on would be housing assistance, job training, child daycare and health care. Our agencies tell us that in every state and every community those are the four largest unmet needs. So much more important, for example, than a recreation program. So we would hope that there would be some kind of targeting in the tax credit.
We think that the tax credits should only be available when they are, in fact, credits for additional giving. And Arizona has the floor in their program. And as Margy pointed out in her paper, that’s very important that you only give the charity tax credit for giving more than what you gave in a base year. By the way, in Arizona, our two Catholic Charities agencies had disparate experiences with the new tax credit. Although they supported it in the legislature and supported Mr. Anderson’s bill, one of our agencies already had a great deal of direct mail and other development activity to raise private funds. They have not seen much of an increase in giving. The other diocese, which coincidentally was beginning a major development effort at the time the charity tax credit became available, has found that they have raised a lot of money. Whether there’s a relationship here we don’t know, and I think we need to study that a little more.
By the way, I think we also need to study a little more what’s happening with United Way. The increase in funding for the United Way for these targeted programs for the poor is very good and very positive. One question I have is, in the allocation process has the local United Way reduced in any way the distribution of other, unrestricted giving to programs to low income people? If that happens then we sort of have a net of zero. So we have to make sure that we look at that question, I think.
Sixth, we think that whether you’re talking about Charitable Choice or using charity tax credits, we have to be careful somehow, and we don’t know exactly how to do this, that we not weaken the requirements that have been built into the law and regulations for so long that people with professional qualifications and training supervise programs for the poor, especially programs like mental health counseling, and substance abuse treatment. When you and I go for substance abuse treatment or mental health services, and our private health insurance pays for it, they do not reimburse for someone to lay hands on us and pray with us. As helpful as that might be, I don’t want poor people to be in the position of finding that is the only kind of help that is available for substance abuse and mental health treatment, that there needs to be professionally well trained staff supervising volunteers and religious people and other folks who are helping people. But we can’t let poor people be in a position to get less high quality services than we would expect for ourselves.
I think Michael made a really good point about Massachusetts, and how hard it is for religious organizations that get government money to function in Massachusetts, but I wouldn’t want you to think that Massachusetts is typical. We’ve heard the same kind of complaints, Michael, from Catholic Charities in Boston, especially, about restrictions on having crucifixes on the wall, and whether a sister in habit can be in the daycare center, and so forth. But that’s Massachusetts, and Massachusetts law, and the people of Massachusetts will have to fix that. That is not typical of the other states.
Now, I will tell you there are many people who use the quote about the St. Vincent de Paul shelter being the Mr. Vincent de Paul shelter. I’m sure you’ve all heard that. That came from the Archdiocese of Los Angeles. Very often what people don’t realize is that the Archbishop of Los Angeles said, are you out of your mind? Of course it’s the St. Vincent de Paul shelter, and got the grant and the program continued. So we shouldn’t make policy by anecdote. We have to be very careful that we’re looking at how these programs are done across the way.
Margy’s point about people giving where they live is a big concern to us. And so as we look at the charity tax credit, I think that’s important. E.J. asked all the right questions. Will it increase giving? I think the jury is out. Should the money come from TANF? No, no, no. Will there be accountability? I think that depends on how these are structured. There is not necessarily more accountability through private giving. Those of you who have dealt with foundations may have found there is actually less accountability than in what you have to do to put in your reports for government programs. Not all foundations, but many.
And will nonprofits spend more on advertising? I hope you’ve all seen that wonderful billboard that Catholic Charities of the Washington Archdiocese has, faith works wonders. And it has raised a lot of money, it’s a good thing. But, god forbid we should wind up in a situation where nonprofits that serve the poor are spending a high percentage of their revenues on development activities. That would really be a tragedy, and I’m sure we all want to restrict that. So perhaps if there’s going to be a charity tax credit, some restriction on how much money could be used would be appropriate.
Catholics are always sort of both end, we believe in justification by faith and works, we believe in scripture and reason, an in this case we believe in charitable giving, but also in government programs.
E.J. DIONNE: Daly speaks clearly. Thank you very, very much.
A friend of mine once described me as a non-recovering panel discussion addict, and I thought that was an incredible, thanks to Margy’s paper, and the very strong replies, that was one of the best, most pointed joining of there issue that I’ve heard in one of these discussions in a long time.
We’ll go a little bit over, because we started a little bit late. What I’d like to do is we’ve got a mike going through the audience, I’d like to collect some comments, and I want people to have a chance to reply to each other at the end. But, I’d like to have people to join the discussion from the audience. If you could identify yourself, please. Also, just so you know, we like at the Pew Forum to make transcripts of these discussions, so you will be memorialized in our transcript.
I always say, no one likes to ask the first question, so who wants to ask the second question?
QUESTION: Frank Monahan from the U.S. Catholic Conference. As a dissenting member of Independent Sector on this issue, I find a real disconnect between your statement that the establishment of some sort of a charity tax credit is going to undermine the freedom of donors in terms of where they’re going to give. I mean, that doesn’t make any sense at all. It may be an encouragement to donors to give to a place where they can get a tax credit, but to undermine their freedom is a bit of an overstatement I think. Also, I’m not sure that it undermines the broad definition of charities to do an add on tax credit, which is an increased incentive for giving of certain kinds. So you know I’ve stated those in other forums before, but if you could address those.
E.J. DIONNE: Could you wait, I just want to get a few other people in, in case the time runs out?
QUESTION: Thank you. Mark Rosenman with the Union Institute.
I really appreciate the paper and the positions represented. A few quick comments, and see if you concur in this. One of them is that it seems to me what tax credits are doing, especially with a substitution for federal funding, is to privatize public policy. They’re moving broad policy decisions out to individuals. It seems to me that as a model for a democratic society that might not be terribly bad, but it’s really inappropriate, I think, to apply to issues of poverty rather than — if we’re going to do it as a principle to do it more broadly.
The second thing is, it seems to me the way the program is framed and argued is to suggest that the problems of poverty are local, individual, and moral. And to move funding streams away from broader based structural approaches to poverty. And I’m wondering if you believe that’s true?
I’m also wondering if you are hearing any commentary on this proposal juxtaposed against broader based public policy at this time, which is saying that at the time of the greatest inequities in the distribution of wealth, some of the lowest funding, comparatively for investments in human resources and other needs, environmental needs, we’re trying to tinker at the margins of how to get support to programs rather than making the kind of national commitment we need to make?
E.J. DIONNE: Thank you. Does somebody else want to come in before we come back to the panel?
QUESTION: Hi. My name is Catherine DeJacom (sp) from the American Public Human Services Association.
I just wanted to comment to Mark, I know in Arizona with the social service block grant you have a wonderful community-based planning process that gets the money out to the local level. And actually your non-profits from Arizona have been very vocal in their concern over the cuts to SSVGA. If you’re looking at some analysis of the charity tax credit, it would be interesting to see the cuts that have happened to non-profits in Arizona because of cuts in federal funding, and what the offset is with the charity tax credit.
E.J. DIONNE: Thank you. Why doesn’t Bob Boisture start with Mr. Monahan’s question, and then we can get to you.
ROBERT BOISTURE: Well, Frank, we’re probably not going to resolve this here, but let me just restate your concern. I guess the question from a level playing field perspective is that the whole point of the tax credit mechanism, the targeted tax credit mechanism is to provide an additional tax incentive for gifts to a particular subclass of charities. And we’re concerned about that in this immediate context. We’re also concerned about its implications in really two directions. It invites a proliferation of targeted tax credits. We’re concerned now about getting more money to poverty fighting charities, but you know that if this is enacted there will be a line forming of subgroups within the charitable sector that think that they also are particularly meritorious and particularly under-funded. And it seems to me that that invites a very fractious debate within the charitable sector, and a relatively unproductive debate.
We’re also concerned about the connection between this proposal and a running debate that you’ve been involved in actively about whether the definition of charity ought to be narrowed substantially in the direction of this proposal, so that the only good charity, the only tax-exempt charity should be one which is substantially engaged in focusing on the problems of the poor, and that’s an idea that has surfaced at various points in Congress, also in the context of tax exemption fights at the state level. We’re concerned that this proposal strengthens the hand of people that argue that we should have a narrower definition of charity, and I think it’s a bad precedent from that perspective.
MICHAEL HOROWITZ: Can I just comment on that. Mark, with me, is a conservative, the sort of establishment charities, and your group is, of course, the exemplar, wants to give in these programs that are really driven by the need to give resources to the poor, and deal with problems of intractable poverty in the inner city, want an equivalent — want what my contribution to Yale Law School, or the Museum of Modern Art, to be the same as contributions to either Catholic Charities or Teen Challenge. If the right were proposing that, there would be firestorms around the country about the uncaring right. And somehow there is real silence in this country, which shocks me, over this debate, it is the establishment groups not willing to target these tax based programs to people performing services for the poor.
I am, myself, upset and angry that the program on the deductibility of charitable contributions for non-itemizers is not targeted to groups performing services to the poor. Now, it’s not easy to set up the kinds of standards. I think we need a lot of debate about how to do it. I think there are debates over whether it should be direct services to the poor, which I very strongly favor, so that only the people running the soup kitchens and not the people lobbying for food stamps would be beneficiaries here. Nonetheless, that’s the kind of debate we ought to be having.
But this simple notion that somehow it will be the end of the earth for universities because they’re not — or museums, for them to be treated differently is, to me, outrageous if we care seriously about dealing with poverty in the country. And, Bob, your concern that there will be a line to debate on tax credits, I welcome it. That’s what democratic debate is all about. We ought to have debates about tax credits for schools, for example, for elementary schools. Some may favor it, some may don’t. Let’s have rollicking, wonderful debates about whether social purposes are better served by building more museums, more universities, more schools, more services to the poor. It would be healthy for us.
E.J. DIONNE: I want to let Representative Anderson answer this question. Bob, we will come back to you at some point, if you’d like.
MARK ANDERSON: The question I think she had was, are the cuts in SSVG being offset by the charity tax credit, and the answer is, I don’t know, because we haven’t had that detailed of a study about which entities are using the charity tax credit and benefiting the most. I’ve talked to directors of non-profits who have told me they’re grateful for the tax credit. It has helped their individual non-profit raise more money. I don’t know that it’s having the effect of offsetting the cuts in SSVG.
The only thing I would say, too, is that being that the United Way has been one of the major ways of implementing the charity tax credit, I think that makes up for the fact that the concept that some of the low income neighborhoods, if they were just fund-raising in their own neighborhood, they wouldn’t be able to raise enough money, whereas more wealthy neighborhoods could raise more for theirs.
But I think with the United Way being sort of a passthrough system, with their own system of how to distribute funds, I think that that also helps. Not that the United Way should be the sole mechanism for doing it, but I think that it helps to get it out fairly when people give their tax credit to them. So I think that works.
E.J. DIONNE: I want to see if somebody — I want to go to this question, I think that your question about privatizing public policy, I think Margy might want to deal with that in some comments. Does anyone else want to join in at this point?
QUESTION: I’m Ron Field of Volunteers of America.
Just a couple of thoughts and perhaps question. Mr. Horowitz, although he’s the only one on the panel that specifically referred to the problems of the inner city, I think that we have to remember that there’s widespread poverty, although it’s maybe certainly concentrated in inner cities, widespread poverty beyond inner cities, definitely in rural areas, some in more states than others. But when you come to the issue of local charitable giving, smaller communities and certainly rural areas would certainly be behind the eight ball on that one because there are many fewer resources to be had in those local areas. And so, I think that that’s something that has to be considered, especially in terms of human services and housing, affordable housing issues.
The other question I have, and I’m just thinking about numerous articles I’ve read over the years, I suppose a position that’s put forward by Professor William Julius Wilson most ardently, and that is, you might not have the problem of poverty as much as we have in the inner cities if American industry had not vacated inner cities and took the jobs with them to other countries. And so many of the people that now, so many families that now find themselves in poverty depended upon those manufacturing jobs generation after generation. The inner cities are bereft of the economy that they used to have, and I think that’s something we need to speak to as private policy as well as public policy.
E.J. DIONNE: Thank you very, very much.
Two quick comments because I do want to wrap it up. I want to give Margy a chance, and perhaps someone a chance to dissent, and Margy the last word.
QUESTION: My name is Bristow Hardin. I’m with the Center for Public Policy of the Union Institute.
I just wanted to comment on Mr. Horowitz’s comments. I think that he raised very important issues. I happen to think that he’s wrong in all sort of areas. His premises, with all due respect, Sharon, I think the devil and God are premises as much if not more so than in the details. But I disagree with him on his premises, his evidence, the logic of his argument, et cetera. But I agree with him that we must engage in this regard.
I think one of the problems that those broadly defined on the liberal end of the perspective, central, left, however you want to define it, is those individuals, those groups, have not engaged in the questions that Mr. Horowitz is addressing. The right has redefined the debate.
And whereas I agree with what you’re talking about, Ms. Waller, and I think that the evidence and the questions that you focused on are very critical. The right, however, says, we don’t care about those types of issues, we don’t care, we want to change the nature of the debate. And I think that’s very important for the people in this room, and those that care about what happens truly to low income folks in this country to think about and focus on.
And I happen to disagree with him totally. I think he raises the profoundly important questions of the need to engage. And I think this gentleman raised a very important point also about what the causes of poverty are in terms of the economic transformations and political transformations.
So, be that as it may. Thank you.
E.J. DIONNE: I’m grateful for that compassionate disagreement. That’s a very good comment.
QUESTION: I’ll keep this quick so that Margy has time to respond. But I just wanted –
E.J. DIONNE: Can you identify yourself, I’m sorry?
QUESTION: I’m sorry. I’m Julie Bosland from the National League of Cities.
I just wanted to respond to a point that you made, Mr. Horowitz, in your comments about competition versus monopoly in deciding how to allocate resources. To me, it seems like in neither case you’re really putting competition out there in a way that allows the people who benefit from the programs to decide. I think, given those imperfections that using the government, who represents all the people where each person has an equal vote and an equal say, it tends to give you better results than allowing the people with the most money to make the decisions on where the funding goes.
E.J. DIONNE: Thank you.
MICHAEL HOROWITZ: E.J., just one sentence. My disagreement with that comment is, I believe that the government sometimes represents all the people, and that’s why I think that’s really at the core of what I have to say, that faith on your part that the government in the real world represents all the people is just, in my experience and judgment, simply not the case, and partly the reasons that Mr. Anderson has indicated, and perhaps there are some seamier other reasons about special interest capturing.
E.J. DIONNE: Now, Margy is joining an Olympic event to answer about 50 thoughtful comments and criticisms in about three minutes.
MARGY WALLER: Well, I think the last few comments were actually a great place for me to emphasize what I want to emphasize in a couple of closing comments.
I’m not sure exactly when you were at LNB. But I was at Cincinnati, Ohio, working for a local United Way, and working as a legal aide there for a long time before I came to Washington, which was actually pretty recent. So I do actually have a pretty good idea of the way it works in the real world.
And, in fact, having had a recent experience at the White House, and as much as I loved that job and enjoyed my time there, I will say I think that I had a better sense of what was happening when I was working in Cincinnati, Ohio, than when I was working inside the beltway. I don’t think it’s changed that much since I continue to talk to people.
That, in fact, certainly all elected and appointed officials aren’t perfect, but they do try hard, despite the sometimes lobbying that goes on inside the back smoke-filled rooms, they’re working to thinking about where the greatest needs are, where he particular needs of a particular community at a particular time might be, who can best serve those needs, and then they monitor to make sure that all works out.
To respond to Mark Rosenman’s question, I do think there’s an issue about privatizing public policy, but it’s sort of even worse than that, because it’s no public policy. Because, as Julie points out, if you have a public decision making process, then poor people, and people who work for the United Way, and anybody who cares about this issue, which could be any of us, have an opportunity to impact those decisions about how resources are going to be used in the local community. If it’s the individual taxpayers making those decisions, then how are we supposed to impact it? We’re going to end up getting together collectively and trying to impact it in exactly the way the United Way in Arizona did. I mean, what’s the United Way in Arizona doing, it’s serving a governmental function in effect. They are collecting the resources from a broader community, they are doing an RFP to decide how to meet the needs of a particular community, annually they decide this, and then they monitor to make sure those things are achieving the purposes that they said they would.
So, if you’re going to have a tax credit, then God bless the United Way, I’m glad they’re there. And they’re doing a heck of a good job. And I suspect the reason they’re doing so well is because other people think, this is how I want my dollars to be used, which isn’t so different from the way that government uses those same dollars.
So, anyway, I believe in accountability, and I believe in elected and appointed officials, and I don’t really hear anything in what the opponents are saying that points to real accountability in a system that depends on individual taxpayers to make the decision.
Also, as a United Way employee, I can tell you that this question of dependability of funds, I’m sorry about the veto that sounds horrible, but it’s a little bit different from that because in this case we know that the Governor has decided not to fund those programs, and now nobody is going to try to run those programs because the money is not going to be there and they know it. If they’re depending on individual contributions to support a program, how do they decide at the beginning of the year how many people to hire? How do they know how much they can provide in the way of services if they don’t know what they’re going to get in the way of contributions? Non-profits operate on a very narrow margin, they don’t carry funds over from year to year, and they need to know what their resources are going to be. It’s very hard for them to shift from a system that provides them a known amount of dollars that may be awarded on a competitive basis, and for which they won’t get funding again unless they perform, as compared to a system where you just have to hope for the best and go out and ask individuals to make those contributions for programs they want to run.
Last point, on the geographic issue of where contributions are made, Michael, I heard you say that I made a good point there. And I’m just curious to know, and hope at some point soon we’ll hear more about what the supporters of tax credits are thinking about on how to deal with that issue, because so far even though I hear it recognized as a problem, I haven’t heard what the recommendations are to deal with it.
E.J. DIONNE: I hate to end this because I think we are getting somewhere in this debate. I am very grateful for Margy for such a good paper, and for our respondents, Mark Anderson, Robert Boisture, and Michael Horowitz for really sort of focusing this debate in very clear ways, suggesting there are some areas of potential agreement, and so some areas of fundamental disagreement. Someone once said, the hardest thing in the world to do is to reach fundamental disagreement honestly, and I think we’ve achieved that, and I’m grateful to you all.
And Melissa wanted to say a few words of thank you.
And thank you to a very thoughtful audience.
MS. ROGERS: Yes. Thank you very much. I echo E.J.’s words, and I also just wanted to say a quick word of thank you to the Forum’s staff, whose tireless efforts made this event come about as well as it did. I want to thank Staci Simmons, our associate director in the back of the room here, and Amy Sullivan, our editorial director in the front seat here, Andrew Witmer with the Forum in the back as well, also Ming Hsu and Andrea McDaniel, we appreciate very much their efforts to bring the event together today. We appreciate your coming, and hope that you’ll join us at the next Pew Forum event.
Thank you.[APPLAUSE AND END OF EVENT.]
Cite this publication: Joseph Liu. “Charity Tax Credits: Federal Policy and Three Leading States.” Pew Research Center, Washington, D.C. (May 9, 2001) http://www.pewforum.org/2001/05/09/charity-tax-credits-federal-policy-and-three-leading-states/, accessed on July 22, 2014.