Sadly, the not for profit sector has become a mechanism to avoid paying taxes rather than groups dedicated towards actual charity. That's beyond some of the salaries that directors of these organizations are making.
Yeah, the whole has thing become a sham. "Not for profit" except for the CEO making 400k a year, while everyone else gets minimum wage or volunteers and asks for donations to make ends meet.
the same people who gripe about these organizations praise the public and non-profit university / school system --- rife with the same exact compensation abuse.
If the organization is large enough why shouldn't the CEO make that much? Just because its a non-profit doesn't mean the large organization is any easier to manage.
Is the tail wagging the dog, though? Seeing so many charities, with lofty, worthwhile goals (at least as indicated by their names...) that spend upwards of three-quarters of their donations on overhead, administration, and fundraising, makes you wonder.
That's really the key that pisses people off I think, nobody will worry much about high six figure executive compensation if the administration overhead is a tiny portion of revenue.
Kidney & Urology Foundation of America is a great example:
> Seeing so many charities, with lofty, worthwhile goals (at least as indicated by their names...) that spend upwards of three-quarters of their donations on overhead, administration, and fundraising, makes you wonder.
While some of those extreme cases may be problematic, I think that there is a risk of putting too much weight on administrative cost ratio (with low ratios being "good") as a metric.
Its easy to reduce administrative costs by simply not putting effort into making sure that the way funds are spent is effective at achieving the nominal goals of the organization, but I don't think anyone who thinks things through would think that makes a charity "better". You need better metrics to answer questions of charity quality.
Spending time on hiring, code quality analyses (code reviews, performance reviews, etc), refactoring, developer training are all examples of administrative overhead.
Software shops that don't invest in any of these things end up producing crap. Software shops that over-invest in these things end up navel gazing instead of getting shit done.
The line between reasonable and unreasonable will shift from context to context and from organization to organization. There's no silver bullet or magic metric.
Ditto for charities. Running a survey that costs more than your actual charity work in order to determine if some strategy is working might be a complete waste of resources. But it might also make a lot of sense. E.g., before dumping 10x the initial investment into that strategy, or before convincing 5 other large charitable organizations to double down on the new strategy. But sometimes it's the tail wagging the dog and/or a failure of leadership. It's impossible to tell from dollar amounts alone.
> The line between reasonable and unreasonable will shift from context to context and from organization to organization. There's no silver bullet or magic metric.
No universal one that crosses different missions, sure.
OTOH, if you can quantify progress in achieving an organization's mission, you can create a mission-specific measure of effectiveness with which dollars are spent. (And if you have competing organizations with similar missions, you can use such a metric to compare them, though obviously that doesn't extend to comparing charities with different missions unless you can also quantify the relative value of the missions.)
To ask people to give to a cause, while you seek to increase your fortune, is dishonest. I do not feel compelled to donate to charities run by hypocrites.
> If the organization is large enough why shouldn't the CEO make that much?
If the a non-profit organization is the size and complexity of the US government, than a salary equal to the salary of the Chief Executive of the US government is quite appropriate, sure.
If you look at the Red Cross you have a lot of volunteers working for free so I would expect management to also make less. Seems being CEO of a non-profit gives you a good image because you are "giving back" while still making good money.
I spoke with a CEO of a rather large non-profit hospital system who said, basically, that the only difference between a for-profit company and a non-profit company is that the board of directors of a non-profit have much less oversight to ensure they decisions abide by the charter of the organization.
The way the companies operate is exactly the same: try to make as much money as possible to donate it back into the charitable trust. But a lot of it goes to perks and bonuses for executives, along with increased marketing expenses to continue the "donation" growth.
Why should a non-profit pay its employees less than a for-profit company? The labor market is the labor market; the feel-good of working for a non-profit might be a "perk" that justifies a slightly lower salary (like equity in a startup), but it'll only get you so far. Insisting that non-profits pay people less just means they'll get less qualified/motivated people.
(And to the extent that the argument is that you don't need to pay $400k to get a qualified/motivated CEO, then that's true of any company--being non-profit has nothing to do with it.)
Again, this isn't a reasonable argument. The cost of labor does not magically disappear just because the employer is a non-profit instead of a for-profit. Teachers, clerks, and accountants don't magically cost less when they are paid with tax payer dollars. (Incidentally, administrators -- on average -- do cost substantially less in the non-profit sector.)
It's not magical, though. And it's not because the charity is "funded by tax payers".
Sometimes the salaries are discounted because the charity can find someone who "believes in the mission" (sound familiar?).
Sometimes the salaries are discounted because that's all the charity can afford. If the charity can't find someone willing to take the pay cut, then it ends up subsisting on below-average performers. See hospitals, for example. If they don't pay market rates for doctors, they probably have sub-par doctors. If your charity can't sell its mission as part of the compensation package, then it has to cough up.
The point is, no one is going to take a pay cut just because, as GP put it, they're "funded by tax payers". Why the hell would anyone take a pay cut just because their job is funded by tax payers instead of by the Gates foundation?
Very few non-profit organizations are "funded by taxpayers". They are not government agencies but corporations not very different from for-profit ones except that they don't make a profit (although as mentioned, they can certainly pay their employees quite well). Non-profits can be funded in a variety of ways, from private donations (as with most charities), or even by selling products or services (so long as they don't make a profit, as many scientific societies do)
In exchange for that subsidy, the government isn't (directly) running programs like homeless shelters and food banks. Societal necessities so long as homelessness and poverty remain parts of our society.
Cut the tax break, fine, but then we need the government to intervene and provide assistance for citizens.
> In exchange for that subsidy, the government isn't (directly) running programs like homeless shelters and food banks.
Or, you know, churches.
The idea that the tax subsidy is justified by the fact that subsidized charities are displacing costs that would otherwise need to be born by the government would probably be more supportable if:
(1) tax subsidized charities didn't perform functions that the government is Constitutionally barred from performing (viewing the subsidy as an alternative means of performing government functions, would make subsidizing "charities" to do such barred tasks a way for government to evade its Constitutional limits), and
(2) the tax subsidy were the same for all donors (e.g., a fixed proportion credit) since each dollar given would displace the same amount of government funds no matter who gives it, rather than escalating for wealthier donors.
> Tax exempt status is a form of subsidy, paid by everyone who pays taxes.
Tax exempt status may or may not be for any given operation (lots wouldn't pay any, or many, taxes even if they weren't tax exempt), but tax deductibility of donations to an organization is very clearly a form of subsidy, and one which increases with the marginal income tax rate (and thus, with the income) that would be paid by that organization's donors before considering the deduction for their donations.
A tax is an effectively positive tax rate. A subsidy is an effectively negative tax rate. A tax rate which is effectively zero is neither strictly positive nor strictly negative, so is neither tax nor subsidy.
In order to make the argument you seem to be making, you must be holding government revenues from taxes to be constant, which makes tax cuts and tax increases a zero-sum game. If someone is taxed less, someone else must be taxed more. But I do not agree with your assumption that the government seeks to keep its revenue from any one particular tax constant when considering changes to tax law, or that it must necessarily even consider the revenue impact at all.
The goal in this particular case actually seems to be to influence the behavior of those who pay the tax in a particular way, and the revenue is mainly a pleasant (for them) afterthought.
> Very few non-profit organizations are "funded by taxpayers".
All 501(c)(3) charities are funded by taxpayers by means of the tax subsidy provided by the deductibility of donations to the organization (which is a separate issue from the tax exempt status of the organization itself.)
Tax exempt non-profits that are not charities may or may not be taxpayer funded by some mean, but, the subject of the thread here is charities, not nonprofit organizations more generally.
If they pay more than they can get away with, they are wasting money, but if they pay less and get lesser-skilled workers, they are also wasting their money.
Underpaying in a non-for profit assumes that they can still get the same quality worker.
One potential reason is that non-profits do not need employees to be quite as good (or work quite as hard) because they are not (generally) in competition with one other.
A business that operates at 90% of the effectiveness of its competitors is likely to fail completely. A charity that operates at 90% effectiveness will just produce a bit less good work in the world.
They shouldn't pay their employees less - that's the point (though they often do because they can).
In many cases, executives at non-profits make MORE than their for-profit counterparts simply because there aren't exactly shareholders, and people who sit on the boards of non-profits tend to be less experienced than corporate board members (often non-profits are seen as "training" for corporate board membership). This is especially common in health care. It's not universally true by any means, but it's common enough to be a real problem.
In addition to being a serious developer, I have an MBA. During my studies we were taught that non-profits are just another for-profit vehicle, just with different white washing, and a requirement for lobbyists on the payroll. That entire semester of "Strategy" sickened me.
I once visited a friend who lived in nice neighborhood close to DC. A lot of people there had really nice ($100k+) cars and houses so I asked him where they worked. He told me pretty much all of them work at non-profits.
I always thought non-profits are for poor do-gooders. This experience definitely gave me a dose of reality.
For contributors to these funds, am I right in thinking that any tax avoided just goes into the charitable fund pot - no contributors are dodging tax that they get to keep by misusing these things? Any money that comes out of the fund has to go to charity.
Clearly, the financial industry is making money off these products, but the article makes it sound like people are misusing these things to pocket avoided tax.
There are lots of ways to do what the article described. For example you set up a foundation, spend only 5 % of the revenue/assets (the minimum under the law). Then you make a family member the director and allow them to live in a mansion which is an asset of the foundation. There are also loads of loopholes with foundations relating to director salaries where the money goes, "investments" etc. that are either 100% legal or are so poorly enforced that they might as well be legal.
> If you give $1000 to a charity, the tax deduction doesn't affect that.
If your marginal rate of taxation on income is, say, 35%, then you give up only $650 in disposable income to donate $1,000 to charity. Without the deduction, someone in that circumstance who could afford to give $1,000 with the deduction could only give $650.
Or, looked at a different way, someone with that tax rate who "gives $1,000" to charity is really giving $650, and the government is giving $350.
Well, my point is that the charity still gets $1000 regardless of tax rate. You could increase how much you give based on your expected tax savings so it costs you $1000 after the tax refund, but it's not automatic.
Not necessarily; if you donate $40,000 to a charity you work for, and as part of the duties of your job they provide you with a $40,000 car...
This situation is surprisingly common; ESPECIALLY with religious charities. John Oliver had a great segment on it; but the problem extends to nonprofits as well (it's just that "religious" charities can wave the "discrimination against religion" flag). Basically, if you set up a religious nonprofit and funnel a lot of money through it, there's very little oversight from anyone about what you do with that money.
And yes; people do use these types of charitable trusts to pocket avoided taxes. The legal complexity of it all precludes anyone who's not High Net Worth from using them (it's simply not profitable to pay lawyers to do the paperwork for less than a whole lot of money).
Yes, once you give something to a DAF the only other place it can go is to a charity (modulo weird things like the DAF going bankrupt); the DAF offers no new opportunities to dodge taxes.
From the article, it sounds like donors can use DAFs to get a higher tax deduction. When someone donates directly to a charity, the deduction he gets is the cost of the donation. However, when someone donates to a DAF, the deduction is the current appraised value of the donation. This matters when you consider that donations aren't just cash, but also art, real estate, non-traditional financial securities, etc. and the different between cost and current appraised value is substantial.
No, that rule is only for donations to certain private foundations. If you give the "complex assets" directly to the charity you are entitled to a deduction of the fair market value[1].
However, donating such assets directly can be a hassle to do and relies on cooperation from the charity; the DAF has people who specialize in this and will take care of it for you. This allows you to get the biggest possible deduction with minimal hassle.
This is the gist of most of the tax law complaints in the article: the DAF doesn't enable you to do anything you couldn't already do, but it makes everything easier to do, including the things that the author wishes you couldn't do.
This article is just scaremongering at the idea that dirty "profit seeking" banks would have anything to do with charity, which should be the domain of those of pure heart. But happens when you give money to a charity or endowment? If they don't need it right away, they invest it with a bank!
That doesn't seem to be the subject of the article. Did you happen to read it?
From my reading, the subject appears to be the blurring of lines between social controls on what counts as charity and what is just another tax dodge with the added bonus of allowing the donor to maintain control of the "donated funds."
This is an enormously reductive and, I think, inaccurate take on the issue. Perhaps you have a substantive objection to the several detailed paragraphs in which the authors describe the reasons why they find DAFs an ineffective method of making charitable donations. If so, perhaps you'll be so good as to elucidate it.
IMO, a great many problems would be avoid by removing the charitable giving tax break. It not only shifts the Tax burden from the wealthy to middle class it also subsides the agenda of anyone that can afford to jump though some hoops.
Not to mention all kinds of corruption where charity rents private land or uses another company to _. Or charity A takes X% off the top and hand it to charity B who takes Y% off the top.
There are many, many great charities that would suffer greatly from your simplistic solution.
As a middle-classer giving >10% of income to charity, it's helpful to not have that be taxed and enables more to go to the charities.
A more reasonable solution would be a cap on the total amount able to be a tax break. This would prevent the mega-rich from creating fancy tax-avoidance schemes, while enabling the charities and regular folks to procede as usual.
Also, DAF's are a really bad idea for receiving tax breaks, as the article points out.
why should I subsidies whatever you want to have
happen beyond that point?
The theory is tax breaks for charity make people donate more, and a dollar donated to a charity is a dollar that doesn't have to be paid by the government to do the same thing.
For example, if I donate $1000 to a university, higher education is $1000 better funded. Whereas if the government taxes me $330 and gives that to the university, then I spend the rest of the money on hookers and cocaine, higher education is only $330 better funded.
If you're a conservative, you might also think the government is inefficient and most of that $330 would be wasted in the bureaucracy; that most donors are basically like you and hold your views because charity is a christian virtue; or that donations allow donors to choose efficient charities in a competitive market, driving down waste. If you're a liberal, you might think most of that $330 will be spent on costly foreign wars and private prisons; that most donors are basically like you and hold your views because charity is about putting the good of that many above yourself; or that donations are key to supporting causes like animal welfare and vegetarianism that are unlikely to get state funding.
Needless to say, the above assumes charities are basically moving towards the same public good the government is trying to achieve. If I donate to support schools with extremist religious views or to support the families of Palestinian suicide bombers, that's a different matter.
Edit: And complete alignment of charities with the views of government isn't required. If the tax deduction turns $330 into $1000, the charity only needs to be 34% aligned with the government for the outcome to be better; so for example $1000 donated to a religious school that spends $500 on textbooks and $500 on bibles is better than the government giving $330 of textbooks.
I agree, if this is the rationale for charity tax deductions, that there should be strict auditing for sham charities and charities that are wildly out of alignment with the public good.
> The theory is tax breaks for charity make people donate more, and a dollar donated to a charity is a dollar that doesn't have to be paid by the government to do the same thing.
The second half of this theory is obviously unsound when the definition of "charity" is not limited to functions that would otherwise be performed by the government and which directly reduce government expenditures in those domains.
It is especially ludicrous when the definition of charity for which subsidies are provided includes, e.g., religious institutions, which perform functions that the government is Constitutionally barred from performing, which are obviously not functions that the government would otherwise be required to perform.
(The first half -- that providing a public subsidy for an action encourages that action -- is true, but it doesn't make a lot of sense for that to be an income-weighted subsidy. Were the second half sound, the first half would be better served by a tax credit for, or proportional to, the amount of donations, rather than a tax deduction.)
Rather than the "same goods" argument, I would say that charitable tax deductions moves the agenda and decision-making process of what specific public goods we want away from the political process (i.e. the people voting in politicians who promise to fund/promote/ xyz) to private (read: wealthy) individuals, which is why I think conservatives favor it more. Conservatism views Oligarchy as a Good Thing.
When the public good is funded by the wealthy (through philanthropy) rather than by the government (through taxes), then only the wealthy get to decide what counts as "public good". At least I can (in theory) vote out the government. I can't vote power out of the pockets of the wealthy.
In your edit nothing suggests there is even 10% alignment on net. Remember, many charities have negative alignment by acting counter to the governments intent.
Even in areas where it looks like things align say non religious textbooks failing to teach evolution has very real and very negative results, just look at antibiotic resistance. The long term impacts of that may very well outweigh all positive effects of charitable giving in the US.
And it's not just education. Handing out AIDS medications in poor counties sounds great! Doing so poorly may quickly make those same medications useless.
The tax deduction provides a major motivation for philanthropy; removing it would massively reduce charitable giving. If anything, I'd like to see that increased.
Thought experiment: what would the charitable landscape look like if charitable donations deducted directly from tax burden, not from taxable income? (Perhaps with some upper limit.)
That said, I don't think the "donor-advised funds" mentioned in the article make sense; the tax break should occur when actually donating to a registered charitable organization, not just when setting the money aside for an eventual donation.
Many charities are incredibly efficient; I'd argue instead for detailed scrutiny of the ones actually wasting money in overhead.
Apart from that, taxation already burns up a fair bit of people's goodwill; it's a lot harder to get people to donate when they're already involuntarily "donating" to a wide range of causes they don't support. A tax break for charitable donation gives people the ability to support causes they actually do support.
That's an incredibly entitled attitude (specifically, "entitled to other people's money"). Paying less in taxes is not equivalent to "taking money" from others. If you want to take less money from everyone, decrease taxes, or eliminate actual tax loopholes and deductions that don't provide a net good in the world (or serve any function at all other than rewarding those who bought and paid for them).
Paying less in taxes is equivalent to "taking money" from others either though increased debt or higher tax rates. Where would you suggest it comes from? Further, your sidestepping the crap argument. I get to vote in some small way on what the government spends money on, except this giant loophole for charities.
Let's setup a charity to lower the drinking age. I am sure we can get some donations from here and there.
> Paying less in taxes is equivalent to "taking money" from others either though increased debt or higher tax rates.
Not at all. Taking away a tax deduction is equivalent to raising taxes, and will do absolutely nothing to decrease taxes for anyone. Now, if you wanted to propose a bill that eliminates a tax deduction and simultaneously lowers the tax rate to keep it revenue-neutral, then at that point you could argue for the benefits of that tax cut. But a tax increase in any form defaults to becoming more revenue, and tax cuts occur separately. (I'd love to see those two things inherently connected by law, but that hasn't happened.)
Also, if you actually proposed that bill, opponents of it would reasonably ask, of all the sources you might use to fund your tax cut, why you decided to start by raiding charitable donations instead of a thousand different items in the "expenses" column. Do you really believe that, of all the possible ways to fund a tax cut, the most important would be to target charitable giving?
> Further, your sidestepping the crap argument.
If you think some charities shouldn't receive 501(c)3 status, I'd agree, and I'd argue for stricter review processes. If you think all charities shouldn't, then I invite you to make that argument to the general public and see how they respond to it.
Not directly, in the absence of an explicit tax cut. It should, but it doesn't.
I understand your position, and I'd actually favor a tax structure that has a much lower rate and almost no deductions (making everyone's taxes far simpler than even the one-page 1040-EZ, and completely automatic). That would leave people more than enough for charitable giving and many other things. But unless that comes as a package deal eliminating all deductions and lowering taxes accordingly, I wouldn't support eliminating a tax deduction for charitable giving while leaving the myriad other deductions.
It's not exactly a small change over time. There is ~350 billion in charitable giving in the US per year. If you assume that was taxed at say 20% on average and ignoring inflation or interest * 238 years that's 16.6 trillion or close to the national debt.
Of course our GDP and tax rates has grown over time, but not nearly as quickly as debt interest. So, without doing excessive analysis we would probably have a national surplus if literally nothing else changed in the tax code or spending.
Granted, arguments about lowered GDP and other knock on effects are reasonable. But, suggesting no long term tax breaks seems unlikely.
> Taking away a tax deduction is equivalent to raising taxes
The burden (the cost source of the tax) exists. How the burden is served can leverage individual self-interest to create, maintain, or change behavior (tax deducations). A change in available cost sharing tactics (taking advantage of a burden reduction as it exists or does not) is not a change in the burden. It is not the same as raising taxes (ie tax rate).
I am not interested in stepping into how terminology between rates and fixed fees is confused across a multitude of localities.
> Many charities are incredibly efficient; I'd argue instead for detailed scrutiny of the ones actually wasting money in overhead.
The ones that are incredibly efficient are the ones that deliver on their mission well for the amount of dollars that go into them; this may or may not correspond to a low share of money spent on administration.
In charities -- and the same is true for public agencies -- people love to complain about high administrative overhead, but then also love to turn around and complain when ineffective administrative oversight results in non-administrative uses of funds being wasteful or ineffective, asking why controls weren't in place to prevent that.
I absolutely agree. I wouldn't suggest a naive definition of "overhead" as "everything spent on administration"; a reasonable organization need some amount of administration, and "0 overhead" would be the sign of an unhealthy organization (or a passthrough shell).
As soon as you start looking at outcomes you need to include charities that fund bad things. Many charities missions makes the world worse. Let's promote abstinence only education! Let's take the kids to the Intelligent Design Museum! Or for the religious, let's promote Atheism!
> The tax deduction provides a major motivation for philanthropy; removing it would massively reduce charitable giving. If anything, I'd like to see that increased.
It provides a major motivation to spend wealth via charities. The extent to which that corresponds to doing good to others is what's in question.
> Thought experiment: what would the charitable landscape look like if charitable donations deducted directly from tax burden, not from taxable income? (Perhaps with some upper limit.)
Even worse, I would think.
The tax break is equivalent to a matching program coming from public funds. Thought experiment: if you were setting up a matching program that used public money (i.e. tax income), what would your criteria be? Is that an appropriate use of public funds at all? I can see that some causes might be good enough to contribute public funds to (though in that case why not spend tax money directly on that issue, rather than via a private foundation?), but any and all organizations that happen to be structured as charities?
> The tax break is equivalent to a matching program coming from public funds.
No, not even remotely. It's a mechanism to reduce public funds and leave more money in people's hands. In accounting terms, a tax deduction doesn't belong in the "expenses" column; it decreases the "revenue" column.
> Thought experiment: if you were setting up a matching program that used public money (i.e. tax income), what would your criteria be? Is that an appropriate use of public funds at all?
Almost never, no. The only case I can think of that would ever be appropriate might be as a means of allowing people to direct spending in a particular area already considered within the purview of government, allowing people to select from a variety of competing services while amplifying their spending power to allow them to afford something considered a necessity. As a means of re-introducing competition to improve quality, it might make sense. (But only after carefully determining that the expenditure in question should actually fall within in the scope of government.)
In particular for charities that perform work the government would otherwise be engaging in, the opposite should be true, and a tax credit to refund 100% of the expenditure should be provided. The reason being is if you donate $100 to a charity that provides for example clothing or meals to welfare recipients, that's $100 the government doesn't need to spend on such programs. However, you are only credited ~$30 towards your tax bill, yet you are net negative $100 that you gave to the charity. The government makes a net positive $70 on your $100 donation to charity. Considering you are spending money so the government doesn't have to, you should be credited the full $100 donation instead of just the $30 that would otherwise go to your tax bill.
There is no good works requirement. Satanist preachers also get a tax break on donations. The government is not going to pay for a new Opera house in a tiny town. But, if you want an Opera house in a tiny town you can get the Government to pick up part of the bill.
Want to get Justin Bieber to play for your small down? Don't worry you can get that subsidized! Just call it an art's festival.
Uhh, that's not how it actually works. Now, if you want to limit the tax break to some set of things the government actually does anyway then I think you would be hard pressed to find donors unless they did more than the government. At which point your only limiting it to the same kinds of things (ex: new roads) not the exact same things.
> IMO, a great many problems would be avoid by removing the charitable giving tax break.
It at least would be desirable to stop it from being a deduction and make it a credit at some percentage of donations, about equivalent to the income tax rate on the median dollar of income nationally.
That would, at least, remove the current issue where the public is effectively subsidizing the charities favored by wealthier donors at a higher rate than those favored by less-wealthy donors.
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[ 2.9 ms ] story [ 168 ms ] threadThey do? All of them or just some?
I feel like it's more likely that the same people would have issues with the university abuse too.
Kidney & Urology Foundation of America is a great example:
Total Overhead: 91.9%
Management & General Expenses: 38.8%
Fundraising Expenses: 53.1%
CEO Compensation: $132,642 (31.7% of revenue)
While some of those extreme cases may be problematic, I think that there is a risk of putting too much weight on administrative cost ratio (with low ratios being "good") as a metric.
Its easy to reduce administrative costs by simply not putting effort into making sure that the way funds are spent is effective at achieving the nominal goals of the organization, but I don't think anyone who thinks things through would think that makes a charity "better". You need better metrics to answer questions of charity quality.
Software shops that don't invest in any of these things end up producing crap. Software shops that over-invest in these things end up navel gazing instead of getting shit done.
The line between reasonable and unreasonable will shift from context to context and from organization to organization. There's no silver bullet or magic metric.
Ditto for charities. Running a survey that costs more than your actual charity work in order to determine if some strategy is working might be a complete waste of resources. But it might also make a lot of sense. E.g., before dumping 10x the initial investment into that strategy, or before convincing 5 other large charitable organizations to double down on the new strategy. But sometimes it's the tail wagging the dog and/or a failure of leadership. It's impossible to tell from dollar amounts alone.
No universal one that crosses different missions, sure.
OTOH, if you can quantify progress in achieving an organization's mission, you can create a mission-specific measure of effectiveness with which dollars are spent. (And if you have competing organizations with similar missions, you can use such a metric to compare them, though obviously that doesn't extend to comparing charities with different missions unless you can also quantify the relative value of the missions.)
If the a non-profit organization is the size and complexity of the US government, than a salary equal to the salary of the Chief Executive of the US government is quite appropriate, sure.
The way the companies operate is exactly the same: try to make as much money as possible to donate it back into the charitable trust. But a lot of it goes to perks and bonuses for executives, along with increased marketing expenses to continue the "donation" growth.
(And to the extent that the argument is that you don't need to pay $400k to get a qualified/motivated CEO, then that's true of any company--being non-profit has nothing to do with it.)
Again, this isn't a reasonable argument. The cost of labor does not magically disappear just because the employer is a non-profit instead of a for-profit. Teachers, clerks, and accountants don't magically cost less when they are paid with tax payer dollars. (Incidentally, administrators -- on average -- do cost substantially less in the non-profit sector.)
Actually, charity's pay people less than market rates in other positions.
It's not magical, though. And it's not because the charity is "funded by tax payers".
Sometimes the salaries are discounted because the charity can find someone who "believes in the mission" (sound familiar?).
Sometimes the salaries are discounted because that's all the charity can afford. If the charity can't find someone willing to take the pay cut, then it ends up subsisting on below-average performers. See hospitals, for example. If they don't pay market rates for doctors, they probably have sub-par doctors. If your charity can't sell its mission as part of the compensation package, then it has to cough up.
The point is, no one is going to take a pay cut just because, as GP put it, they're "funded by tax payers". Why the hell would anyone take a pay cut just because their job is funded by tax payers instead of by the Gates foundation?
Cut the tax break, fine, but then we need the government to intervene and provide assistance for citizens.
Or, you know, churches.
The idea that the tax subsidy is justified by the fact that subsidized charities are displacing costs that would otherwise need to be born by the government would probably be more supportable if:
(1) tax subsidized charities didn't perform functions that the government is Constitutionally barred from performing (viewing the subsidy as an alternative means of performing government functions, would make subsidizing "charities" to do such barred tasks a way for government to evade its Constitutional limits), and
(2) the tax subsidy were the same for all donors (e.g., a fixed proportion credit) since each dollar given would displace the same amount of government funds no matter who gives it, rather than escalating for wealthier donors.
Tax exempt status may or may not be for any given operation (lots wouldn't pay any, or many, taxes even if they weren't tax exempt), but tax deductibility of donations to an organization is very clearly a form of subsidy, and one which increases with the marginal income tax rate (and thus, with the income) that would be paid by that organization's donors before considering the deduction for their donations.
A tax is an effectively positive tax rate. A subsidy is an effectively negative tax rate. A tax rate which is effectively zero is neither strictly positive nor strictly negative, so is neither tax nor subsidy.
In order to make the argument you seem to be making, you must be holding government revenues from taxes to be constant, which makes tax cuts and tax increases a zero-sum game. If someone is taxed less, someone else must be taxed more. But I do not agree with your assumption that the government seeks to keep its revenue from any one particular tax constant when considering changes to tax law, or that it must necessarily even consider the revenue impact at all.
The goal in this particular case actually seems to be to influence the behavior of those who pay the tax in a particular way, and the revenue is mainly a pleasant (for them) afterthought.
All 501(c)(3) charities are funded by taxpayers by means of the tax subsidy provided by the deductibility of donations to the organization (which is a separate issue from the tax exempt status of the organization itself.)
Tax exempt non-profits that are not charities may or may not be taxpayer funded by some mean, but, the subject of the thread here is charities, not nonprofit organizations more generally.
Underpaying in a non-for profit assumes that they can still get the same quality worker.
A business that operates at 90% of the effectiveness of its competitors is likely to fail completely. A charity that operates at 90% effectiveness will just produce a bit less good work in the world.
In many cases, executives at non-profits make MORE than their for-profit counterparts simply because there aren't exactly shareholders, and people who sit on the boards of non-profits tend to be less experienced than corporate board members (often non-profits are seen as "training" for corporate board membership). This is especially common in health care. It's not universally true by any means, but it's common enough to be a real problem.
I always thought non-profits are for poor do-gooders. This experience definitely gave me a dose of reality.
Clearly, the financial industry is making money off these products, but the article makes it sound like people are misusing these things to pocket avoided tax.
If your marginal rate of taxation on income is, say, 35%, then you give up only $650 in disposable income to donate $1,000 to charity. Without the deduction, someone in that circumstance who could afford to give $1,000 with the deduction could only give $650.
Or, looked at a different way, someone with that tax rate who "gives $1,000" to charity is really giving $650, and the government is giving $350.
This situation is surprisingly common; ESPECIALLY with religious charities. John Oliver had a great segment on it; but the problem extends to nonprofits as well (it's just that "religious" charities can wave the "discrimination against religion" flag). Basically, if you set up a religious nonprofit and funnel a lot of money through it, there's very little oversight from anyone about what you do with that money.
And yes; people do use these types of charitable trusts to pocket avoided taxes. The legal complexity of it all precludes anyone who's not High Net Worth from using them (it's simply not profitable to pay lawyers to do the paperwork for less than a whole lot of money).
However, donating such assets directly can be a hassle to do and relies on cooperation from the charity; the DAF has people who specialize in this and will take care of it for you. This allows you to get the biggest possible deduction with minimal hassle.
This is the gist of most of the tax law complaints in the article: the DAF doesn't enable you to do anything you couldn't already do, but it makes everything easier to do, including the things that the author wishes you couldn't do.
[1] https://www.irs.gov/publications/p526/ar02.html#en_US_2015_p...
From my reading, the subject appears to be the blurring of lines between social controls on what counts as charity and what is just another tax dodge with the added bonus of allowing the donor to maintain control of the "donated funds."
Not to mention all kinds of corruption where charity rents private land or uses another company to _. Or charity A takes X% off the top and hand it to charity B who takes Y% off the top.
As a middle-classer giving >10% of income to charity, it's helpful to not have that be taxed and enables more to go to the charities.
A more reasonable solution would be a cap on the total amount able to be a tax break. This would prevent the mega-rich from creating fancy tax-avoidance schemes, while enabling the charities and regular folks to procede as usual.
Also, DAF's are a really bad idea for receiving tax breaks, as the article points out.
Sell milk? Why not set up a trade association to promote it. It's just promoting healthy living after all.
For example, if I donate $1000 to a university, higher education is $1000 better funded. Whereas if the government taxes me $330 and gives that to the university, then I spend the rest of the money on hookers and cocaine, higher education is only $330 better funded.
If you're a conservative, you might also think the government is inefficient and most of that $330 would be wasted in the bureaucracy; that most donors are basically like you and hold your views because charity is a christian virtue; or that donations allow donors to choose efficient charities in a competitive market, driving down waste. If you're a liberal, you might think most of that $330 will be spent on costly foreign wars and private prisons; that most donors are basically like you and hold your views because charity is about putting the good of that many above yourself; or that donations are key to supporting causes like animal welfare and vegetarianism that are unlikely to get state funding.
Needless to say, the above assumes charities are basically moving towards the same public good the government is trying to achieve. If I donate to support schools with extremist religious views or to support the families of Palestinian suicide bombers, that's a different matter.
Edit: And complete alignment of charities with the views of government isn't required. If the tax deduction turns $330 into $1000, the charity only needs to be 34% aligned with the government for the outcome to be better; so for example $1000 donated to a religious school that spends $500 on textbooks and $500 on bibles is better than the government giving $330 of textbooks.
I agree, if this is the rationale for charity tax deductions, that there should be strict auditing for sham charities and charities that are wildly out of alignment with the public good.
So, I don't get the point? Is this one of those cognitive dissonance things where you are supposed to accept two things that can't both be true?
The second half of this theory is obviously unsound when the definition of "charity" is not limited to functions that would otherwise be performed by the government and which directly reduce government expenditures in those domains.
It is especially ludicrous when the definition of charity for which subsidies are provided includes, e.g., religious institutions, which perform functions that the government is Constitutionally barred from performing, which are obviously not functions that the government would otherwise be required to perform.
(The first half -- that providing a public subsidy for an action encourages that action -- is true, but it doesn't make a lot of sense for that to be an income-weighted subsidy. Were the second half sound, the first half would be better served by a tax credit for, or proportional to, the amount of donations, rather than a tax deduction.)
Even in areas where it looks like things align say non religious textbooks failing to teach evolution has very real and very negative results, just look at antibiotic resistance. The long term impacts of that may very well outweigh all positive effects of charitable giving in the US.
And it's not just education. Handing out AIDS medications in poor counties sounds great! Doing so poorly may quickly make those same medications useless.
Thought experiment: what would the charitable landscape look like if charitable donations deducted directly from tax burden, not from taxable income? (Perhaps with some upper limit.)
That said, I don't think the "donor-advised funds" mentioned in the article make sense; the tax break should occur when actually donating to a registered charitable organization, not just when setting the money aside for an eventual donation.
Waste is insidious. The US government spends more per person on healthcare than Canada and get's far less for it's money.
Apart from that, taxation already burns up a fair bit of people's goodwill; it's a lot harder to get people to donate when they're already involuntarily "donating" to a wide range of causes they don't support. A tax break for charitable donation gives people the ability to support causes they actually do support.
Further, overhead is only part of the problem. Many fund crap.
That's an incredibly entitled attitude (specifically, "entitled to other people's money"). Paying less in taxes is not equivalent to "taking money" from others. If you want to take less money from everyone, decrease taxes, or eliminate actual tax loopholes and deductions that don't provide a net good in the world (or serve any function at all other than rewarding those who bought and paid for them).
Let's setup a charity to lower the drinking age. I am sure we can get some donations from here and there.
Not at all. Taking away a tax deduction is equivalent to raising taxes, and will do absolutely nothing to decrease taxes for anyone. Now, if you wanted to propose a bill that eliminates a tax deduction and simultaneously lowers the tax rate to keep it revenue-neutral, then at that point you could argue for the benefits of that tax cut. But a tax increase in any form defaults to becoming more revenue, and tax cuts occur separately. (I'd love to see those two things inherently connected by law, but that hasn't happened.)
Also, if you actually proposed that bill, opponents of it would reasonably ask, of all the sources you might use to fund your tax cut, why you decided to start by raiding charitable donations instead of a thousand different items in the "expenses" column. Do you really believe that, of all the possible ways to fund a tax cut, the most important would be to target charitable giving?
> Further, your sidestepping the crap argument.
If you think some charities shouldn't receive 501(c)3 status, I'd agree, and I'd argue for stricter review processes. If you think all charities shouldn't, then I invite you to make that argument to the general public and see how they respond to it.
If you did absolutely nothing else it would reduce government debt. Which reduces future taxes.
I understand your position, and I'd actually favor a tax structure that has a much lower rate and almost no deductions (making everyone's taxes far simpler than even the one-page 1040-EZ, and completely automatic). That would leave people more than enough for charitable giving and many other things. But unless that comes as a package deal eliminating all deductions and lowering taxes accordingly, I wouldn't support eliminating a tax deduction for charitable giving while leaving the myriad other deductions.
Of course our GDP and tax rates has grown over time, but not nearly as quickly as debt interest. So, without doing excessive analysis we would probably have a national surplus if literally nothing else changed in the tax code or spending.
Granted, arguments about lowered GDP and other knock on effects are reasonable. But, suggesting no long term tax breaks seems unlikely.
The burden (the cost source of the tax) exists. How the burden is served can leverage individual self-interest to create, maintain, or change behavior (tax deducations). A change in available cost sharing tactics (taking advantage of a burden reduction as it exists or does not) is not a change in the burden. It is not the same as raising taxes (ie tax rate).
I am not interested in stepping into how terminology between rates and fixed fees is confused across a multitude of localities.
The ones that are incredibly efficient are the ones that deliver on their mission well for the amount of dollars that go into them; this may or may not correspond to a low share of money spent on administration.
In charities -- and the same is true for public agencies -- people love to complain about high administrative overhead, but then also love to turn around and complain when ineffective administrative oversight results in non-administrative uses of funds being wasteful or ineffective, asking why controls weren't in place to prevent that.
It provides a major motivation to spend wealth via charities. The extent to which that corresponds to doing good to others is what's in question.
> Thought experiment: what would the charitable landscape look like if charitable donations deducted directly from tax burden, not from taxable income? (Perhaps with some upper limit.)
Even worse, I would think.
The tax break is equivalent to a matching program coming from public funds. Thought experiment: if you were setting up a matching program that used public money (i.e. tax income), what would your criteria be? Is that an appropriate use of public funds at all? I can see that some causes might be good enough to contribute public funds to (though in that case why not spend tax money directly on that issue, rather than via a private foundation?), but any and all organizations that happen to be structured as charities?
No, not even remotely. It's a mechanism to reduce public funds and leave more money in people's hands. In accounting terms, a tax deduction doesn't belong in the "expenses" column; it decreases the "revenue" column.
> Thought experiment: if you were setting up a matching program that used public money (i.e. tax income), what would your criteria be? Is that an appropriate use of public funds at all?
Almost never, no. The only case I can think of that would ever be appropriate might be as a means of allowing people to direct spending in a particular area already considered within the purview of government, allowing people to select from a variety of competing services while amplifying their spending power to allow them to afford something considered a necessity. As a means of re-introducing competition to improve quality, it might make sense. (But only after carefully determining that the expenditure in question should actually fall within in the scope of government.)
Want to get Justin Bieber to play for your small down? Don't worry you can get that subsidized! Just call it an art's festival.
If the government would otherwise be financing the festival, then yes, otherwise no tax credit, and IMHO, no tax break, should be given.
Remove/reduce the tax break for donations to a charity you control.
It at least would be desirable to stop it from being a deduction and make it a credit at some percentage of donations, about equivalent to the income tax rate on the median dollar of income nationally.
That would, at least, remove the current issue where the public is effectively subsidizing the charities favored by wealthier donors at a higher rate than those favored by less-wealthy donors.