One thought on “Ray D. Madoff”

1. shinichi Post author07/12/2013 at 11:33 pm

   How the Government Gives

   by Ray D. Madoff

   http://www.nytimes.com/2013/12/07/opinion/how-the-government-gives.html

   This is the season of giving, the time when Americans from all income levels make donations to support food pantries, health centers, art and educational institutions, and other organizations that are so important for our civic society. Many donors work hard to stretch their charitable dollars to provide the maximum benefit for those in need.

   If only the federal government were as thoughtful.

   The government does its own charitable giving, in the form of tax deductions. When an individual makes a donation to a qualifying organization, the federal government essentially pays a portion of that donation: A $1,000 donation from a donor in the highest tax bracket costs that donor only $604. The federal government kicks in the remaining $396 in the form of a reduction in taxes.

   These charitable donations are estimated to cost the federal government almost $40 billion this year alone and over half a trillion dollars in the next 10 years. What is the public getting for this investment of resources? Sadly, not enough.

   The federal government too often provides the deduction for donations that offer little or no benefit. Consider three examples:

   Nonprofit hospitals are among the largest recipients of charitable donations. Yet their activities are often indistinguishable from those of for-profit hospitals. Both receive compensation for the services they provide. No law requires nonprofit hospitals to provide charity care and, in fact, many nonprofit hospitals provide less charity care than their for-profit counterparts.

   The charitable deduction for conservation easements is another example of wasteful giving. Conservation easements are supposed to protect the environment for future generations. However, the requirements for establishing a conservation easement are so lenient that developers of high-end housing communities have been able to claim conservation easement deductions for their private golf courses. In one 2009 case, a developer successfully claimed a $28.6 million deduction, potentially costing American taxpayers more than $10 million. Not only do these private golf courses provide little benefit to the public, but they are often detrimental to the environment because of the degradation caused by the chemicals required to maintain them.

   Finally, too many charitable dollars are not available to serve the community because they are sitting in investment accounts. Private foundations and so-called donor-advised funds don’t do any charitable work themselves; they only qualify for the charitable deduction because they promise to provide dollars to other charitable organizations that do.

   The problem is that Congress imposes no time frame for this commitment. Money can languish in these entities for decades or even centuries. Donor-advised funds have no payout obligation, and private foundations, which are technically required to distribute at least 5 percent of their asset value each year, can meet that requirement simply by making distributions to donor-advised funds. (In 2011 alone, private foundations “donated” well over $90 million to donor-advised funds — money that otherwise could have served real charitable needs.) In the meantime, Congress loses billions of dollars, while these warehouses of wealth pay out fees for the banks and investment houses that manage them.

   There is an easy legislative fix for each of these problems. Nonprofit hospitals could be required to provide charity care (an idea floated by Senator Charles E. Grassley, Republican of Iowa, and enacted by a few states). Golf courses could be made ineligible for the conservation easement deduction, as President Obama proposed in his latest budget. Most important, Congress could impose a seven-year payout obligation for donor-advised funds and forbid foundations to meet their payout requirements by giving to donor-advised funds.

   This would be a good start toward aligning the charitable deduction with the public good. But no doubt there are other issues as well. The last time Congress took a serious look at the charitable deduction was in 1969. A lot has changed in 44 years, and these rules are too important to ignore.

   Of course, any solution — large or small — will require Congress to pay attention to the problem. This will be no mean feat. Too often when Congress considers legislation limiting the charitable deduction, the conversation is overly simplistic — pretending that all charitable giving is supporting local soup kitchens. The lobbying arm for the charitable sector has not helped the situation. While it purports to represent both donors and charities, it has focused its efforts on preserving the maximum charitable deduction for donors, while paying scant attention to closing the loopholes that divert resources away from true charities.

   We all know that Congress needs to get our financial house in order. Curbing wasteful charitable deductions is the perfect place to start.

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