Great news for Harvard University. The school’s endowment now stands at an astonishing $14.4 billion.
At Elijah’s Promise, a soup kitchen located in New Brunswick, New Jersey, the financial picture isn’t so rosy. The organization doesn’t have an endowment and probably never will. It is struggling to raise the $250,000 it needs each year to feed the homeless men, women, and children who line up at its door each day.
While their objectives and bankrolls may have little in common, Harvard and Elijah’s Promise are alike in one very important way. They are lumped in along with America’s roughly 700,000 agencies, institutions, confederations, associations, and other strange bedfellows loosely labeled as “charitable organizations.” These nonprofits have at their disposal a financial carrot called the charitable tax deduction, which they can wave in front of individual donors, foundations, and corporate giving programs.
With a few exceptions, the Internal Revenue Service does not make distinctions among the vast assortment of charitable organizations that vie for private donations. As far as the IRS is concerned, a cash gift made to Elijah’s Promise generates the same tax deduction as a contribution to Harvard. This spells trouble for Elijah’s Promise. Here’s why. . ..
If they have no special inducements to put on their fundraising hooks, nonprofit organizations that deal exclusively with the poor and needy often come up short when fishing for donations. Year after year, the nation’s philanthropy scorecard looks almost identical—churches, synagogues, and other religious groups snag nearly half of all contributions. Educational institutions (largely colleges and universities like Harvard) pick up another 14 percent of the total. Soup kitchens like Elijah’s Promise, human service agencies, environmental groups, and arts and cultural organizations have to fight it out for what’s left.
To be fair, the biggest recipients of America’s largess—religious and education organizations—do support programs that help the poorest of the poor. But all too often, private gifts get used for very different purposes—including paying for the costs of activities, projects, and buildings that carry some benefit to the donors themselves.
Contrary to popular opinion, altruism is not the only motivating force behind American philanthropy. There is also self-interest. We simply are more inclined to give our money (as well as our time) to organizations that return benefits to ourselves and our family, our friends, students at our alma mater, fellow model boat builders, and so on. As a result, organizations that are taking on our most challenging social problems such as Elijah’s Promise get a far smaller slice of America’s $175 billion contributions pie than many assume.
A relatively simple change in the federal tax code could provide a much needed spurt of new private contributions to nonprofits like Elijah’s Promise that do what generally is viewed as old-fashioned charitable work. This is the proposal: allow individuals to take a double deduction to those charitable organizations that certify they will use contributions exclusively to assist the needy (those living at or below the poverty line). Give $1 to Harvard, and get a $1 tax write-off. Donate $1 to Elijah’s Promise, and get a $2 tax deduction.
In fact, manufacturing companies already enjoy a similar kind of tax incentive that enables them to take a “step-up” deduction for products they manufacture and donate to certain nonprofits—mainly those that assist the “ill, needy, and infants.” That deduction can be worth up to twice what it costs companies to make those goods and helps explain why product contributions now account for nearly a quarter of all corporate donations. Why not extend this same option to contributions made by individuals?
The proposed tweak in the tax code won’t take anything away from Harvard. What it will do is give groups like Elijah’s Promise a tax incentive that gives prospective donors just the added measure of self-interest they need to make out that all-important contribution check.
Curt Weeden is president of the Corporate Contributions Academy, located in Palm Coast, Florida, former vice president of corporate contributions for Johnson & Johnson, and author of Corporate Social Investing.
