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12/19
2012

Why I Love Minneapolis! (And why charitable giving won’t fall off a cliff)

I am in Minneapolis. I love Minneapolis and have from my first visit in the late 80’s when we were putting together The Philanthropic Initiative (TPI). I came to town with a question, a very big question: “What is in the water in Minneapolis that makes this community so incredibly generous?” I remember those conversations as though they were yesterday.  Talks with Ken Dayton of Dayton-Hudson, now Target; Jim Shannon of General Mills; Marion Ertswiler, then president of the Minneapolis Foundation; Peter Hutchinson, until recently of the Bush Foundation; and my friend, Roger Hale of the Tennant Company. These thoughtful citizen-actors had many answers to my “big question,” but it boiled down to this: the immensely hard-working and entrepreneurial Anglican, Lithuanian, Jewish, German, and Scandinavian immigrants who settled Minnesota brought with them religious and community values that, as they became successful, seeded a terrific culture of creative family and corporate philanthropy with great “donor-leaders” leading the charge.  And this culture still exists today. What I did not hear referenced in those answers was any mention whatsoever of the influence of charitable tax deductions.  It just never came up.

 

Fast forward twenty-five years with hundreds of TPI interviews, discussions, workshops, seminars and surveys all dealing directly or indirectly with the same “big question,” why are you generous and what would make you more generous? There are many nuanced answers – knowing the organization would use the money wisely, finding a passion, understanding the issue area,  connecting philanthropic values to family or corporate vision – but very seldom has the role of tax deductions been given as a factor in the motivation for, or level of, charitable giving. This is separate and distinct from the appropriate self-interest and focus on maximizing the tax deductibility of gifts once a decision to be philanthropic has been made. At the same time, a number of very wealthy donors and their advisors have said to me in talking about the timing of gifts, “we have moved beyond tax deductions.”

 

What does this mean? And how does it reconcile with the prevailing wisdom within philanthropy – supported by public opinion polls – that limiting, never mind eliminating, tax advantages would reduce the amount of charitable giving?

 

It could be that the TPI experience is too high-end or is based on those with an exceptional passion for giving; but I think there are broader issues at play. Our generation has grown up with the charitable deduction, creating what amounts to a self-fulfilling prophecy. In other words, it is all we know.  Nonprofit development efforts including planned giving and other sophisticated techniques trumpet the tax advantage aspect to giving. In addition, a legion of professional advisors exists to help clients navigate a complex set of regulations and laws. Charitable giving and tax deductions have become joined at the hip as though they were one and the same. But they are not.  The “gift” is the substance; the deduction is mere “process.” This makes me suspect of the data that is being used to advocate for the continuation of the charitable tax deduction as it exists today. I simply do not believe that charitable giving will fall off of a cliff if any of these proposed changes are adopted. The motivation for giving back to community and society runs far deeper and it is almost insulting to argue otherwise.

 

There are also moral hazards here.  The US is in serious economic trouble. We have budget and debt issues that must be resolved, but every possible solution or change has advocates against it.  What is the difference between the oil industry lobbyist advocating to retain current depletions allowances, the real estate industry advocating for the mortgage interest deduction and nonprofit sector advocates arguing to retain charitable deductions? There isn’t any difference and it weakens the nonprofit sector if we are on the same logic or moral field as every other special interest.  If too many special interests prevail, federal and state budget dilemmas will worsen.  Investments in education, in the arts, in enabling the neediest and most at-risk members of society to become self-sufficient, and in every aspect of the charitable endeavor will be reduced. We badly need a grand bargain.

I want the case statement for philanthropy to lead based on what value it adds to society.  There should be a renewed definition of philanthropy – what the Council on Foundations calls “a new narrative” – that addresses both the role of philanthropy as it relates to government, business, and the market economy, as well as the moral and ethical issues that many, particularly Princeton professor of bioethics, Peter Singer, have so eloquently raised.  All of this represents the work with or without tax deductions!

One Comment


Ken Saxon

Peter, I admire this column a great deal. I think you ask some very important questions, and your point that the current system is the only system most of us know is right on – leading to the “self-fulfilling prophecy” you write about. Fear of change keeps us from asking very fundamental and important questions. Some may receive this column as provocative, but if it is, it’s only in a good way — provoking thinking, provoking new ideas, provoking deeper and better questions. My instinct is that you are on to something here.

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