Most community developers do not think of charity and philanthropy as policy issues that fit on the advocacy agendas of CDCs, but they do. Repeal of the estate tax, the nonitemizer tax deduction and new guidelines for corporate grantmaking are issues that directly affect every CDC and the resources available to them. This fall the community development sector has an opportunity to outline its stake and put its stamp on the policies crucial to nonprofit survival by advocating for accountability, transparency and social justice on these pivotal proposals.
Estate Tax
In President Bush’s first year in office, the Senate modified the estate tax, raising the minimum thresholds, reducing the top tax rate and eventually eliminating it. The repeal won comfortably in the Republican-dominated House of Representatives, but the Republican leadership in the Senate failed to garner the necessary “supermajority” of 60 votes to make a tax or budget change permanent. Consequently, the estate tax repeal that goes into effect in 2010 will expire in 2011. This fall, when the supermajority requirement expires, lame-duck Senator Phil Gramm (R-TX) can revive his attack on the so-called “death tax” and win if he gets only a simple majority of 51 senators – unless the budget rules are revived.
The National Committee for Responsive Philanthropy estimates that repealing the estate tax jeopardizes some 50 to 60 percent of charitable bequests, an estimated $9.6 billion in lost bequests had the repeal been effective in 2000. Already, more than four-fifths of people with estates leave nothing to charity. Abolishing the estate tax will take a toll not only on bequests but on annual charitable giving, too.
Disclosure
Corporate foundation giving is reported to the IRS on publicly accessible 990-PF forms, but as much as half or more of corporate grantmaking originates in marketing departments and other nonfoundation corporate units. As a result, much “charitable” spending is unreported, and frequently less than fully charitable. Rep. Paul Gillmor (R-OH) has long called for some sort of disclosure requirements, but his intent seems to have been to give shareholders an explicit vote on corporate charity that supports civil rights, social justice and community development. The legislation failed most recently when he and his Republican allies refused to add corporate campaign spending to the list of disclosure items.
This past year, Gillmor pitched a new disclosure bill aimed at corporate charitable giving to nonprofits linked with corporate officers and executives, this time picking up some Democratic support such as iconoclastic Rep. Sheila Jackson Lee from Enron’s hometown of Houston. A more substantial bipartisan effort, the Comprehensive Investor Protection Act of 2002 was subsequently introduced by Democrat John LaFalce of Buffalo.
The LaFalce bill had its flaws, requiring corporations to report not only on their own grantmaking, but on the private charitable giving of corporate officers and directors. The disclosure language was picked up in the final corporate accountability bill that passed the House, the Corporate and Auditing Accountability Responsibility and Transparency Act (CAARTA), which was sponsored by Rep. Michael Oxley (R-OH). National mainstream nonprofits such as the Council on Foundations and Independent Sector slammed CAARTA for technical problems, the potential corporate record-keeping “burden” and fears of reduced corporate grantmaking due to the “chill” of disclosure.
The Senate companion bill to the House’s corporate accountability package, guided through the Senate by Sen. Paul Sarbanes (D-MD), dropped the Oxley bill’s charitable disclosure requirements. In conference, the Senate’s silence on the matter won out, and President Bush signed the bill into law in July. A crucial step in enhanced corporate accountability has been lost for the moment. Capitol Hill and the press have focused on the legislation weeding out a few bad apples – or bad CEOs and their ethically challenged accountants – and sidestepped the systemic problem of how some corporations use or misuse their philanthropic largesse.
Tax Incentives
Senators Rick Santorum (R-PA) and Joseph Lieberman (D-CT) have proposed a panoply of charitable tax incentives under the Charity Aid, Recovery, and Empowerment (CARE) Act of 2002. The CARE Act was introduced as the more acceptable version of the faith-based legislation that passed the House in 2001 as HR 7 and eliminates some of the House bill’s most explicit provisions giving faith-based organizations unfettered access to federal funding.
To garner the tacit support of mainstream nonprofit organizations, HR 7 included provisions for an unfortunately paltry charitable tax deduction for nonitemizers, long supported by Independent Sector and endorsed by President Bush in his campaign platform. The CARE Act offered deductions up to $400 for individuals and $800 for joint filers, although the typical nonitemizer already donates $300 annually. In March the Congressional Research Service calculated that the CARE Act’s nonitemizer provision would generate only 12 cents in new charitable giving for every dollar of foregone tax revenues. Even with a $500 floor, the new giving only reaches a little over 60 cents. With little enthusiasm from Republicans or Democrats, and little lobbying from the White House, despite intimations that new charitable giving incentives were needed in the wake of September 11th, the Senate Finance Committee stuck in a floor and raised the cap on the nonitemizer.
The CARE Act also proposed a reduction in the private foundation excise tax from 2 percent to 1 percent on foundations’ net investment income, since most foundations heavily invest their endowments in the stock market and have been earning enormous returns during the past two decades. According to the foundations, the excise tax deters foundations from spending, much less making grants, above the required minimum spending level of 5 percent of foundation assets. Moreover, the Council on Foundations indicated that some 90 percent of the “saved” excise tax funds would go back to nonprofits in the form of grants rather than simply sitting in foundation endowments.
When the CARE Act was presented for a potential Senate Finance Committee vote, the possibility of an amendment calling for increasing the foundation payout rate prompted the foundation sector to get the committee to drop the excise tax provision in its entirety. Eliminating the excise tax is a top legislative priority for foundations, but attaching that to any change in the rate or composition of payout is anathema to many foundation leaders.
Lurking in the CARE Act were additional provisions that call for an “EZ pass” process of 501(c)(3) approvals for service-oriented nonprofit applicants and the capitalization of President Bush’s long-desired “Compassion Capital Fund” for faith-based and grassroots groups. The legislation would essentially provide favorable government treatment to service-providing nonprofits, but not for nonprofits engaged in advocacy. This would divide nonprofits into deserving and undeserving and ignores the historic success of antipoverty efforts in the U.S., which can be traced to organizations that advocated for social change. If the Senate does pass CARE in the current session or in a postelection lame duck session, the White House has made it clear that it expects to revive its faith-based agenda, and the conference committee merger of the Senate and House bills would be the most immediate arena.
Overall, the 2002-3 session of Congress is likely to be marked by a struggle between secular and faith-based charitable incentives in one legislative package, a renewed attack on charitable bequests under the guise of the repeal of the estate tax and Senate hearings on the roles and practices of foundations. It is clear that the latter debate will occur not simply as a lingering issue from September 11th charity controversies, but from a deepening awareness of the increasing role of charity and philanthropy.
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