Government Takeovers: Is Charity Next?

Posted: Oct 29, 2009 12:01 AM
Government Takeovers: Is Charity Next?

When it comes to government’s role in the American economy, we’ve become accustomed to ideas that seemed incredible not long ago—whether public ownership of General Motors or infusions of cash into major banks. But government takeover of private charity? It’s not entirely far-fetched. The stars are aligning for government to capture funds that would otherwise have gone to philanthropy and for government itself to pick charity winners and losers. The result could be a more bureaucratic, less innovative non-profit sector.

Change is happening in three big ways which threaten to combine to increase government influence over both funds and labor.

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Little-noticed in the discussion of the Senate Finance Committee health care bill was a proposal floated by an influential group of Democratic Senators (including West Virginia’s John D. Rockefeller IV and Massachusetts’ John Kerry) to quietly raise additional billions in taxes by limiting the value of itemized deductions—such as contributions to charity. The proposal would hold steady the deductions’ value (at 35 cents on a dollar) even as the top tax rate rises in 2011 to more than 39 percent (as the Bush tax cuts expire). When a similar proposal was advanced early this year by President Obama, the long-time head of the National Bureau of Economic Research, Martin Feldstein, estimated it would lead to a $7 billion drop in charitable giving. Such a fall would compound big losses that have already hit charities; the Chronicle of Philanthropy reports that six of 10 United Way chapters saw a decline in giving last year, totaling $4 billion. Although Americans donate about $300 billion in total annually to charity, these sorts of hits are not small change. As a coalition of 15 major charitable organizations put it in a letter Finance Committee chairman Senator Baucus, “Charities have seen an increased demand for their services as individuals and families struggle with financial uncertainty.”

The implicit assumption of the proposed change: that government will do better things with that money than will philanthropy. The Obama Administration has shown a willingness to act on just that belief. It has, for instance, announced the establishment of a new White House Office of Social Innovation—which will make grants (totaling $50 million) directly from the White House to individual non-profits. Some non-profit “social entrepreneurs” have supported the idea—tempted by the possibility of using government grants to grow. But it’s crucial to note that, as is typical when government calls the shots, only certain types of organizations working in select areas will qualify—including “energy efficiency, civic engagement, and poverty reduction” programs. This government-led giving contrasts sharply with the wide-ranging, sometimes quirky, but historically creative nature of American philanthropy.

The same legislation which created the Office of Social Innovation will also direct which non-profits will be able to attract the volunteer labor which is so often their lifeblood. The Edward M. Kennedy Serve America Act, signed last spring, authorizes an increase in the ranks of the Americorps program from 75,000 to 250,000. Although it sounds as if it should be a program of young people in uniform building trails and bridges, Americorps, too, is a grant program—which provides not funds but subsidized labor. Organizations that get its “volunteers” (who are paid a federal stipend for two years) must apply to either state or federal government. Proponents of this “national service” program see it as a way to involve the young in civic life, but they fail to see that it empowers government to decide what sort of volunteer work is worth doing—and diverts volunteers from groups which may not be adept at filling out grant applications or which (worse) may lack the right political connections.

It’s tempting to think that sending money and troops to charities which get some sort of White House seal of approval will help more of those in need. But there’s good reason to doubt that will actually happen. In the 1960s, the Johnson Administration’s “Model Cities” program sought to clone, all across the country, a small number of successful non-profit community development organizations. The result was often misuse of funds, as powerfully described by the late Senator Daniel Moynihan in his classic book, Maximum Feasible Misunderstanding. Nor do we lack current examples. In Washington, DC, for instance (according to recent Washington Post report), millions in government contracts to help AIDS victims instead went to organizations with “few or no clients, incomplete spending records or (who were) not running any AIDS programs whatsoever. Meanwhile, (those) living with HIV/AIDS have struggled to find care.”

Such years-long malfeasance is much harder to pull off in the world of philanthropically-supported non-profits, which operate under tough IRS review, as well as the review of their own boards and industry ratings-agencies such as Charity Navigator. The record of government in providing social services certainly does not justify diverting billions for such purposes away from private charities—but yet that’s the direction in which we’re heading.

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