The cost of giving

Excerpts from an article by Stephanie Strom, titled The Cost of Giving: Big Gifts, Tax Breaks, and a Debate on Charity, in The New York Times. The article is part of a series called "Age of Riches", about the increasing concentration of wealth.

[Billionaire businessman Eli] Broad (rhymes with road) says his gifts provide a greater public benefit than if the money goes to taxes for the government to spend. “I believe the public benefit is significantly greater than the tax benefit an individual receives,” Mr. Broad said. “I think there’s a multiplier effect. What smart, entrepreneurial philanthropists and their foundations do is get greater value for how they invest their money than if the government were doing it.”

It is an argument made by many of the nation’s richest people. But not all of them. Take the investor William H. Gross, also a billionaire. Mr. Gross vigorously dismisses the notion that the wealthy are helping society more effectively and efficiently than government.

“When millions of people are dying of AIDS and malaria in Africa, it is hard to justify the umpteenth society gala held for the benefit of a performing arts center or an art museum,” he wrote in his investment commentary this month. “A $30 million gift to a concert hall is not philanthropy, it is a Napoleonic coronation.”

Elaborating in an interview, Mr. Gross said he did not think the public benefits from philanthropy were commensurate with the tax breaks that givers receive. “I don’t think we’re getting the bang for the buck for gifts to build football stadiums and concert halls, with all due respect to Carnegie Hall and other institutions,” he said. “I don’t think the public would vote for spending tax dollars on those things.”

The billionaires’ differing views epitomize a growing debate over what philanthropy is achieving at a time when the wealthiest Americans control a rising share of the national income and, because of sharp cuts in personal taxes, give up less to government.

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A common perception of philanthropy is that one of its central purposes is to alleviate the suffering of society’s least fortunate and therefore promote greater equality, taking some of the burden off government. In exchange, the United States is one of a handful of countries to allow givers a tax deduction. In essence, the public is letting private individuals decide how to allocate money on their behalf.

What qualifies for that tax deduction has broadened over the 90 years since its creation to include everything from university golf teams to puppet theaters — even an organization established after Hurricane Katrina to help practitioners of sadomasochism obtain gear they had lost in the storm.

Roughly three-quarters of charitable gifts of $50 million and more from 2002 through March 31 went to universities, private foundations, hospitals and art museums, according to the Center on Philanthropy at Indiana University.

Of the rest, the Bill and Melinda Gates Foundation accounted for half on the center’s list. That money went primarily to improve the lives of the poor in developing countries...

In contrast, few gifts of that size are made to organizations like the Salvation Army, Habitat for Humanity and America’s Second Harvest, whose main goals are to help the poor in this country. Research shows that less than 10 percent of the money Americans give to charity addresses basic human needs, like sheltering the homeless, feeding the hungry and caring for the indigent sick, and that the wealthiest typically devote an even smaller portion of their giving to such causes than everyone else.

“Donors give to organizations they are close to,” said H. Art Taylor, president and chief executive of the BBB Wise Giving Alliance. “So they give to their college or university, or maybe someone close to them died of a particular disease so they make a big gift to medical research aimed at that disease. How many of the superrich have that kind of a relationship with a soup kitchen? Or a homeless shelter?”

...Like many major philanthropists, Mr. Broad said he considered such gifts an illustration of the Chinese proverb: “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.” The argument is that simply taking care of the poor does nothing to eliminate poverty and that they will ultimately benefit more from efforts to, say, find cures for the diseases that afflict them or improve public education.

As for Mr. Gross, despite his uncharacteristically fiery criticism of what he calls “philanthropic ego gratification,” some of the large gifts he and his wife, Sue, have made are not so different from those made by other billionaires. He has given millions to a local hospital, for example, and for stem cell research.

And in 2005 the couple gave roughly $25 million to Duke, Mr. Gross’s alma mater.

But the Duke gift illustrates Mr. Gross’s priorities. The money is almost exclusively for scholarships.

...Warren E. Buffett also voices strong feelings about how donations are used.

When Mr. Buffett pledged $30 billion to the Gates Foundation, he included a little-noted requirement that the foundation spend each increment of the gift he hands over, in addition to its own annual legally mandated spending. If Mr. Buffett transfers $1.3 billion of stock to it, it must spend every nickel within a year.

“I wanted to make sure,” he said, “that to the extent I was providing extra money to them, it didn’t just go to build up the foundation size further but that it was put to use.”

...He does not regard his gift as charitable and expects no tax benefit from it...

The charitable deduction cost the government $40 billion in lost tax revenue last year, according to the Joint Committee on Taxation, more than the government spends altogether on managing public lands, protecting the environment and developing new energy sources.

Rob Reich, an assistant professor of political science and ethics in society at Stanford, goes so far as to say that the tax code promotes inequities through the breaks it provides for charitable giving...

Legislators, regulators and others are asking more questions about exactly what charities do with the money they are given.