[A-List] Big Gifts, Tax Breaks and a Debate on Charity

[Bill Totten <shimogamo@xxxxxxxxxxxxx>]

by Stephanie Strom

The New York Times (September 06 2007)


Eli Broad, a billionaire businessman, has given away more than $650
million over the last five years, to Harvard and the Massachusetts
Institute of Technology to establish a medical research institute, to
the Los Angeles County Museum of Art and to programs to improve the
administration of urban schools and public education.

The rich are giving more to charity than ever, but people like Mr Broad
are not the only ones footing the bill for such generosity. For every
three dollars they give away, the federal government typically gives up
a dollar or more in tax revenue, because of the charitable tax deduction
and by not collecting estate taxes.

Mr 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.


Familiar Recipients

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 ninety
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. Valuable as that may be, it also meant
that the American public effectively underwrote several billion dollars
worth of foreign aid by private individuals, even though poll after poll
shows Americans are at best ambivalent about using tax dollars in such
assistance.

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 ten 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?"

Philanthropists like Mr Broad say that looking at philanthropy solely as
a means of ameliorating need is too narrow. "If you look historically at
what Carnegie did with creating a library system and the Rockefellers in
creating Rockefeller University, I think it does a lot more for society
than simply supporting those in need", Mr Broad said.

About two percent of the money Mr Broad has given away through his two
foundations over the last five years, or $15 million, went to support
organizations like the United Way and the United Jewish Fund, which
serve needy people as well as the middle class. The foundations also
have given money to groups that help homeless children, and the
International Rescue Committee.

Still, Mr Broad dedicates his biggest gifts to areas he thinks lack
government support, like the $25 million he gave to the University of
Southern California last year to found an institute for integrative
biology and stem cell research, or the tens of millions he dedicated to
complete the new Disney concert hall in Los Angeles.

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.

"Universities have their own thing going - they want to build
infrastructure and endowments and perpetuate their system, which isn't
necessarily in the social interest", Mr Gross said. "Scholarships get a
little more down to the ground level".


Taking Aim at the Tax Code

The investor 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".

The Gates Foundation's work is largely international, although a portion
of its spending supports efforts to improve urban education and access
to college, so Mr Buffett's money is unlikely to be used to address
basic needs in this country.

"I think the government ought to make sure that all the people here who
drew short straws have a decent minimum", Mr Buffett said. "We moved
toward that with Social Security, but we could go a lot further now".

He does not regard his gift as charitable and expects no tax benefit
from it, in part because he has credit for past donations that he has
not used.

Rather, he calls his sister, Doris Buffett, the "real philanthropist" in
the family. Ms Buffett runs an organization, the Sunshine Lady
Foundation, that helps the needy pay for college, medical expenses,
mortgages, glasses and cars.

Mr Buffett recently has brought attention to himself as a critic of
inequities in the nation's tax system, which offers the wealthy better
tax breaks for charitable giving than it does the average taxpayer.
Deductions for charitable giving can be claimed only by the fewer than
half of all taxpayers who itemize, and those falling in higher tax
brackets get bigger deductions for cash gifts.

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.

Take schools. The Woodside Elementary School in Woodside, California.,
where the median family income is $196,505, raised $7,065 a pupil in
1998 from charitable contributions to a foundation it created, according
to Professor Reich's research. Across the San Francisco Bay, a similar
foundation to support the Oakland Unified School District, where the
median family income is $44,384, raised $138 a pupil that year.

In effect, the government is subsidizing a system that enhances
inequities between poor and wealthy public schools, Professor Reich said.


Raising Questions

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

"When foundations, corporations and individuals give money to the
opera", said Xavier Becerra, a California Democrat on the House Ways and
Means Committee who represents a district in Los Angeles populated
largely by young working-class immigrant families, "my folks are very
unlikely to benefit from those forgone tax dollars that could have been
used for health care, for after-school programs for kids, for help in
getting access to college education".

Yet Mr Becerra himself is a beneficiary of one of the country's
wealthiest charities, Stanford, which has a $15.2 billion endowment and
gave him a scholarship. "There is no way my parents could have afforded
for me to go there without the generous financial aid the university
gave me", he said.

At the other end of the political spectrum, Grover G Norquist, whose
Americans for Tax Reform lobbies for lower taxes, suggests taxing
nonprofit hospitals that cannot demonstrate that they provide
significant care for the poor.

"I'm not aware of anything they do that a for-profit hospital doesn't do
in terms of providing free care", Mr Norquist said.

Like other billionaire philanthropists, Thomas M Siebel, founder of
Siebel Systems, has given his largest gifts to his alma mater, the
University of Illinois at Urbana-Champaign. In 1999, he donated $32
million for a computer science center bearing his name, and he pledged
$100 million this year to support basic research that he hopes will
reduce dependency on carbon-based fuels.

But when the university suggested using some of that gift to put up
another new building named for him and hire new professors, he said no.

"I told them to use the basement of an existing building and some of the
really smart people they already have", Mr Siebel said.

Attracting philanthropic support to fight substance abuse is one of the
biggest challenges in fund-raising, but Mr Siebel has donated more than
$15 million to the Meth Project, an organization he created. "I think
we'll save a lot of lives in the end", Mr Siebel said. "Isn't that what
philanthropy is supposed to be about?"

He has also given the Salvation Army more than $18 million over the last
six years, mostly to support services for the homeless. He said he gives
to the organization because of its low administrative costs and lack of
frills.

"When I first started doing this, I made a contribution to some
organization, Harvest something or other, I think, that was working on
homelessness", Mr Siebel said. "The next thing I knew, I got a plaque in
the mail and an invitation to an awards ceremony".

He added: "I never gave them another nickel. What were they spending
money on plaques for?"

http://www.nytimes.com/2007/09/06/business/06giving.html

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