GIVINGIN

AMERICA

Toward a Stronger\bluntary Sector

Report of the Commission on PrivatePhilanthropy and Public Needs

GIVINGIN

AMERICA

AMERICAToward a StrongerVoluntary Sector

Report of the Commission on PrivatePhilanthropy and Public Needs

Copyright© 1975 byCommission on Private Philanthropy and Public NeedsLibrary of Congress Catalog Card Number: 75-39560

COMMISSION ON PRIVATE PHILANTHROPYAND PUBLIC NEEDS

John H. Filer, Chairman

Leonard L. Silverstein, Executive Director

William H. Bowen Herbert E. LongeneckerLester Crown Elizabeth J. McCormackC. Douglas Dillon Walter J. McNerneyEdwin D. Etherington William H. MortonBayard Ewing John M. MusserFrances Tarlton Farenthold Jon O. NewmanMax M. Fisher Graciela OlivarezRaymond J. Gallagher Alan PiferEarl G. Graves George RomneyPaul R. Haas William Matson RothWalter A. Haas, Jr. Althea T. L. SimmonsPhilip M. Klutznick Leon H. SullivanRalph Lazarus David B. Truman

Commission StaffGabriel G. Rudney, Director of Research

Jeanne Moore, Executive AssistantE. B. Knauft, Assistant to the ChairmanJudith G. Smith, Compendium Editor

Robert E. Falb, Co-CounselStuart M. Lewis, Co-CounselJerry J. McCoy, Co-Counsel

ConsultantsHoward A. Bolton Stanley S. SurreyWade Greene Adam YarmolinskyWaldemar A. Nielsen Paul N. Ylvisaker

Special ConsultantsJames W. Abernathy Ralph L. NelsonMartin S. Feldstein John J. SchwartzTheodore J. Jacobs Sally J. ShroyerPorter McKeevcr Carlton E. Spitzer

TABLE OF CONTENTSPage

PREFACE 1

INTRODUCTION and SUMMARY 9

PART I - G i y l N G and THE "THIRD SECTOR":FINDINGS OF THE COMMISSION 29

CHAPTER I - T H E THIRD SECTOR 31The World of Philanthropy 32

Dimensions of the Voluntary Sector 34Ultimate Beneficiaries ......i.i 37Government and Voluntary Association • 38"Americans Are Forever Forming Associations" 39Evolutions Within the Third Sector 40Underlying Functions of Voluntary Groups - 41

—Initiating new ideas and processes 42—Developing public policy 43—Supporting minority or local interests...... 43—Providing services that the government

is constitutionally barred from providing 44—Overseeing government .:;...Mi.-..«»»w..-.....«. 44—Overseeing the market place „....,......,„.... 45—Bringing the sectors together .».,....;«».„..,. - 4 5—Giving aid abroad.-..,..,.....*...;...„,..,.;;...,..*.., 46—Furthering active citizenship and altruism 46

New Frontiers and an Ageless Rationale ........„„ 47Sources for Chapter I ..•..«.«.........„........»»...•«..«.. 50

CHAPTER II-PRIVATE GIVING FOR PUBLIC

PURPOSES 53

Sizes, Sources and Destinations of Giving 53

Other Giving 60

Changing;Motivations .-. .....,../ 60

The Institutionalization of Philanthropy 63

The Importance of Private Giving .', 65

Philanthropy and the Powerless 67

Not Keeping Pace 70

Reasons for the Decline 71

Sources for Chapter II 76

CHAPTER III-THE HARD ECONOMICS OF

NONPROFIT ACTIVITY . . . . . ... 79

Financial Crisis .„......;......,....;.....;....>.........;....... 80

Rising Costs .:.....\.^:.....^..^..;.^.:.....t.........^..,.r: 82

The Cost of Being "Labor Intensive" .;.............. 83

The Costs of Complexity .;.......,T^....^..,,..,.....•.. 84

The More Successful, the Greater the Deficit . . . 85

Sources for Chapter III •.....,!„.„............................... 88

CHAPTER1IV-THE STATE AS A MAJOR"PHILANTHROPIST" ... . . . . . . . 89

From Private Beneficence to Public Obligation 91

Government Financial Assistance ,...,,......,« ...v... 94

Dilemma Over Control and Finances ............. 96

Seeking a Balance r....?;..v... ;.............;...;.....,;..... 97

Sources for Chapter IV ,>.„..:;„.,..„.,.....,„......,.... 100

CHAPTER V-TAXES AND NONTAXES 103

The Spread of Nontakation u 103

Counter-movements 105

Challenging the Chari table Deduction 106

Philosophical Challenge , 107

Pragmatic Doubts , I l l

Standard Deduction vs. Charitable Deduction .. 113

Sources for Chapter V 115

PART n - T O W A R D A STRONGER VOLUN-TARY SECTOR:

CONCLUSIONS ANDRECOMMENDATIONS OF THECOMMISSION ,. 117

INTRODUCTION TO PART II U9

CHAPTER VI-BROADENING THE BASE OF

PHILANTHROPY 123

Objectives 124

Three Approaches , 127

CONTINUING THE DEDUCTION 127

Giving Should Not Be Taxed 128

A Proven Mechanism 128

An "Efficient" Inducement , 129

Insulation from Government 130

Allocation Effects 132

Reflecting the Progressive Income Tax 134

"Leadership Effect" 134

EXTENDING AND AMPLIFYINGTHE DEDUCTION 135

Recommendations 135

/ . That to increase inducements for charitable giving, all taxpay-ers who take the standard deduction should also be permittedto deduct charitable contributions as an additional, itemizeddeduction.

2. That an additional inducement to charitable giving should beprovided to low- and middle-income taxpayers. Toward thisend, the, Commission proposes that a "double deduction**'beinstituted for families with incomes of less than $15,000 ayear; they would, be allowed to deduct^ twice what they givein computing their income taxes. For those families with incomesbetween $15,000 and $30,000, the Commission proposes adeduction of150 per cent of their giving.

Extending the Charitable Deduction 135A New Incentive for Low- and

Middle-Income Contributors .... 138A Supplementary Credit ............. 139The Double Deduction .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141MINIMUM TAX . . . . . . . . . . . . . . . . . . . . . . . . 142Recommendation ....... 143

That income deducted for charitable giving should be excludedfrom any minimum tax provision. , f ,

APPRECIATED EROEERTY ..... .„ 143

R e c o m m e n d a t i o n . . « . . „ . „ • . ..............~..:....... 1 4 6That the appreciated property allowance within the charitablededuction be basically retained but amended to eliminate any)possibility of personal financial gain through tax-deductiblecharitable giving,

CHARITABLE BEQUESTS .............................;;I..... 147

Equity ............ 148Allocation Effects 149

Percentage Limits 150Recommendation ............. ;.......... 151

That the charitable bequest deduction be retained in its present;form.

CORPORATE GIVING ..,...........„........„.;... 151

Recommendation ;...;..................................(..... 157That corporations set as a minimum goal, to be reached no later*than 1980, the giving to charitable purposes of 2 per cent ofpre-tax net income. Moreover, the Commission believes that thenational commission proposed in this report should* consider asa priority concern additional measures to stimulate corporate

. ' giving. •' ' ' " " ' ' i : ''•• '• •• •••;" ; ; l . - -

Sources for Chapter VI >....;.......;..^..........U.......... 158

CHAPTER VII-IMPROVING THE PHILAN-' THROPIC PROCESS 159

ACCOUNTABILITY 162Recommendations 164

/ . That all larger tax-exempt charitable organizations exceptchurches and church affiliates be required to prepare, and makereadily available detailed annual reports on their finances, pro-grams and priorities.

2. That larger grant-making organizations be required to holdannual public meetings to discuss their programs, priorities andcontributions. .

3. That the present 4 per cent "audit" tax on private foundationsbe repeated and replaced by a fee on all private foundationsbased on the total actual costs of auditing them.

4. That the Internal Revenue Service continue to be the principalagency responsible for the oversight of tax-exempt organiza*tions.

ACCESSIBILITY . 167Recommendations 169

A That the duplication of legal responsibility for proper expedi-ture of foundation grants, now imposed on both foundationsand recipients, be eliminated and* that recipient organizationsbe made primarily responsiblefbr their expenditures.

2. That tax-exempt organizations, particularly funding organiza-tions, recognize an obligation to be responsive to changingviewpoints and emerging needs and that they take steps suchas broadening their boards and staffs to insure that they areresponsive.

3. That a new category of "independent" foundation be estab-lished by law. Such organizations would enjoy the tax benefitsof public charities in return for diminished influence on thefoundation's board by the foundations benefactor or by his orher family or business associates.

MINIMIZING PERSONAL OR ,INSTITUTIONAL SELF-BENEFITING 173

Recommendations * 174/ . That all tax-exempt organizations be required by law to main"

tain "arms-length" business relationships with profit-makingorganizations or activities in which any member of the,organiza-tion's staff, any board member or any major contributor hasa substantial financial interest, either directly or through hisor her family.

2. That to discourage unnecessary accumulation of income, a fiatpayout rate of 5 per cent of principal be fixed by Congressfor private-foundations and a lower rate for other endowedtax-exempt organizations.

3. That a system of federal regulation, be established for inter'state charitable solicitations and that intrastate solicitations bemore effectively regulated by state governments.

4. That as a federal enforcement tool against abuses by tax-exempt organizations, and to protect these organizations them'selves, sanctions appropriate to the abuses should be enactedas well as forms of administrative or judicial review ofthe principal existing sanction—revocation of an organization'sexempt status.

INFLUENCING LEGISLATION 179

Recommendation 181That nonprofit organizations, other than foundations, be al-lowed the same freedoms to attempt to influence legislation as]are business corporations and trade associations, that toward*this end Congress remove the current limitation on such activ-iitybycharitabligroups eligib&to receive tax-deductible gifts.

Sources for Chapter VII ....,....,.,,...... 183

CHAPTER VIH-A PERMANENT

COMMISSION . . . . . . . . . . . . . . . . . 185

Part of a Larger Process ...................;.,... 187

The British Model 189

Quasi-Governmental Status ..................... ........ 190

Recommendation .......... ..«.,... 191That a permanent national commission on the nonprofit sectorbe established by Congress.

Sources for Chapter VIII ......... . . . . , . . . , . . . * „ . 194

COMMENTS AND DISSENTS . . . . . . . . . . . 197

APPENDIX I-Commission Studies . . . . . . . . . . . . . . 223

APPENDIX II—Members of the Commission . . . . . ; 231

APPENDIX III—Commission Consultantsand Advisors ;.... 235

PREFACE

The Commission on Private Philanthropy and Public Needswas established in November, 1973, as a privately initiated,privately funded citizens' panel with two broad objectives: *

To study the Vole of both philanthropic giving in the UnitedStates and that area through which giving is principally chan-neled, the voluntary, "third" sector o£ American society.

To make recommendations to the voluntary sector, to Gon-gress and to the American public at large concerning ways inwhich the sector and the practice of private giving can bestrengthened and made more-effective. -,

The Commission's objectives reflect a conviction that givingand voluntary, public-oriented: activity—the components of:"philanthropy" as broadly defined—play a central role inAmerican life but that the continuation of this role cannot betaken for granted. For the sector's economic durability hasbeen brought into question by the mounting financial difficul-ties of many voluntary organizations and nonprofit institutions.At the same time, two of the main institutional underpinningsof;philanthropic giving—private foundations and charitable taxdeductions—have been politically challenged. Congressionalhearings leading up to the Tax Reform Act of 1969 as well asthe act itself showed that these underpinnings had become fairtargets of criticism and of legislative change. ;

The Commission came into existence in large measure be-cause of the initiative of John D. Rockefeller 3rd and theencouragement of several governmental figures, including thechairman then of the House Ways and Means Committee,VVilbur D. Mills, Secretary of the Treasury George P. Shultzand Under Secretary William E. Simon, who was'subsequentlyShultz's successor. The Commission's membership was drawn

from a broad spectrum of American society and has includedreligious and labor leaders, former cabinet officers, representa-tives of minority groups, executives of foundations and corpo-rations—men arid women with wide ranging and differingviewpoints.

It became apparent even before the Commission was formal-ly established that it would need and would have to developfor itself a great deal of one particularly scarce commodity inthe areas it was looking at—information. A.meeting of taxexperts, economists and sociologists assembled to discuss theresearch needs i of the proposed commission in August, 1973,and reached ai quick consensus: that there was?a paucity ofexisting data and analysis on giving patterns, about tax effectson giving, about the relative roles of government and nonprofitorganizations, about many basic questions surrounding givingand nonprofit activity. A major research task; was clearly cutout for any group looking into this area.

Gabriel G. Rudneywas granted leave of absence as assistantdirector of the Treasury Department's Office of Tax Analysisto serve as research director of the Commission. Jeanne Moorehas worked since the Commission's early days as the Commis-sion's executive assistant and coordinator of its vast flow ofdocuments and correspondence. Advising the!Commission andaiding in the direction of its research has been an AdvisoryCommittee made up of more than 100 experts in the fields ofeconomics, law, sociology and taxation, plus representatives ofmany philanthropic and nonprofit areas, from higher educa-tion to environmental activism. More fully involved in theCommission's work have been the Commission's consultants,some in general and some in special capacities, many of whomhave regularly taken part in the Commission's deliberations^However, the Commission's report, it should be noted, is theCommission's own and does not necessarily reflect the views ofany consultants or advisors.

The Commission has sponsored in the course of its two yearsin operation no fewer than 85 studies on various aspects ofphilanthropy and nonprofit activity, including individual re-ports on all the major areas of charitable nonprofit activity;extensive analysis of the laws and precedents, in the United

States and abroad, that govern the practice of philanthropyand "third sector" activity; and reports on philanthropy in fivecities in different regions of the country. ' ' . • ) .

A sample survey was commissioned to probe taxpayers* giv-ing practices and attitudes.: The largest such survey ever con-ducted, it involved lengthy interviews with close to 3,000 indi-viduals, representing a cross-section of American contributors,and non-contributors. The survey was run by the Survey Re-search Center of the University of Michigan. The U.S. Trea-sury Department aided in the preparation of the survey andthe U.S. Census. Bureau conducted one third of the actualinterviews.

Computerized econometric analysis of tax and income datawas made for the Commission in an effort to determine what,if any, effect the charitable deduction had on the amount ofgiving people did. From the relationships found in this analy-sis, simulations were constructed to project the possible effectof modifications and expansions of the deduction and the effectof alternative proposals for stimulating giving.

Meetings and discussions were held in different parts of thecountry involving concerned citizens and leaders in every fieldrelated to the Commission's areas of study; gatherings of ex-perts in various technical subjects helped frame the technicalissues considered by the Commission and also planned andreviewed research. Government agencies, particularly the De-partment of Health, Education and Welfare and the InternalRevenue Service, were consulted extensively in areas of theirexpertise and. concern.

In planning both rts written research and the discussions itsponsored, the Commission has made a conscious effort topractice the openness that, in its report, it preaches for allnonprofit organizations, openness inward to a wide variety ofviewpoints and openness outward to observation of its own,hardly monolithic deliberations. For example, partly in answerto criticism that the Commission's membership represented do-nor interests more than donee interests within the world ofphilanthropy, the Commission supported the establishment ofa "donee group," which was linked to the Commission andwhich sponsored a number of studies and critiques for—and

of—the* Commission"... This group has had, we believe, a valu-able influence on the-Commission's thinking and on its report.

The Commission has itself assembled in many lengthy ses-sions, and individual Commission members have taken part inother Commission-sponsored meetings as well. Many of. theissues that the Commission has deliberated on and attemptedto find a Consensus on have not been easy ones. A broad andunequivocal consensus exists within the Commission, as itclearly does within American society at large, as to the desir-ability; of voluntary giving and voluntary organizations. How-ever, profound and often sensitive social, economic and politi-cal concerns lie barely beneath the surface of any considerationof philanthropy and nonprofit activity in the mid-1970's,among them; concerns about;the power of personal and corpo-rate wealth, about the role of government/about the quality ofequality; and the definition off equity. Such concerns, coming ata time i of national self-questioning, after a decade of socialferment* offer no simple solutions or resolutions.

So, inevitably perhaps, the Commission's recommendationsfor dealing with perceived imperfections, inequities or simpleinsufficiencies in the areas it has, examined have not alwaysbeen unanimous, not without dissent. Yet the Commission isconfident that in its own quest and in attempting to resolve itsown uncertainties, it has'furthered considerably the knowledgeof< a dimly known region of American life. The Commissionhopes further; that it has set in motion a process of furtherexamination of this region, which^ the Commission believes;has too long been taken for granted and must now be attendedto, and perhaps vigorously reinforced, if it is to continue toplay the major role in American life that it has throughout thtnation's history.

It is with this confidence, and this hope, that this CommisTsion offers for consideration this report on its findings and itsrecommendations. Soon to be published separately is a com-pendium of all reports and studies undertaken for the Commis-s i o n . " •:.'•••• •• • . • • • • - . , ' .-•••." . •'•._,'•••• •

We are deeply grateful to more than 700 organizations andindividuals for their generous and indispensable support of theCommission, which! has depended oh private giving to finance

its meetings, researches and publications. Special thanks aredue in turn to Commission member Philip M. Klutzniek, andto John J,; Schwartz and his colleagues in the American Associ-ation of Fund-Raising Counsel for their diligent fund-raisinge f f o r t s . ,' / . ' • • . • • • ' . ' ' : •• '; • - ."

John H. Filer, ChairmanLeonard L. Silverstein, Executive Director

INTRODUCTIONand

SUMMARY

INTRODUCTION ANDSUMMARY

Few aspects of American .society are more characteristically,more famously American than the nation's array of voluntaryorganizations, and the support in both time and money that isgiven to them by its citizens. Our country has been decisivelydifferent in this, regard, historian Daniel Boorstin observes,"from the beginning." As the country was settled, "communi-ties existed before governments were there to care for publicneeds." The result, Boorstin says, was that ''voluntary collabo-rative activities" were set up to provide basic social: services.Government followed later.

The practice of attending to community needs outside ofgovernment has profoundly shaped American society and itsinstitutional framework. While in most other countries, majorsocial institutions such as universities, hospitals, schools, librar-ies, museums and social? welfare agencies are state-run andstate-funded, in the United States many of the same organiza-tions are privately controlled and voluntarily supported. Theinstitutional landscape of America is} in fact, teeming withnongovernmental, noncommercial organizations, all the wayfrom some of the world's leading educational and cultural in-stitutions to local garden clubs, from politically powerful na-tional associations to block associations—literally millions ofgroups in all. This vast and varied array is, and has long beenwidely recognized as, part of the very fabric of American life.It reflects a national belief in the philosophy of pluralism andin the. profound importance to society of individual initiative.

Underpinning the virtual omnipresence of voluntary organi-zations, and a form of individual initiative in its own right, isthe practice—in the case of many Americans, the deeply in-grained habit—ofj philanthropy, of private giving, which pro-vides the resource base for voluntary organizations. Betweenmoney gifts and the contributions of time and labor in the

form of volunteer work, giving is valued at more than $50billion a year, according to Commission estimates.

These two interrelated elements, then, are sizable forces inAmerican society, far larger than in any other country. Andthey have contributed immeasurably to this country's socialand scientific progress* On the ledger of recent contributionsare such diverse advances as the creation of noncommercial"public" television, the development of environmental, con-sumerist and demographic consciousness, community-orientedmuseum programs, the protecting of land and landmarks fromthe often heedless rush of "progress." The list is endless an<Jstill growing; both the number and deeds of voluntary organi-zations are increasing. "Americans are forever forming associ-ations," wrote de Tocqueville. They still are: tens of thousandsof environmental organizations have sprung up in the last fewyears alone. Private giving is growing, too, at least In currentdollar amounts.

Changes and ChallengesYet, while the value of philanthropy and voluntary organi-

zations, their past and present achievements, is hardly ques-tioned by Americans, and while by international comparisonsthese two expressions of the voluntary spirit are of unmatcheddimensions, a major overall conclusion of this Commissionmust be that there are profound, and in some areas troubling,shifts happening in the interrelated realms of voluntary organi-zation and philanthropy, changes that reflect, as these quintes-sential elements in American society must, broader churningsin the society as a whole. These changes present both practicaland philosophical challenges to established patterns of volun-tary activity and philanthropy.

The practical challenges are suggested by the stark fact thatwhile many new organizations are being born in the voluntarysector, since 1969 nearly 150 private colleges—representing; oneof the oldest and largest areas of voluntary activity throughoutAmerican history—have closed down. Among the philosophicalchallenges are those facing the main governmental encourage-ment of private giving—the charitable deduction in the federalincome tax—which is being questioned on grounds of equity.

10

FINDINGS

The Commission's findings—about both the enduring virtuesof nonprofit activity and philanthropic giving and about cur-rent challenges to established patterns within these areas—canBe summarized in four broad observations:

1. The voluntary sector is a large and vital part of! Americansociety, more important today than ever. But the sector is undergo-ing economic strains that predate and are generally more severethan the troubles of tite economy as a whole.

According to recent extrapolations, there may be as many assix million organizations in American's voluntary sector (alsoreferred to in this report as the third sector—third after govern-ment and business—and as the private nonprofit sector, or sim-ply nonprofit sector for short). One out of every ten serviceworkers in the United States is employed by a nonprofit orga-nization, one out of every six professional workers. One ninthof all property is owned by voluntary organizations.

The last estimate encompasses groups such as labor unionsand chambers of commerce, which serve primarily the econom-ic interests of their members. The somewhat smaller part of thevoluntary sector that has been the focus of the Commission'sattention is defined for most Commission purposes by Section501 (c) (3) of the Internal Revenue Code, which covers organiza-tions that are both tax exempt and eligible to receive tax-deductible gifts. The code specifically designates charitable, re-ligious, scientific, literary and educational organizations.

The Commission estimates that revenues in these areas, in-cluding both government and private funds, add up to around$80 billion a year. This amount does not include non-moneyresources, such as volunteer work and free corporate services.When these are added in, it is estimated that the voluntarysector accounts for over $100 billion in money and other re-sources annually.

These are impressive figures, but the significance of the thirdsector in today's society is found ultimately in less quantifiabledimensions.

11

Recent tremors in the nation's governance have strengthenedthe deeply rooted American conviction that no single institu-tional structure should exercise a monopoly on filling publicneeds, that reliance on government alone to fill such needs notonly saps the spirit of individual initiative but risks makinghuman values subservient to institutional ones, individual andcommunity purposes subordinate to bureaucratic conveniencesor authoritarian dictates. Thus, the third sector's role; as anaddition to government and, in many areas, an alternative andeven counterbalance to government,, has possibly nfeyer* beenmore important; the basic rationale ;of the third sector in thephilosophy of pluralism has possibly never been more perti-nent, i\lso, in a society increasingly dominated by giant andimpersonal institutions of business and government, voluntaryorganizations, generally less giant and more personal ; providearenas within which the individual can exercise personal initia-tive and| influence on the course of events around him or her.

Economic Strains

The vital role of the voluntary sector in today's society mustbe viewed, however,; against a background of mounting ;finan-cial and economic strains that threaten the sector's ability toadequately perform this role.

The recent economy-wide pressures of inflation and recessionhave intensified strains that have been felt by the voluntarysector for a number of years. Even in the late 1960's, when theeconomy was booming, one major survey of the philanthropiclandscape found matters bad and getting worse. "Without im-portant new sources of funds amounting to many billions ofdollars," the report concluded, "our society will feel the fullforce of what can be called the charitable crisis of the 1970's."

Acute crisis describes the state of many parts of the non-profit sector today. The existence of whole areas within thesector may be threatened.

One Commission study asserts that it is not "idle speculationto talk of .the disappearance of the liberal arts college/' An-other study says that "in the long run, if the economic trendscontinue, the vast majority of nonpublic schools seem doomed,

12

the exceptions being schools enjoying the support of the well-to-do or heavy subsidies from a few remaining religious groupswith conservative theologies or strong ethnic emphasis.'* Socialservice organizations have been slashing their budgets and re-ducing their staffs in order to stay afloat. In a number of cases,they have gone out of business entirely. And nonprofit artsorganizations, in many, cases, are surviving only through largeinfusions of! government funds.

The problems arise on both the income and expense sides ofthe ledger.

Extraordinary increases in costs, many of them beyond thecontrol of nonprofit causes, are a major factor. Costs for manynonprofit organizations have been going up far more rapidlythan in the economy as a whole for a number of years. Since:1960, medical care prices have risen half again as fast as con-sumer prices in general. Higher education costs rose about 76per cent between 1963-64 and 1973-74, as compared with 49per cent for the economy-wide cost-of-living index.

The prevailing financial pattern of the nonprofit sector hasbecome one not only of uncommonly higher costs, but of moreresources required for old problems and new solutions, and ofmore users needing greater aggregate subsidies for the non-profit services that they consume. In addition, new and lesstraditional groups, such as those oriented toward urban andracial problems, environmental and consumer organizations,and other politically and legally activist, groups, have beenadding their claim for pieces of the philanthropic pie. And thepie has not been growing in terms of the real purchasing powerof private contributions.

2. Giving in America involves an immense amount of time andmoney, is the fundamental, underpinning of the voluntary sector,encompasses a wide diversity of relationships between donor, dona-tions and donee, and is not keeping pace.

Most giving—79 per cent in 1974—comes from living individ-uals, and the main focus of the Commission's research has beenon such giving. The Commission's largest single research effortwas a Commission-sponsored sample survey of 2,917 taxpayers

• • • 1 3 • . ' • - . .

conducted jointly by the University of Michigan's Survey Re-search Center and by the U.S. Census Bureau. Extensive ques-tioning of respondents was conducted in 1974, covering givingfor the previous year. In 1973, according to projections basedon the respondents* answers, individuals may have given asmuch as $26 billion.

In addition, nearly six billion womanhours and manhours ofvolunteer work were contributed'to nonprofit organizations in1973, the survey indicates, and the total value placed on thiscontributed labor is another $26 billion. (Bequests accountedfor $2.07 billion' in 1974, foundations for $2.11 billion andcorporations for $1.25 billion in direct dollar giving.)

Estimating the sources of giving by individuals is still moreart than science, but even by conservative reckonings, $50 bil-lion a year is the very large round-number total of the value ofcontributed time and money in the mid-1970's. A dispropor-tionate amount of giving comes from contributors with thehighest income, at least 13 per cent of individual giving fromthis 1 per cent of the population. Yet at the same time'thebulk of giving, more than half, comes from households withincomes below $20,000.

Other Commission findings: college graduates give six timesas much on the average as do those with only high schooleducations. Small town residents give more than city dwellers.The married give more than the single, the old more than theyoung. The giving of time was also found to correlate closelywith the giving of money; the contributor of one is likely to bea contributor of the other.

Where the Giving Goes

Where does the giving go? The largest single recipient area isreligion. Studies by the In terfaith Research Committee of theCommission indicate that religious giving may be larger thangenerally estimated, and at the same time the committee foundthat a sizable share of religious giving—one out of five dollars-is ultimately given in turn by religious organizations to other,non-sacramental categories of recipient. The estimated break-down of giving in terms of ultimate recipient, in 1973, was:

14

religion, $10.28 billion; education, S4.41 billion; health, $3.89billion; social welfare, $2.07 billion; arts, humanities, civic andpublic causes, $1.67 billion; and all other, $3.19 billion.

When incomes of givers and kinds of recipients are looked attogether, a pronounced pattern is evident. Lower-income con-tributors give even more predominantly to religion than doAmericans as a whole; higher incomes give mainly, to educa-tion, hospitals and cultural institutions.

Not Keeping Pace

While philanthropy plays a far larger role in the U.S. thanin any other country, a disturbing finding is that the purchas-ing power of giving did not keep pace with the growth of theeconomy through the expansive years of the 1960's and early1970*s and that in recent years it has fallen off absolutely whendiscounted for inflation. :

The American Association of Fund-Raising Counsel esti-mates that giving has dropped from 1.98 per cent of the grossnational product in 1969 to 1.80wper cent in 1974. A Commis-sion-sponsored study by economist Ralph Nelson concludesthat, as a proportion of personal;income, giving by individualsdropped by about 15 per cent between 1960 and 1972. Therelative sluggishness of giving has been even more pronouncedwhen looked at alongside the growth of government spending.In 1960, private giving amounted to one ninth of expendituresby all levels of government (not counting defense spending); in1974, giving added up to less than one fourteenth of govern-ment spending. The Commission's studies indicate, significant-ly, that it is in the $10,000 to $25,000 range that giving hasfallen off the most in recent years.

The dropoff in giving is by no means uniform. Giving toreligion has declined most of all, falling from 49 to 43 per centof all giving between 1964 and 1974, paralleling a drop inchurch attendance and in parochial school enrollments. Mean-time, giving to civic and cultural causes has actually risen. Andvolunteer work has gone up markedly according to governmentsurveys conducted in 1965 and in 1974. The success of somecauses in regularly raising large sums suggests that the spirit of

15

giving may not be fading so much as shifting its focus, even ifthe level of giving, of money at least, clearly has declined, byvirtually every barometer.

3. Decreasing levels of private giving, increasing costs ofnon-profit activity and broadening expectations for health, educationandiwelfare services as basic entitlements of citizenship have led tothe government's becoming a principal provider of programs andrevenues in many areas once dominated by private philanthropy*And government's growing role in these areas poses fundamentalquestions about the autonomy and baste functioning of privatenonprofit organizations and institutions.

As a direct supporter of nonprofit organizations and activi-ties, government today contributes almost as much as allsources of private philanthropy combined. In 1974, Commis-sion studies indicate, government contributed about S23 billionto nonprofit organizations, compared to $25 billion from pri-vate giving. In addition, government has absorbed many phil-anthropic functions or services, either through the spread ofpublic institutions and agencies that are counterparts of pri-vate organizations or through social programs that render phil-anthropic services and functions obsolete or redundant.

The growing role of government in what have been consid-ered philanthropic activities is evident at every turn in thenonprofit sector. In medical and health spending, for, example,the federal government was spending only 15 per cent morethan private philanthropy in 1930. In 1973, it was spendingnearly seven times as much. In 1960 about two thirds of allinstitutions of higher learning were private; today the propor-tion is closer to one half. In 1950 more than one half of allhigher-education students were enrolled in private institutions;today the ratio is around one quarter.

The most massive change has occurred in relation to thepoor, the unemployed, the aged, the infirm—largely because ofSocial Security legislation enacted in the 1930's. The impact1 ofthis legislation can be seen in the fact that in 1974 more than$90 billion was dispensed in old-age, survivors, disability andhealth insurance, and various forms of welfare assistance. Pri-

16

vate philanthropy, by comparison, distributed around $2.3 bil-lion in the whole: "social welfare" category,

Along with this change has come an ever increasing involve-ment of government in the finances of nonprofit organizationsthemselves. The nonprofit sector has, in fact, become an in-creasingly mixed realm—part private, part public—in much thesame sense that the profit-making sector has; and this trendposes a major dilemma. On the one hand, government moneyis needed and may even be a matter of life or death for manyorganizations as the amount of their private funding has ad-vanced slowly or even declined. On the other hand, govern-ment money comes with strings attached, however invisible orunintentional they may be. The more an organization dependson government money for survival, the less "private" it is, andthe less immune to political processes and priorities.

Various methods have evolved in recent years to "buffer"government funds from political purse-string influence. But, asmany studies made for the Commission suggest, perhaps themost effective, and most possible, safeguard of autonomy is tohave more than one purse to draw from. The presence of afirm core,of private support, however small, in a private orga-nization that gets major public funding can be of crucial im-portance in determining whether the managers of the organiza-tions regard themselves, and behave, as independent operatorsor as civil servants.

In stressing the importance of private giving, however, theCommission recognizes that giving itself is influenced by gov-ernment through the tax system and that some of the mostdebated issues concerning relations of government and the vol-untary sector revolve around how the tax system is structuredand how it affects donors and donees.

4. Our society has long encouraged "charitable" nonprofit activ~ity by excluding it from certain tax obligations. But the principaltax encouragement of, giving to nonprofit organizations—the chari-table deduction in personal income taxes—has been both challengedJ^om some quarters in recent years on grounds of equity anderoded by expansion of the standard deduction.

17

The charitable deduction has been part of the tax law since1917, four years after the income tax itself became a.1 basicfixture of American life. It was instituted to sustain the level ofgiving in the face of hew steep tax rates and because it washeld that personal income that went to charitable purposesshould not be taxed because it did not enrich the giver. Theseremain the two principal rationales of the charitable deduc-tion, under which a contributor can subtract the amount ofyearly giving from income upon which income taxes are com-puted. In recent years, however, partly as a result of a growingtendency to look'at tax immunities as forms of governmentsubsidy, the charitable; deduction has been criticized, alongwith other personal income tax deductions, as inequitable. Thisis because, under the progressive income tax, the higher thedeductor's tax bracket, the greater the tax savings he or shereceives from taking a deduction. Thus, high tax bracket con-tributors have a significantly greater incentive to give thanthose at the other end of the income scale.

At the same time that the charitable deduction is beingchallenged philosophically, it is being eroded, in very concreteterms, by liberalizations .of the standard deduction, the incometax provision that allows taxpayers to deduct a set amount or aproportion of their income in lieu of taking specific, itemizeddeductions. The maximum standard deduction has increasedgreatly in recent years—from $1,000 for a couple in 1970 to$2,600 in 1975. This has so diminished the advantage of takingitemized deductions that as of 1975's returns less than onethird of all taxpayers are expected to be taking the charitablededuction.

RECOMMENDATIONS

Such are the main dimensions, trends and issues that theCommission's extensive research has uncovered or illuminated.These findings provide the background for the Commission'srecommendations, among the major ones of which are thosebelow. They fall into three categories: proposals involving taxesand giving; those that affect the "philanthropic process," the

18

interaction between donors, donees and the public; and a pro-posal for a permanent commission on the nonprofit sector.

I, TAXES AND GIVING

The Commission examined the existing governmental in-ducement to giving and considered several proposed alterna-tives, including tax credits for giving and matching grant sys-tems. In doing so, it kept these six objectives in mind:

—To increase the number of people who contribute signifi-cantly to and participate in nonprofit activities.

—To increase the amount of: giving.—To increase the inducements to giving by those in low- and

middle-income brackets.—To preserve private choice, In giving*—To minimize income losses of nonprofit organizations that

depend on the current pattern of giving.—To be as "efficient" as possible. In other words, any stimu-

lus to giving should not cost significantly; more in foregonegovernment revenue than the amount of giving actually stimu-lated.

- A. Continuing the Deduction

In light of these criteria, the Commission believes that thecharitable deduction should be retained and added onto ratherthan replaced by another form of governmental encourage-1

ment to giving. The Commission affirms the basic philosophi-cal rationale of the deduction, that giving should not be taxedbecause, unlike other uses of income, it does not enrich thedisburser. Also, the deduction is a proven mechanism familiarto donor and donee, easy to administrate and less likely thancredits or matching grants to run afoul of constitutional prohi-bitions as far as donations to religious organizations are con-cerned.

The deduction has been shown, furthermore, to be a highly"efficient*1 inducement. Computerized econometric analysesbased on available tax and income data were made for theCommission and they indicate that for every dollar of taxesuncollectcd because of the charitable deduction, more than one

19

dollar in giving is stimulated. The Commission's sample surveyof taxpayers also indicates that itemizers who take the charita-ble deduction give substantially moref at every income level,than nonitemizers. ~ ' :

The deduction is seen as inviting the least amount of govern-ment involvement in influencing the direction of giving. And,finally, eliminating the deduction or replacing it with a; taxcredit or matching grant system would significantly shift givingaway*from several current recipient areas at a time when theseareas are already undergoing severe economic strains.

B. Extending and Amplifying the Deduction

The Commission recognizes that the charitable deduction isused by fewer and fewer taxpayers—now fewer than one third—because of the liberalized standard deduction. So, to broadenthe reach of the charitable deduction and to increase giving,the Commission recommends:

That all taxpayers who take the standard deduction should alsobe permitted to deduct charitable contributions as an additional,itemized deduction.

This extension of the deduction would, it is calculated, pro-vide an inducement to give to nearly 60 million nonitemizers,and would thereby result in increased giving, according toeconometric projections, of SI.9 billion in 1976 dollars.

This amount is still relatively modest in terms of the amountof giving that would be needed to restore giving to its level in1960 before its decline in relative purchasing power set in—anincrease in giving, in current dollars, of around $8 billionwould be required. Moreover, while extending the deduction tononitemizers would provide many millions of taxpayers withsome inducement to give, the inducement would still be tied tothe progressive rate structure of the income tax and would bemarkedly lower at low- and middle-income levels than it is atupper levels. Therefore, the Commission recommends as anadditional new incentive for low- and middle-income contribu-tors:

That families with incomes below $15,000 a year be allowed to

20

deduct twice the amount of their giving, and those with incomesbetween $15,000 and $30,000 be allowed to deduct 150 per cent ofwhat they contribute.

The "double deduction" and the 150 per cent deductionwould have the effect of doubling the proportion of tax savingsfor charitable giving for low-income families and increasing theproportion by one half; for, middle-income families and wouldthus appreciably narrow the range in savings between thesebrackets and high-income taxpayers. The amount of givinginduced and the efficiency of inducing it might, moreover, beimpressive. According to econometric projections, $9.8 billionmore in giving would be stimulated, at a cost of only $7.4billion in tax revenue lost.

C. Increasing Corporate Giving

Corporate giving is still a relatively new element in Ameri-can philanthropy; the corporate charitable deduction itself hasbeen in effect only for forty years. And there are those on boththe left and right who question whether corporations should beinvolved in philanthropy at all. While recognizing that suchgiving can only be a minor element in the corporation's role insociety, the Commission also notes that only. 20 per cent ofcorporate taxpayers in 1970 reported any charitable contribu-tions and only 6 per cent made contributions of over $500. Therecord of corporate giving is an unimpressive and inadequateone, the Commission believes. Therefore, the Commission rec-ommends:

That corporations set as a minimum goal, to be reached no laterthan 1980, the giving to charitable purposes of 2 per cent ofpre-tax net income, and that further studies of means to stimulatecorporate giving be pursued,

II. IMPROVING THE PHILANTHROPIC PROCESS

The social benefit that flows from giving and nonprofit ac-tivity results from a process of interaction—between donors anddonees and between both and the society at large. In order tofunction properly—and to reassure a public grown skeptical of

21

its institutions—this "philanthropic process" requires consider-able openness between donors and donees and the public; itrequires open minds as well as open doors. The tax-exemptstatus of nonprofit organizations, moreover, entails an obliga-tion to openness, an accountability to the public for actionsand expenditures. ! !

Yet the Commission's research, including meetings with andreports from representatives of donee organizations, indicatesthat the process is operating imperfectly at best. So a numberof recommendations were decided upon with the aim of im-proving the philanthropic process; the following are among themajor ones. They fall into four categories: accountability, ac-cessibility, personal or institutional self-benefiting, and influ-encing legislation.

A. Accountability

Demands for accountability that have been heard in thebusiness and igovernmeht worlds of late are also being soundedin the voluntary sector, reflecting the haphazard procedures foraccountability that exist in the sector, the increasing use ofpublic funds by nonprofit organizations, and the perception bysome that private nonprofit organizations are too private. TheCommission agrees that, with notable individual exceptions,the overall level of accountability in the voluntary sector isinadequate, and the Commission!therefore recommends:

That all larger tax-exempt charitable organizations exceptchurches and church affiliates be required to prepare and makereadily available detailed annual reports on their finances, pro-grams and priorities.

Annual reporting requirements that now apply to privatefoundations would, in effect, be extended to tax-exempt orga-nizations with annual budgets of more than $100,000—includ-ing corporate giving programs but excluding religious organi-zations. These reports would have to be filed with appropriatestate and federal agencies and be made readily available tointerested parties upon request. Uniform accounting measuresfor comparable types of nonprofit organizations are recom-mended, and an accounting model is provided in the compen-

22

dium of Commission research, which is published separately.

That larger grant-making organizations be required to hold an-nual public meetings to discuss their programs, priorities andcontributions.

This requirement would apply mainly to foundations, corpo-rations and federated fund-raising groups such as UnitedWays, those with contribution budgets of $100,000 or more.Like the above requirement it would not apply to churches orchurch affiliates.

B. Accessibility

Greater accessibility by potential donees to donor institutionshas frequently been espoused as a goal in the nonprofit sector,yet the evidence suggests that it has been a goal honored morein preachments than in practical pursuit. The Commission be-lieves that greater accessibility can only enrich the philan-thropic process, and it is concerned that because of insufficientaccessibility, the process may not be fluid enough to respond tonew needs. So, with the aim of encouraging and facilitatingwider access to and greater venturesomeness by institutionalphilanthropy, the Commission recommends:

That legal responsibility for proper expenditure of foundationgrants, now imposed on both foundations and recipients, be elimi-nated and that recipient organizations be made primarily responsi-ble for their own expenditures.

The 1969 Tax Reform Act places on foundations and theirofficers "expenditure responsibility" for any grant that a foun-dation makes. This provision serves as a restraint on the open-ness and venturesomeness of foundations. It also puts founda-tions in a policing and surveillance role and thus underminesthe autonomy of grantees. The provision creates both an un-necessary and undesirable duplication of responsibility, andshould be repealed.

That tax-exempt organizations^ particularly funding organiza-tions, recognize an obligation to be responsive to changing view-points and emerging needs and that they take steps such as broad-ening their boards and staffs to insure that they are responsive.

23

All exempt organizations, especially those that serve to chan-nel funds to other nonprofit groups, have a public obligation tobeaware of and responsive to new attitudes and needs of allsegments of society, and each organization should periodicallybroaden its i board and staff if need be so that a wide grange ofviewpoints is reflected in the organization's governance andm a n a g e m e n t ; • • > ;.'• :: "". -.. ••'• {.•• : ; '' • " v - " " ' : • • • • - " )

The Commission rejects the notion that all voluntary organi-zations should be "representative" but observes that as moregovernment funds flow into or through voluntary organizationsthey may have to consider inviting "public" members on theirboards as an element of public access and control.

In addition to broadening existing organizations the Com-mission urges the establishment of new funding organizationsand structural changes to broaden the spectrum of institutionalphilanthropy in general. An example is the "People's Trust"plan currently being explored in Atlanta; it would raise moneyin modest monthly pledges for projects close to the donors'homes.

C. Personal or Institutional Self-Benefiting r

While tax-exempt charitable organizations are not allowedto make profits, situations have been uncovered in which per-sonal money-making appeared to be the main purpose of theorganization or of certain transactions made by the organiza-tion. Most notorious, perhaps, have been discoveries of in-stances where fund-raising and administrative costs have usedas much as four out of every five dollars raised. The -1969 taxreform law placed stringent restrictions on self-benefiting byfoundation: personnel. The Commission believes that other tax-exempt organizations may be as open to such abuses, however,and it ; therefore favors extending the 1969 restriction to allexempt organizations, with appropriate modifications. Otherremedies and restraints are considered desirable as well to in-sure public confidence that charitable nonprofit organizationsdo indeed serve only charitable nonprofit causes. The Commis-sion recommends:

That all tax-exempt organizations be required^ to maintain"arms-length" business relationships with profit-making organiza-

24

tions or activities in which any principal of the exempt organiza-tion has a financial interest.

That a system of $ federal regulation be established for interstatecharitable solicitations and that intrastate: solicitations be moreeffectively regulated by state governments.

The Commission believes that the vast majority of charitablesolicitations are conscientiously and economically undertaken.Nonetheless, cases of unduly costly or needless ffund raisingpoint to the absence of any focused mechanism for overseeingsuch activity and, if need be applying sanctions. State regula-tion is weak and should be, strengthened, but because; manysolicitations are spread over a number of states at once, federalregulation is needed.

The Commission recommends fuller disclosure requirementson solicitation costs and proposes that a special federal officebe established to oversee solicitations and to take legal actionsagainst improper, misleading or excessively costly fund raisings.

D. Influencing Legislation

Since 1934, organizations that are eligible to receive tax-deductible gifts have been prohibited from devoting a "sub-stantial part" of their activities to "attempting to influencelegislation."

Yet, since 1962, any business organization has been able todeduct costs of influencing! legislation that affects the directinterest of the business. The anti-lobbying restriction operatesunevenly among charitable groups themselves because of thevagueness that surrounds the 'term, "substantial part." Largeorganizations can lobby amply, smaller ones risk treading oversome ill-defined line. Furthermore, constitutional questions areraised by what can be viewed as an infringement on freespeech and on the right to jpetition government.

The Commission feels that the restriction inhibits a largeand growing role of the voluntary sector. As government hasexpanded in relation to the nonprofit sector, the influencing ofgovernment has tended to become an ever more importantfunction of nonprofit organizations. For many "public interest"

' 25

and "social action" groups, it is a principal means of furtheringtheir causes. Therefore, the Commission recommends:

TTiat nonprofit organizations, other than private foundations, beallowed the sanie freedom to attempt to influence legislation as arebusiness corporations and trade associations? that toward this endCongress remove the current limitation on such activity by charita-ble groups eligible) to receive 'tax-deductible gifts.

III. A PERMANENT COMMISSION

The Commission's studies have, it feels, significantly ad-vanced the state of knowledge about America's third sectorand its philanthropic underpinnings. Yet such is the immensityand diversity of this area of American life and such has beenthe scarcity of information that has faced the Commission thatit inevitably has had to leave depths unfathomed.

A new organization of recognized national stature and au-thority is needed, the Commission believes, to further chartand study, and ultimately to strengthen the nonprofit sectorand the practice of private giving for public purposes. In atime when the sector is subject to both economic strains andpolitical and philosophical questioning, when profoundchanges are taking place in its role and relationship to govern-ment, and when philanthropy has failed to keep pace withsociety, in economic and financial terms at least, the Commis-sion believes that such an entity is necessary for the growth,perhaps even the survival, of the sector as an effective instru-ment of individual initiative and social progress.

This Commission, in terminating its own work, puts forwardas one of its major recommendations:

That a permanent national commission on the nonprofit sectorbe established by Congress,

Several major tasks of any new organization already await it.Among these is examining philanthropic priorities in flight ofAmerica's changing social perceptions, of government's grow-ing role in traditional philanthropic areas, and of the inevita-bly limited resources of private giving. Also, examining and

26

advancing means of insulating voluntary organizations fromthe political and bureaucratic pressures that tend to accompa-ny public funds.

Among other purposes and roles of the commission would becontinuous collection of data on the sources and uses of theresources of the nonprofit sector; exploring and proposing waysof strengthening private giving and nonprofit activity; provid-ing a forum for public discussion of issues affecting, and forcommentary concerning, the nonprofit sector; studying the ex-isting relationships between government and the nonprofit-sec-tor and acting as an ombudsman in protecting the interests ofthe sector as affected by government.

It is proposed that half the commission's membership benamed by the President, subject to senatorial confirmation, theother half by the presidential appointees themselves. Fundingfor the commission would come half from government, halffrom private sources. The commission would be established asa permanent body, subject, of course, to periodic congressionalreview and the commission's demonstration of its benefit tosociety.

27

GIVING AND THE"THIRD SECTOR"Findings of the Commission

ITHE THIRD SECTOR

On the map of American society, one of the least chartedregions is variously known as the voluntary, the private non-profit or simply the third sector. Third, that is,.'after the oftenovershadowing worlds of government and business. While thesetwo! other realms have been and continue to be microscopicallyexamined and analyzed and while their boundaries are for themost part readily identified by experts and laymen alike, thethird sector—made: up of nongovernmental, nonprofit associ-ations and organizations—remains something of a terra incog-nita, barely explored in terms of its inner dynamics and moti-vations, and its socialj economic and political relations to therest of the world. As on ancient maps, its boundaries fade offinto extensions of the imagination, and a monster or two maylurk in the surrounding seas. i

Yet it is within this institutional domain that nearly allphilanthropic input—giving and volunteering—is transformedinto philanthropic output—goods and services for ultimatebeneficiaries. So the Commission has attempted to take themeasure of this area, both quantitatively and qualitatively, andhas examined the sector's roles and rationales, past, presentand future.

The sector as a whole is most broadly defined by what it isnot. It is not government—that is, its component organizationsdo not command the full power and authority of government,although some may exercise powerful influences over theirmembers and some may even perform certain functions of gov-ernment. Educational accrediting organizations, for instance,exercise aspects of the governmental power of licensing. Forthat matter, political parties can be considered to be a part ofthis sector although their relationship to government is perva-sive and in many cases—congressional party caucuses, for in-stance—inextricable.

On the other hand, the third sector is not business. Its orga-

31

nizations do not exist to make profit and those that enjoy taximmunities are specifically prohibited from doing so, althoughnear the boundaries of the sector many groups do serve pri-marily the economic interests of, their members. Chambers ofcommerce, labor unions, trade associations and the like hardlypretend to be principally altruistic.

The World of Philanthropy

Inside these negative boundaries is a somewhat narrowerdomain within which the world of philanthropy generally op-erates, a domain made up of private groups and institutionsthat are deemed to serve the public interest rather than aprimarily self-benefiting; one, and it is this narrower area thathas been the principal focus of the Commission. This area islegally defined by laws that determine which types of organiza-tions should be immune from income taxes and eligible toreceive tax-deductible contributions from individuals and cor-porations. Under the Internal Revenue Code, twenty categoriesof organizations are exempt from federal income tax, but mostof those that are eligible to receive tax-deductible gifts as wellfall in one category of the code, Section 501(c)(3). To qualifyfor exemption under this section, whose "501(c)(3)" designa-tion has become for the nonprofit world virtually synonymouswith tax deductibility, an organization must operate exclusive-ly for one or more of these broad purposes: charitable, reli-gious, scientific, literary, educational. Two narrower aims arespecified as well: testing for public safety and prevention ofcruelty to children or animals. The code further states that no"substantial" part of such an organization's activities may bedevoted to attempting to influence legislation and that theorganization may not participate at all in candidates' politicalcampaigns.

But even these boundaries, though narrower than those setby the nongovernment, nonprofit definition, are immenselybroad and vague. What is charitable, what educational, whatreligious? In a time in which new and unconventional religioussects are being born, it seems, almost monthly, which are genu-

• • • • : • ' 3 2 ' . . • •

ine expressions of the religious impulse that are legitimatelyprotected from both taxes and governmental scrutiny? Which areessentially secular cults, which outright frauds? The InternalRevenue Service, for one, wishes it had an all-purpose definitionof religion to work with. When is an activity educational ratherthan primarily propagandistic (and thus barred from tax-deduct-ible gifts under, the current law)? Considerable litigation andadministrative judgement has been devoted to answering suchquestions. Philosophical as well as legal arguments can be and areraised, moreover, as to whether whole groups of organizationswithin the tax-exempt categories are truly oriented to the publicinterest—their justification for tax privilege—or whether theyserve primarily to further the interests of a select group.

The Commission has not attempted to establish a definition orprinciple by which nonprofit, nongovernmental organizationscan be judged to be in the public interest and thus a properconcern of and channel for philanthropy. Others have tried toform such a definition, but none has unquestionably succeeded.In any case, a certain flexibility is seen as desirable, both philo-sophically and legally, in defining the public interest. One of themain virtues of the private nonprofit sector lies in. its very testingand extension of any definition of the public Interest, sofit wouldbe counter-productive to try to establish boundaries in more thana general, expandable sense. Similarly, although this Commissionhas operated under the rubric of "public needs," no attempt hasbeen made to catalogue, let alone establish any priority scale of,such needs.* Like the public interest, the closely related conceptof public needs is itself fluid and shifting. A constant andtranscendent public need by which the voluntary sector andphilanthropy may perhaps be ultimately judged is how effectivelythey keep abreast of this shifting and how well they are deemed tomeet whatever new public needs are perceived.

Likewise, no attempt has been made to attach, and certainlynone has succeeded in attaching, a new, better name to theterritory under examination, even though none of the existingnames is universally admired. Here, and throughout the report,the terms voluntary sector, private nonprofit sector (or simply

•See comment by GRACIELA OLTVAREZ, page 197.

. . 3 3 '• - . ' • , •

nonprofit sector for short) or third sector are used interchange-ably and in all cases except where otherwise indicated aremeant to exclude organizations that primarily serve the inter-ests of their own members.

Dimensions of the Voluntary 'Sector

What are the dimensions of this sector? To the extent thatthey have been measured at all, the measurement has usuallybeen only a partial one that looks at the amount of privategiving and volunteer activity that goes into nonprofit organiza-tions. Even on this incomplete scale, however, it is clear thatthe nonprofit sector accounts for a very large amount of timeand money. According to estimates based on surveys made forthe Commission, which are described more fully in the nextchapter, at least $25 billion annually is given to various causesand organizations, and an equal amount worth of volunteerwork is devoted to philanthropic activity. Yet "these figuresrequire some subtraction, and a good deal of addition. For one,a small but significant and growing amount of private givinggoes to public institutions, mainly state colleges and universi-ties. On the other hand, a sizable share of the funding of thenonprofit sector comes from the government nowadays, andconsiderable additional funds come from endowment and otherinvestment income and from operating revenues, includingpayments to nonprofit organizations by those who use theirservices—students' tuitions, medical patients' fees and the like.Government funding, endowment income and service chargesmust be added to the overall ledger of the voluntary sector.When they are, a rough extrapolation from available data indi-cates the total annual receipts of the private nonprofit sector tobe in the range of $80 billion, or half as much as Americansspend on food in a year. Here is an approximate breakdown,again based on rough estimations, of what the major areaswithin the nonprofit sector receive and spend. (Only moneyinputs are indicated; volunteer work, free corporate servicesand the like are not included.)

34

REVENUES OF THE VOLUNTARY SECTOR

Estimates of Amounts of Private and Government FundsReceived by Private Nonprofit Organizations in

Major Recipient Areas, 1974

(In billions of dollars)

PRIVATE FUNDS

••. • .- -- .;• ... "•. ".' P h i l a n -

thropy-

ServiceCharges andEndowment

Income Total

GOVERN-MENTFUNDS TOTAL

Health $4.0Education 4.2Other (Welfare,

Culture, etc;) 5,4Total (except

Religion) $13.6Religion 1L7Grand Total $25.3

$17.8

6.0

$21.811.7

11.4

$15.71,6

5.9

$37,513.3

17.3

$31.30.8

$44.912.5

$23,2 $68.112.5

$32.1 -.$57.4 .;,$23.2;;Source: Commission on Private

Philanthropy andPublic Needs

.6

Another measure of the dimensions of the nonprofit sector isthe employment it accounts for. Approximately 4.6 millionwage and salary workers are estimated to have worked in thenonprofit sector in 1974, or 5.2 per cent of the total Americanworkforce for that year. One out of every ten service workers inthe United States is employed by a nonprofit organization,The proportion of professional workers is even higher—nearlyone out of six.

For a physical count of nonprofit organizations, the Com-mission has turned to a number of sources. The Internal Rev-enue Service lists, as of June, 1975, 691,627 exempt organiza-

35

tions, groups that have formally filed for and been accordedexemption from federal income taxes. But that number doesnot include a great many church organizations which auto-matically enjoy exemption from federal income taxes withoutfiling, nor does it Include numerous small organizations thatnever feel the need to file for tax exemption. On the otherhand, it does include a large number of groups that fall outsidethe philanthropic part of the nonprofit sector, such as laborunions and fraternal organizations, and it also counts a goodmany groups that are only active for a short time. One Com-mission report calculates that a "core group" of traditionalphilanthropic organizations includes 350,000 religious organi-zations, 37,000 human service organizations, 6,000 museums,5,500 private libraries, 4,600 privately supported secondaryschools, 3,500 private hospitals, 1,514 private institutions ofhigher education, and 1,100 symphony orchestras. Some otherrecent calculations: There are 1,000 national professional asso-ciations. New York City alone has around 6,000 block associ-ations. And a study of voluntary groups in the town of Arling-ton, Mass., identified some 350 such groups there, serving apopulation of around 52,000. This last rinding confirms earlierestimates of proportions between community size and the num-ber of voluntary groups, and gives support to the extrapolationthat in all, counting local chapters of regional or nationalgroups, there may be as many as six million private voluntaryorganizations in the United States. A purely intuitive indica-tion that this very large number is feasible can be glimpsed ina minute sample of nonprofit groups. To name a few:

Bedford-Stuyvesant Restoration Corporation, Phillips ExeterAcademy, American Acupuncture and Herbs Research Insti-tute, Senior Citizens Association of Wausau (Wise). TalmudicResearch Institute, New Alchemy Institute, Aspen Institute forHumanistic Studies, Chapin School Ltd., Citizens Committeeon Modernization of Maryland Courts and Justice, Bethlehem(Pa,) Public Library, Visiting Nurse Association of Milwaukee,YMCA Railroad Branch of Toledo, Chinatown (N.Y.) DayCare Center, Zen Center of Los Angeles, Big Brothers of RapidCity, World Affairs Council of Syracuse, N.Y., American Par-kinson Disease Association, Bethel Temple of Evansville (Ind.),

' -• : ' ' . ' 3 6 . • • . :'•

Metropolitan Opera Company, Fathers Club of Mt. St. Mary'sAcademy (Watchung, NJ.), Mothers Club of Stanford Univer-sity, Sons and Daughters of Idaho Pioneers, Family PlanningCommittee of Greater Fall River (Mass.). :

Ultimate Beneficiariesy •

The arithmetic of the nonprofit sector finds much of itssignificance in less quantifiable and even less precise dimen-sions—in the human measurements of who is served,, who isaffected by nonprofit groups and activities. In some sense, ev-erybody is: the contributions of voluntary organizations tobroadscale social and scientific advances have been widely andfrequently extolled. Charitable groups were in the forefront ofridding society of child labor, abolitionist groups in tearingdown the institution of slavery, civic-minded groups in purgingthe spoils system from public office. The benefits of nonprofitscientific and technological research include the great reduc-tion of scourges such as tuberculosis and polio, malaria, typhus,influenza, rabies, yaws, bilharziasis, syphilis and amoebic dys-entery. These are among the myriad products of the nonprofitsector that have at least indirectly affected all Americans andmuch of the rest of the world besides,.

Perhaps the. nonprofit activity that most directly touches thelives of most Americans today is noncommercial "public" tele-vision. A bare concept twenty-five years ago, its developmentwas underwritten mainly by foundations. Today it comprises anetwork of some 240 stations valued at billions of dollars, isincreasingly supported by small, "subscriber" contributionsand has broadened and enriched a medium that occupieshours of the average American's day.

More particularly benefited by voluntary organizations arethe one quarter of all college and university students who at-tend private institutions of higher education. For hundreds ofmillions of Americans, private community hospitals, account-ing for half of all hospitals in the United States, have been, asone Commission study puts it, "the primary site for handlingthe most dramatic of human experiences—birth, death, and the

• ' • ". ' • ' 3 7 • . • ••

alleviation of. personal suffering." In this secular age, too, it isworth notingithat the largest category in the nonprofit sector isstill very large indeed, that nearly two out of three Americansbelong to and evidently find comfort and inspiration in thenation's hundreds of thousands of religious organizations. Alltold, it would be hard to imagine American life without volun-tary nonprofit organizations and associations, so entwined arethey in the very fabric of our society, from massive nationalorganizations to the local Girl Scouts, the parent-teachers asso-ciation or the bottle-recycling group.

Government and Voluntary Association

Ultimately, the nonprofit sector's significance, and anysure of its continuing importance, lies in its broader societalrole, as seen in the long history of voluntary association and inwhat signs can currently be glimpsed of new or continuingdirections. To talk of the sector's role in society inevitablymeans looking at voluntary activity and association alongsideof government. Both are expressions of the same disposition ofpeople to join together to achieve a common end, and in muchof the United States' experience they have been complemen-tary expressions. But in global terms they often have func-tioned and do function as mutually competitive forces. Nogovernment tolerates all forms of voluntary association; groupsthat are seen as threatening a country's security or that pursuecommon criminal purposes are routinely suppressed. The ten-sions between voluntary association and government runbroader and deeper in many parts of the world, however, andhave done so through many periods of history.

Sociologist Robert A. Nisbet has written of the "momentousconflicts of jurisdiction between the political state and the so-cial associations lying intermediate to it and the individual."These have been, he writes, "of all the conflicts in history, themost fateful." Such conflicts can be traced at least as far backas democratic Greece and imperial Rome, in both of whichsocieties governments were at times hostile to voluntary associ-ation. Imperial Rome, wrote Gibbon, "viewed with the utmost

38

jealousy and distrust any association among its subjects."The Middle Ages witnessed a flourishing in Europe of more

or less autonomous groupings—guilds, churches, fiefdoms—within weak central governments. But modern history can beseen at least in part as being patterned by the return to Greekand Roman affinities for the central, dominant state, with anaccompanying discouragement of nongovernmental groups.The foremost philosophers of this monism of,the, state in mod-em times were Thomas Hobbes and Jean Jacques Rousseau,and the French Revolution was one of its most exuberant ex-pressions. Charitable, literary, educational and cultural soci-eties were banned in the brittle course of the revolution. "Astate that is truly free," declared a legislator of revolutionaryFrance, "ought not to suffer within its bosom any association,not even such as, being dedicated to public improvement^ hasmerited well of the country."

"Americans Are Forever* Forming Associations"

In spite of this inhospitable historical and philosophical set-ting, "association dedicated to public improvement" found fer-tile territory in the New World, a land colonized far from thereach of central governments, a vast land that did not lenditself well to strong central government of its own andsin fron-tier areas was slow to adopt even minimal local governments.As historian Daniel Boorstin has observed, America evidenceda profound tendency to rely on voluntary nongovernmentalorganizations and associations to pursue community purposes"from the beginning." As this country was settled, he writes,"communities existed before governments were there to carefor public needs." The result was that "voluntary collaborativeactivities" were set up first to provide basic social services.Government followed later on.

It is no historical accident that one of the Founding Fathersis nearly as famous for his development of nongovernmentalmeans! to public ends as he is for his role in shaping andrepresenting the fledgling republic. Benjamin Franklin's insti-tuting outside of government compose a major* portion of.; the

39

index of the voluntary sector. He was the leading force infounding a library, a volunteer fire department, a hospital, auniversity and1 a research institution. An historical survey ofphilanthropy made for the Commission notes: "Franklin didriot invent the principle of improving social conditions throughvoluntary association, but more than any American before himhe showed the availability, usefulness and appropriateness toAmerican conditions."

"The principle of voluntary association accorded so wellwith American political and economic theories," the surveyobserves further, "that as early as 1820 the larger cities had anembarrassment of benevolent organizations." Fifteen yearslater, this propensity to organize became the subject of one ofAlexis de Tbcqueville's most famous of many famous observa-tions about the new nation:

"Americans of all ages, all stations in life, and all types ofdisposition are forever forming associations. There are not onlycommercial and industrial associations in which all take part,but others of! a thousand different types—religious, moral, seri-ous, futile, very general and very limited, immensely large andvery minute; Americans combine to give fetes, found seminar-ies build churches, distribute books and send missionaries tothe antipodes. Hospitals, prisons and schools take shape thatway. Finally, if they want to proclaim a truth: or propagatesome feeling by the tencouragement of a great example, theyform an association. In every! case, at the head of any newundertaking; where in France you would find the governmentor in England some territorial ^magnate, in the United Statesyou are sure to find an association." ? >

Evolutions Within the Third Sector

This observation applies to the United States almost as fully140 years later. Today, in fact, private association appears tobe so deeply embedded and to exist on so much broader ascale in the United States than in other parts of the world as torepresent one of the principal distinguishing characteristics ofAmerican society. Yet the purposes of voluntary, organization

40

have hardly remained stationary or of the same relative signifi-cance within the voluntary sector over the years.

In a pattern of evolution that has repeated itself in differentareas of society, government has taken over many services andfunctions of the nonprofit sector, and new focuses of nonprofitactivity and organization have emerged (a process that is de-scribed1 further,/ in Chapter IV). Schools, as de Tocqueville ob-served, were generally founded and run by nongovernmentalorganizations, often churches, in early America. But soon afterde Tocqueville's observations were published in 1835, the pub-lic school system began to take hold in the United States, andtoday only one out of ten primary and secondary school stu-dents goes to nonpublic schools. Higher education and aid tothe poor correspondingly accounted for more and more non-profit activity as the nineteenth century progressed. Then, be-ginning in the late nineteenth century, many of today's giantstate universities got their start, and public institutions beganto challenge the primacy of private institutions in higher edu-cation as well. The private nonprofit sector was the chief dis-penser of "charity" well into this century, but in recent decadesthis function has increasingly been absorbed by governmentwelfare and social insurance programs.

Today we appear to be on the threshold of yet anothermajor expansion by government in an area that until a.fewyears ago was dominated by private nonprofit (and profit)organizations, the health field. A Commission study of philan-thropy in this area anticipates that by the mid-1980's, morethan half of all spending on health in the United States will beaccounted for by government programs, with much of the restflowing through government-regulated private insurance plans.

Underlying Functions of Voluntary Groups

The end purposes of nonprofit activity have changed consid-erably over the course of American history, therefore, and un-questionably will continue to change. Yet certain basic func-tions—underlying social roles that have been characteristic ofmuch or all nonprofit activity regardless of the particular ser-

• 4 1 • . ' • . ' •

vice or cause involved—have endured throughout the changesthat have taken place. This is not to say, of course, that allnonprofit organizations are performing these functions opti-mally or even adequately. Indeed, as described in Chapter VIIof this report, expert research the Commission has received andinformal testimony it! has listened to suggest that many organi-zations in the sector fall well short of their capabilities J Yet thesame research and testimony is virtually unanimous iri: findingdistinctive functions for the nonprofit sector and in assertingthat these functions are today as important as they ever havebeen to the health and progress of American society, moreimportant in some cases than ever. Among these basic func-tions are the following:

—Initiating new ideas and processes. ". . . There are criticalreasons for maintaining a vital balance of public and; privatesupport for human services," asserts a Commission report byWilbur J. Cohen, former Secretary of Health, Education andWelfare, "not the least of which is the continuing task of inno-vating in areas where public agencies lack knowledge or areafraid to venture. . . .The private sector is adept at innovation,and at providing the models government needs."

"A new idea stands a better chance of survival in a socialsystem with many kinds of initiative and decision," observes aCommission study of the health field. Government undoubted-ly provides the most fertile arena for certain kinds of initiativeand innovation, but certain new ideas, these and other Com-mission reports indicate, stand a better chance of survival andgrowth in the nonprofit sector than in the corridors of govern-ment.

"The development of the early types of both health mainten-ance organizations and the physicians' assistance [paramedicalaides] programs would never have surfaced if they had re-quired prior public sector consensus and support," says theCommission's health study. Another study—on the role of phil-anthropy in the environmental field—finds: "The perspective ofgovernmental agencies, even in the research-only.. .agencies...,tends to be limited and dominated by existing and agencyviews of the problems and alternative strategies for'solving' theproblem . . . It is difficult to induce . . , governmental agencies

42

. . . to undertake new directions of research and analysis." The"pioneering" role of nonprofit organizations has long been rec-ognized. More than half a century, ago, Beatrice and SidneyWebb, writing on the "Sphere of Voluntary Agencies," foundthese agencies capable of "many kinds . . . of, . . treatment. . .the public authorities are not likely themselves to initiate."Nongovernmental;; organizations, precisely because they arenongovernmental and need not be attuned to a broad anddiverse constituency, can take chances, experiment in areaswhere legislators and government agencies are hesitant totread. ' ' ;.

Once successfully pioneered by nonprofit groups, and havingestablished their legitimacy and worthiness, new ideas and pro-cesses can be, and often have been, supported and expandedby government. Birth-control technology, to take a relativelyrecent example, was pioneered by the nonprofit world in itsmore controversial beginnings and today is heavily underwrit-ten by many governments throughout the world.

—Developing public policy. Standing outside of government,voluntary organizations not only can try out new ideas, initiateservices, that may be too controversial for government bodiesto deal with at early stages, but can exercise a direct influenceon shaping and advancing government policy in broad areas inwhich the government is already involved. Groups specializingin certain policy areas are continually producing research andanalysis, information and viewpoints, especially on long-rangepolicy matters, that may be lacking at times in governmentcircles themselves, preoccupied as they often are with day-to-day operating concerns. A major function of nonprofit groupsin public • policy development has been to help clarify anddefine issues for public consideration, both at local and region-al levels, as the Regional Plan Association does through itsstudies and proposals for the New York metropolitan area, oras The Brookings Institution does at the national level. Private-ly sponsored special commissions and boards of inquiry havebeen frequently formed at both levels to focus analysis andattention on issues as diverse as hunger, cable communicationand legalized gambling.

-—Supporting minority or local interests. For many of the same

43

reasons the nonprofit world can experiment with new ideas lesscautiously than government, voluntary groups can supportcauses and interests that may be swept! aside by majoritarianpriorities or prejudices. The civil rights movement grew out ofthe initiatives of nonprofit organizations such as the NAACP;the consumer and environmental movements, once the con-cerns of only a few perceptive or single-minded people, alsofound their early nourishment in private groups. But the causesneed not be—or may not ever come to be regarded as—so largeand socially significant. William S. Vickrey, an economist atColumbia University, has written of the "cumbersomeness ofpublic agencies in dealing with relatively small-scale activities,"of the impediments facing,"high-level decision-making bodieson matters of small magnitude in which they have relativelylittle basis for judgment." More specialized private agenciesmay be able to operate efficiently and intelligently within theirspheres, may be more sensitive to small-scale problems thangovernment. In the health field; for example, a,Commissionreport notes that nonprofit organizations "can assist in supportof health programs for religious and ethnic groups, migratoryworkers, and racial minority groups which the public sectorcannot often address . . . Private philanthropy will be neededin the future to even out some of the inequities which willinvariably occur beween different communities, and to respondto the health needs of groups too culturally different to gainadequate public support."

—Providing services that the government is constitutionallybarred from providing. In the United States, the government isproscribed from entering the broadest area of the nonprofitsector, religion. So there is simply no alternative to the non-profit sector if religious functions are to be filled at all in thiscountry. Similarly, as the Council on Foundations points out inits report to the Commission, the establishment in 1973 of aprivate nonprofit National News Council to oversee the newsmedia "is an experiment that, if not totally off-limits to thegovernment because of the First Amendment, is clearly not thekind of function that it should or would undertake."

—Overseeing government. Alongside government's constitu-tional inhibitions are its institutional ones. Despite its own

44

internal checks and balances, government can hardly be count-ed on to keep a disinterested eye on itself. In his historicalperspective on philanthropy written for the Commission, histo-rian Robert H. Bremner observes: "A marked tendency ofAmerican philanthropy has been to encourage, assist and evengoad democratic government—and democratic citizens—towardbetter performance of civic duties and closer attention to socialrequirements." The Nathan Committee, which looked at phi-lanthropy in Great Britain a quarter century ago, saw muchthe same role for voluntary groups. "They are able to standaside from; and criticize state action, or inaction, in the inter-ests of the inarticulate man-in-the-street." As government's rolein many areas formerly dominated by nongovernmental groupsgrows eyer larger, and the voluntary role grows corresponding-ly smaller, the monitoring and influencing of government maybe emerging as one of the single most important and effectivefunctions of the private nonprofit sector.

—Overseeing the market place. While most of the third sector'sactivity relates more closely to government than to the businesssector because of the nonprofit, public-interest common de-nominator of government and voluntary organizations, the sec-tor does play a role, and perhaps a growing one, in relation tothe business world. In some areas, voluntary organizations pro-vide a direct alternative to, and a kind of yardstick for, busi-ness organizations. Nonprofit hospitals and research organiza-tions, for instance, operate in competition with close commer-cial counterparts. A number of nonprofit groups make it theirbusiness to keep a critical gaze on business, including laborunion activity, as well. Potentially freer from the influence ofpowerful economic interests, nonprofit groups can act as de-tached overseers of the market place in ways that governmentagencies and legislators are often restrained from doing.

—Bringing the sectors together. Nonprofit organizations fre-quently serve to stimulate and coordinate activities in whichgovernment or business or both interact with voluntary groupsto pursue public purposes. Organization for community devel-opment is one example of this synergistic role. Another is thepractice by a group such as The Nature Conservancy of enlist-ing the help of industry in the form of low-interest loans to buy

•. • , 4 5 ' - ' .

land for preservation and conservation purposes, land that mayeventually be turned over to government ownership. The factthat voluntary organizations have neither commercial intereststo pursue nor official status often makes them best suited to actas intermediary or coordinator in activities involving govern-ment and business. *

—Giving aidr\ abroad. In a time of heightened nationalisticsensitivities, especially where official American actions abroadare concerned, nonprofit organizations have been able to offeraid in situations where, government help would be politicallyunacceptable. Workers for the American Friends Service Com-mittee, for instance, were able to remain behind in Da Nangduring the North Vietnamese takeover of that city and wereable to help war victims there even though the United Statesgovernment was considered hostile by the city's occupiers. As aFord Foundation annual report observed a few years ago:"*. . Our welcome in sensitive areas often derives from the factthat we are not a government."

—Furthering active citizenship and altruism. While the pre-vious categories deal mainly with the important roles nonprofitorganizations serve for the society as a whole or for certainbeneficiary segments of the society, one of the broadest andmost important functions voluntary groups perform derives notso much from what they do for beneficiaries as what they dofor participants. Voluntary groups serve as ready and accessi-ble outlets for public-spirited initiative and activity—for phi-lanthropy broadly defiiied, In a complex urbanized and subur-banized society, the individual acting alone can hope to makelittle impress on community or national problems, is often at aloss to find and help those who need help. Many governmentagencies have highly structured work arrangements and cannotor do not readily receive the assistance of public-spirited citi-zens. But those so minded can usually join or can help form avoluntary organization as an effective vehicle for altruistic ac-tion, and this possibility itselfr serves" 'as a constant encourage-ment to altruism, to an active involvement in public causes,which is of the very essence in a healthy democratic society.

46

New Frontiers and an Ageless Rationale

These vital roles for voluntary organizations continue toserve and influence areas of society that have traditonally beenthe concern of the nonprofit sector. In addition, many new orgreatly expanded concerns of voluntary activity have emergedin recent years as challenging new frontiers of the sector and ofits particular capabilities. "Over the past 20 years," observesPablo Eisenberg, head of the Center for Community Change,"hundreds if not thousands of new local organizations havebeen created to deal with issues such as ecology, consumerproblems, economic and social self-determination, public-inter-est law, poverty and neighborhood revitaiization ; . . groupswith different)purposes and structures and, in some cases, con-stituencies." Indeed, a recent survey indicates that possibly asmany as 40,000 environmental organizations alone have sprungup throughout the country, mostly in the last few years. Andin a Commission study of philanthropy in five cities, one majorconclusion is that "nonprofit, tax-exempt organizations contin-ue to grow in each of the cities studied,"

For all the absorptbns by government and despite severefinancial difficulties of many voluntary organizations—relateddevelopments that are discussed in later chapters—it would ap-pear, in other words, that the impulse to associate is still verystrong. Indeed, there are social currents in motion that shouldbe adding fresh impetus and vitality to this ageless expressionof man's community with man.

One current is the sense of alienation that modern men andwomen are widely viewed as experiencing in the face of giant,impersonal institutions of government and business. The gener-ally smaller size and more perceptible humanity of voluntarygroups—be they block associations, local chapters of the Ameri-can Legion or women's rights organizations—would appear tooffer at least a partial antidote to any contemporary malaisestemming from feelings of ineffectiveness or unidentity. AsRichard W\ Lyman, president of Stanford University, wroterecently in an essay entitled "In Defense of the Private Sector,""People everywhere are yearning for the chance to feel signifi-cant as individuals. They are yearning for institutions built on

47

a human scale, and responsive to human needs and aspirations.Is this not precisely what we have believed in and worked for,long before it became so popular to do so?"

In addition to responding to an existential yearning, thevoluntary sector should appeal more than ever today in termsof its bedrock grounding in the spirit and political philosophyof pluralism—in the idea that society benefits from havingmany different ways for striving to advance the common weal.The federal government's unavailing efforts to control theeconomy follow many frustrating social programs of the GreatSociety and both, add to the evidence of our senses that in ourincreasingly complex society there is no one body, one govern-ing structure, that holds the answers to society's problems, isequipped to find the answers by itself or could put them intoeffect if it did. In the wake of Watergate, moreoever, we areprobably less persuaded than ever to stake our destiny totallyon the wisdom or beneficence of centralized authority. Thissorry and sordid chapter in recent history has dramaticallydemonstrated the virtues of diffusion of power and decentral-ization of decision making in public affairs, and it has demon-strated the correlative virtues of a vigorous public-minded andindependent sector. The sector ideally should not compete withgovernment so much as complement it and help humanize it,however. Nor because of institutional inertia or self-protective-ness should it or parts of it stand; in the way of proper exten-sions of government into areas where, because of the demandsof scale or equity, the private sector simply cannot fill a collec-tive want. The sector should not be at odds with government,in other words, so much as outside of it and in addition to it.

In furtherance of its own role of serving the public interest,government at the same time should actively encourage a largeand vigorous voluntary sector that can help carry the burdensof public services. For to operate effectively, and humanely,government must take care not to overload its own mecha-nisms by attempting to bring every public purpose directlyunder its direction and control.

The late Walter Lippmann recognized this central impor-tance to government, and to American society at large, of non-governmental organization. American democracy, he wrote a

. • • • • ' • 4 8 . ; . • . ' ' . • • •

number of years ago, "has worked, I am convinced, for tworeasons. The first is that government in America has not, hith-erto, been permitted to attempt to do too many things; itsproblems have been kept within the capacity of ordinary men.The second . . . is that outside the government and outside theparty system, there have existed independent institutions andindependent men , . ." His observation describes the ultimaterationale for a "third" sector in American society, a rationalethat applies as fully for today and tomorrow as it did foryesterday.

49

Sources for Chapter I

William D. Andrews, "Personal Deductions in an Ideal Income Tax," Harvard, LawReview, Vol. 86, No. 2, December 1972. , ;

Robert J. Blendon, The Changing Role of Private Philanthropy in Health Affairs.*

Blair T, Bower, The Role of Private Philanthropy in Relation to Environment—Pollution.*

Robert H. Bremner, Private Philanthropy and Public Needs: An Historical perspective.*

John J. Carson and Harry V. Hodson, eds., Philanthropy in ttu,'70*s: An AnghhAmericanDiscussion, Council on Foundations, Inc., New York, 1973;

Earl F. Cheit and Theodore E. Lobman III, Private Philanthropy and Higher Education.*

Coalition for the Public Good Thru Voluntary Initiative, Statement Prepared for theCommission on Private Philanthropy end Public Needs.*

Wilbur J. Cohen, Some Aspects of Evolving, Social Policy in Relation to Private Philanthropy.*

Commission on Foundations and Private Philanthropy, Foundations, Private Giving andPublic Policy^ University of Chicago Press, Chicago, 1970.

Committee on the Law and Practice Relating to Charitable Trusts (Nathan Commit-tee), Report on Charitable Trusts, Her Majesty's Stationery Office, London, 1952.

Council on Foundations, Inc., Private Foundations and the 1969 Tax Reform Act*

Fred R. Crawford, Non-Economic Motivational Factors in Philanthropic Behavior.*

Pablo Eisenberg, "The Filer Commission: A Critical Perspective," in The GrantsmanshipCenter News, Vol. 2, No. 1, December, 1974-January, 1975.

Donald A. Erickson, Philanthropy, Public Needs and Nonpublic Schools*

Solomon Fabricant, Philanthropy in the American Economy, Foundation News, Vol. X, No.5. September-October, 1969.

Caryl P. Haskins, The Role of Private Philanthropy and Public Support of Science in the UnitedStates*

Hans H. Jenny, Philanthropy in Higher Education.*

Janet Koch, The Role of Philanthropy in the Environmental Field-+Preservation of Natural Landsand Historic Properties.*

Robert L. Lamborn, Gary Potter, Al H. Senske, The Nonpublic School and Private Phi-lanthropy,*

Richard W. Lyman, "In Defense of the Private Sector," Daedalus, Winter, 1975.

William G. McLoughliri, "Changing Patterns of Protestant Philanthropy 1607-1969,"in The Religious Situation, Beacon Press, Boston, 1969.

National Center for Voluntary Action, A Report on Voluntary Activities, and LeadershipOpinion*

Robert A. Nisbet, Community and Power, Oxford University Press, New York, 1962.

David Owen, English Philanthropy, 1660-1960, Harvard University Press, Cambridge,1964.

Gabriel G. Rudney, Scope of the Private Voluntary Charitable Sector, 1974*

John F. Shannon and L. Richard Gabler, The Exemption of Religious, Educational andCharitable Institutions from Property Taxation*

50

Horton Smith and Butt R. Baldwin, "Voluntary Association and Volunteeringin the United States," in ..Voluntary Action Research 1974, D.C> Heath and Company,B o s t o n , - 1 9 7 5 , ' -. , " . •" \ • • • • ' - . , ;

Lawrence M, Stone, The Charitable Foundation; Its Governance.*

T. Nicolaus Tidcman* Employment and Earnings in tht Non-Profit Charitable Sector,*

United States Senate, Report of Proceedings, Subcommittee on Foundations, Commit-tee on Finance, 71* Me of Foundations Today md the Effect of the Tm Reform Act of 1969Upon Foundations, October 1 and 2, 1973.

United States Senate, Report of Proceedings, Subcommittee on Foundations, Commit-tee on Finance, Impact of Current Economic Crisis on Funds and Recipients of Foundation Monty,November 25, 1974.

Joseph L. Vigilante and Ruth Kantrow, The Voluntary Social Agency Experiments, Innovates,Demonstrates, and Influences Public Social Policy; The Community Service Society of New York1930-1970*

Burton A. Wejsbrod, The Size of the Voluntary Nonprofit Sector: Concepts @nd Measures,*

Burton A. Wcisbrod, "Toward A Theory of the Voluntary Non-Profit Sector In aThree-Sector Economy," in Altruism, Morality and Economic Theory, Edmund 8, Phelps,Ed., Russell Sage Foundation, New York, 1975.

Laurens Williams and Donald V. Moorehead. An Analysis of the Federal Tex DistinctionsBetween ,fti4& md Private Charitable Organizations.*

Ellen Winstpn, Some Aspects qf Private Philanthropy in Relation to Social Welfare.*

Adam Yarmolinsky, The Tax Legislative Process and the Appropriations Process,*

Adam Yarmolinsky, Philanthropic Activity in International Affairs.*

Patif JM. YMsalcer and Jane HL Mavity, The Rote ef Private Philanthropy in Public Affairs,*

•. 'Denotes reports and studies undertaken for the Commission,

51

PRIVATE GIVINGPUBLIC PURPOSES

The spirit of private giving for public purposes has been theobject of immeasurable exhortation and applause and also agreat deal of cynicism. It has been praised as embodying hu-mankind's noblest instincts—generosity, altruism, benevolentinitiative—and disdained for reflecting some of our most igno-ble—paternalism, elitism, egotism. It has been espoused interms of transcendent religious principles and found wantingby the standards of secular theologies, the catechisms of de-mocracy and egalitarianism; .

Yet whatever disagreements in viewpoint may surround thepersona^ motivations and social effects of giving^ there is littlequestion that an important institutional area of American life—the private nonprofit sector—could not exist without it. Pri-vate support is a fundamental underpinning for hundreds ofthousands of institutions and organizations; it is the ingredientthat keeps private nonprofit organizations alive and private,keeps them from withering away or becoming mere adjuncts ofgovernment. And it is, without question, a very sizable in-gredient.

Sizes, Sources and Destinations of Giving

"Private giving for public purposes" is a cumbersome phrasefor what this ingredient, this chapter and a good part of theCommission's concern has been about. "Philanthropy" is aneasier term to use, but in these socially sensitive times it prob-ably rings, in many ears, of noblesse oblige and may have asmany negative as positive overtones. So may "charity," But byany name—and this report uses all of them somewhat looselyand interchangeably—private giving for public purposes is a large

53

WHOM THE GIVING GOMES FROMShares of Giving and Percentages of all Households,

by 1973 total, household income

1973 TotalHouseholdIncome

Less than $4,000

$4,000-7,999

$8,000 - 9,999

$10,000- 14,999

$15,000-'19,999

$20,000-29,999

$30,000-49,999

$50,000-99,999

$100,000 or more

egm Per cent of Householdsmm With That Income

—Per cent of^^ Aggregate Giving

16%

2%

wIlllllil

19%

4%

13%

10%

23%

20%

11%

.016%

10%

Source: University of MichIgan-U.S. Census Bureau Surveyfor Commission on Private Philanthropy and Public Needs •

54

and influential factor in American society in terms of raweconomic measurements alone.

A national sample survey on giving behavior and attitudeswas conducted for the Commission by the Survey ResearchCenter of the Institute for Social Research at the University ofMichigan working in conjunction with the U.S. Census Bu-reau. Some 2,917 heads of households were questioned atlength, and from the responses it is projected that philanthrop-ic giving by individuals may come to as much as $26 billion ayear (as of 1973).* The survey figures refer to contributions byliving individuals only, which make up by far the largestsource of philanthropic funds, accounting for about 79 per centof all giving in 1974. In addition, answers to questions aboutvolunteer time and the dollar value of such time indicate thatnearly six billion womanhours and rnanhours are contributedannually to philanthropic activity in the United States, at avalue of around $26 billion. The other major categories ofgiving and estimates of the amounts of each during 1974 are:bequests ($2.07 billion), foundations ($2.11 billion), and corpo-rations (SI.25 billion in direct dollar contributions alone, notincluding below-market-rate loans, providing of corporate fa-cilities and services and other frequently contributed non-cashbenefits), AH told, private giving for public purposes appears toadd up to $50 billion or more a year in money and services, ormore than half of what is spent each year on national defense-

Who gives how much to what? A major area of interest tothe. Commission in relation to public policy questions has beenprecisely from whom philanthropic giving comes and where itgoes. The University of Michigan-Census Bureau survey af-firmed that giving is by no means a homogeneous process.*The measurement of giving is still more art than science, and estimates vary as dobases for making them. National giving aggregates indicated by the Commission'ssample survey are projected from respondents' own assessments of their giving and of.their income levels. Other estimates of national giving levels arc based on tax deduc-tions claimed for giving plus extrapolations for giving that is not deducted. TheCommission's survey estimate of $26 billion for individual giving in 1973 is higherthan other major reckonings,, which range from S18 billion to S23 billion. One majordifference between the survey's findings and that of other giving estimates lies inprojections of the amount of giving at upper income levels, which the Commission'ssurvey finds to account for a larger absolute amount and larger share of overall givingthan do other estimates, in part, perhaps, because some respondents may both over-state their giving and understate their income.

Among the findings is that the level of giving goes up with thelevel of education: a college graduate gives six times as muchas someone with only a grade-school education ($924 com-pared to $162i in average annual giving). And even when fac-tors such as higher income, which tends to accompany a highereducation, are discounted the giving of a college grad-uate is three times that of a grade school graduate. "Givingcan . . . be expected to depend on education for a variety ofreasons," observes the survey report, "ranging from the greaterincome-security and stability of the well-educated to theirgreater feeling of social responsibility (or debt to society)." Thesurvey also shows that the old give more than the young:average annual giving for someone in the 18 to 24-year-oldrange was $60 compared to $742 for someone 75 or older. "Thepessimistic interpretation would be that each new 'younger'generation is less altruistic than the previous one,1" says thesurvey report, "or that the proximity of eternal judgement mo-tivates the aged. But people may have fewer economic respon-sibilities and uncertainties as they get older and more assetsand accumulated rights." :

Other findings are that the married give more than the sin-gle, small town residents more than city dwellers, the religiousmore than the unreligious and, least surprising but most deter-minant of all, the rich more than the unrich. The survey findsthat a disproportionate amount of philanthropic giving comesfrom the highest income levels—some 21 percent of individualgiving from the less than 1 per cent of households with incomesabove $50,000 a year. (See footnote on page 55. Other esti-mates of giving are less top-heavy but still attribute as much as13 per cent of individual giving to households with incomesabove $50,000.) But the survey also indicates that most givingcomes from low- and middle-income ranks—54 per cent fromthe 87 per cent of households with incomes below $20,000.

The survey finds that the giving of time, in the form ofvolunteer work, correlates closely with the giving of money,that those who give one are likely to give the other and thatthe social variables that affect the giving of one generally havethe same effect on the giving of the other, with two notableexceptions. Because the range in the amount of time different

56

people can give is considerably more limited than the range inthe amount of money, not nearly as large a disproportion ofvolunteering comes from upper incomes as does the giving ofmoney. Thus while 21 per cent of money contributions wasprojected to come from those with incomes of $50,000 or more,only five per cent of time given comes from the same segmentof the population. Another significant difference between thegiving of money and time that the survey finds is that insteadof rising throughout life with the age of the giver, as the givingof money does on the average, the average of volunteer hoursgiven peaks in the 35- to 44-year-old range and falls off mark-edly after that.

Where does the giving go? Most of all to religious institu-tions, but with an important qualification. The Interfaith Re-search Committee of the Commission conducted an extensivestudy of religious giving, drawing on unprecedented financialopenness by the country's major denominations. This studyindicates that religious giving (of money) may be substantiallylarger than generally estimated, but it also finds that morethan one fifth of this giving goes ultimately to nonsacramentalpurposes. The two charts on the following page are based onthese findings. One chart indicates amounts of giving in whichboth sacramental and nonsacramental uses of giving to reli-gious groups are included in the figure for religious giving, theother in which the nonsacramental destinations of religiousgiving are assigned to other recipient categories.

Not only does giving come in different proportions fromdifferent income groups and go unequally to different areas ofsociety, but if donees and donors are looked at together, it isevident that certain income levels of donor tend to prefer cer-tain kinds of donee. Most noticeably, higher-income givers givein particular to educational and cultural organizations andhospitals while lower-income donors give above all to religion.The shares that three major philanthropic categories receivefrom each income group's overall giving are indicated in thechart on page 59.

Another cross-section of donor-donee giving patterns thatwas computed for the Commission looks at the average amountof yearly giving that each recipient category receives from indi-

. 5 7 • ' ' ' • . ' '

WHERE THE GIVING GOES

Distribution of Private Philanthropy by Recipient, 1972; (In billions of dollars)

Standard categories

Religion 12.49

Health 3.68

Education 3,57

Social Welfare 1.61Arts, Humanities,Civic & Public 1.54Other 2.69

Adjusted amounts in whichlonsacraittental uses ofreligious giving are countedin other categories

Religion 10,26

Health 3.98

Education 4.41

Social Welfare 2.07Arts, Humanities,Givic& Public 1.67Other 3 . 1 9 — —

Sources: Interfaith Research Committee of Commissionon Private Philanthropy and Public Needs; and AmericanAssociation of Fund-Raising Counsel

58

WHO GIVES WHAT TO WHOM

Distribution *of Giving to Major DoneeAreas, by Income, 1972

Per cent of Total Giving of Each Income Group Going to:

Adjusted Gross JCZ3 Religion •Federated Drives* H I Special Areas**Income

Under $10,000

$10,000 to $20,000

$20,000 to $50,000

$50,000 to $200,000

$200,000 and over

llfltlliil70% l i i t i l i 13%

15%

17%

17%

§Mi

* Includes United Funds, Community Chests, etc.•* Includes educational institutions, museums, hospitals

Source: Commission on Private Philanthropy and Public Needs

viduals in each income group. These averages, shown on thetable opposite, are based on 1970 income and giving amounts,and while many of these amounts probably have increasedalong with the overall rise in undeflated dollar amounts ofgiving since 1970, the wide ratios between giving averages pre-sumably remain approximately the same.

Other Giving

The patterns of giving by other sources of philanthropy dif-fer markedly from giving by living individuals as a whole, withreligion the least favored by other sources instead of the most,and education one of the most favored donee areas instead ofone of the least:

Charitable bequests, especially those from the highest-incomebenefactors, tend to reflect this inverse pattern to a consider-able degree. Ten out of fourteen of the largest bequests in 1974went to higher education.

Foundation grants from 1961 to 1973 have gone primarily toeducation (32 per cent of all major grants), followed by health(15 per cent), international activities (14 percent), welfare (13per cent), sciences (13 per cent), humanities (9 per cent, includ-ing the arts) and religion (4 per cent).

Corporate giving^ according to'a 1974 survey by The Confer-ence Board and the Council for Financial Aid to Education,goes primarily to health and welfare organizations (38 per centof corporate giving, most of it through federated drives such asUnited Way) and to education (35 per cent, nearly all of.it forhigher education), with civic (10 per cent) and cultural (7 percent) causes representing other major recipient areas. Religionaccounts for only one third of one per cent of corporate giving.

Changing Motivations

Such are the basic facts and figures on giving in the UnitedStates today. Beneath them lie an array of social and psycho-

60

Average Yearly Individual Giving toMajor Donee Areas by Income Levels, 1970

Adjusted Reli- Educa- Hospi- Health & AllGross Income gion tion tals Welfare Other*

$5,000 andbelow $63 $1 $0 $10 $15

5,000 -10,000 138 3 1 28 32

10,000-15,000 191 5 2 .r. 43 43

15,000-20,000 235 14 6 • 63 71

20,000-50,000 349 48 25 114 152

50,000-100,000 638 267 119 352 644

100,000-500,000 1,322 1,791 615 1,203 4,251

500,000-1,000,000 : 4,466 14,909 5,546 8,067 39,037

More than1 000,000 7,073 45,866 14,688 14,430 175,219Average Giv-ing for All iIncomes $140 $9 $4 $34 $46

•Including giving to arts andcultural institutions and to

: private foundations

• " ' Source: Commission on PrivatePhilanthropy and Public Needs

61

logical and historical patterns that in many; respects are ascomplex as American society itself, and as full of changes andambivalences. ^ ;• ' f

Personal sacrifice for the community good has probably al-ways been esteemed—and, in some eyes, suspect—and underly-ing'motivations have perhaps always been complicated. Butpatterns of giving and the complex of motivations for givinghave changed considerably over time, and unquestionably ;arecontinuing to change today. I n mankind's early history, be-nevolence ended at the boundaries of the tribe or family. With-in these boundaries, giving was hardly charitable in a modernsense because those who were able were expected, indeed re-quired, to take care of the unable. There was none of theaspect of individual volition that is associated with moderngiving. (Some social scientists feel that there is not as much ofit now as we might pretend, that social pressures and fund-raising strategies literally leave little choice up to the individ-ual giver. The Commission's sample survey of givers lendssome support to this thesis: 30 per cent of higher-income con-tributors said they feel they are pressured into giving moretime of; money than they really want to.) As for strangersoutside the tribe or family, only recently in the social evolutionof humanity have outsiders been considered possible objects ofconcern, let alone sympathy and aid.

"The growth of civilization may be judged," F. EmersonAndrews, a leading analyst of philanthropy, has written, "bythe extent to which the obligations of philanthropy havespread to include those whose fate was previously a matter ofindifference—the slave, the poor, the barbarian, the enemy."Still, in the western world this expansion did riot swiftly movethe spirit of giving beyond what today might be called enlight-ened self-interest. In the Middle Ages, the wealthy were expect-ed to make gifts and bequests to the church, not so much forthe sake of the church or the "pious causes" furthered by thegifts as for the giver's own redemption—"salvation at a price,"as scholars have uneuphemistically termed it.

Not until the seventeenth century did the giver's salvationbegin to count for less than the expected good to ultimatebeneficiaries. Again,, this was by no means a rapid shift, nor

62

has it been a complete one, even to this day. At the end of theseventeenth and beginning of the eighteenth century, one ofAmerica's most eloquent champions of philanthropyj CottonMather, articulated an exceedingly broad philosophy;of givingand one that covers the Wide spectrum of motivations thathave been and often still are attributed to giving. As historianRobert Bremner writes in his survey of American philanthropy,"Mather regarded the performance of good works as an obliga-tion owed to God rather than a means of salvation; yet^he hadno doubt that God would punish the unfaithful steward. More-over, doing good was a reward in itself- To help the unfortu-nate was an honor, a privilege, 'an incomparable pleasure.'Mather cited an entire catalogue of worldly advantages includ-ing long life and business success he thought would surelyaccrue to the benevolent. Besides, as Mather took pains topoint out, doing good was sound social policy, a mild buteffective instrument of social control. Pious example, moralleadership, voluntary effort and private charity were the meansby which competing and conflicting interests in!society mightbe brought into harmony,"

The Institutionalization of Philanthropy

For much of recorded history, the church served as the mainmotivator and institutional channel of philanthropy, and thiswas so as much in early America as in medieval Europe.Church groups in the new settlements of the New Worldserved as the principal recipients of alms and as dispensers, tothe worthy, of goods, services and advice. With four out of tenphilanthropic dollars still going to, or. through, religiousgroups, religion continues to play a major role in both themotivations and dispensations of philanthropy. The course ofmodern giving, however, can be seen largely as a process ofsecularization and of institutionalization outside of organizedreligion.

A major shift in the spirit of American philanthropy wasmarked and to a considerable extent influenced by an articleentitled "Wealth," published in the North American Review in

63

June, 1889. The author was Andrew Carnegie, steel manufac-turer and philanthropist, and his message was manifold. Thewealthy, he said, should administer their wealth as a publictrust during their lifetimes because, having proved themselvesin the struggle for commercial success, they were particularlyfitting agents of the public trust. "Administrators of surpluswealth" was his term for philanthropists and his "gospel ;;ofwealth" focused not on the poor so much as the ambitious. Hewrote of "ladders upon which the aspiring can rise," and di-rected his money toward the building of libraries, parks, con-cert halls, museums and educational institutions with a practi-cal slant.

Carnegie and a contemporary fellow "millionaire," John D.Rockefeller, both felt that wealth carried obligations to society,yet both had so much of it that they had trouble giving itaway as fast as they and their enterprises earned it. Both madevast fortunes in business, so perhaps it was inevitable that theyeventually set up businesslike structures for giving. "If a combi-nation to do business is effective in saving wastes and gettingbetter results," asked Rockefeller, "why is not combination farmore important in philanthropic work? Let us erect a founda-tion, a trust, and engage directors who will make it a life workto manage, with our personal cooperation, this business of be-nevolence properly and effectively."

Thus, with the arrival of the itwentieth century was born,thefirst of the large, wide-ranging foundations as. major institu-tions of philanthropic giving. Some 25,000 private grant-mak-ing foundations exist today with combined assets, it is estimat-ed, of around $25 billion. The great majority have modestresources and highly specialized aims. But scores operate, withwide discretionary funding powers and multimillion-dollar an-nual budgets, as regular, often highly visible sources of privatefunds for public purposes. Most larger foundations have full-time professional staffs who are paid to provide sophisticatedanalysis and management to the "business of benevolence."

The institutionalization of philanthropy has proceeded bysmaller steps through the tax laws as well—in the spread ofproperty tax exemption and, in 1917, the enactment of the

64

federal income tax deduction for charitable giving, develop-ments that are discussed in Chapter V. Since the beginning ofthis century, the United States has also witnessed the develop-ment of professional fund raising, of techniques for collectingsizable sums in relatively small individual amounts. The spiritof giving was by; no means limited to millionaires but becameembedded in American ways as part of a growing self-image ofAmericans as a generous and altruistic people.

The Importance of Private Giving

Any survey of giving in the United States would be mislead-ing if it suggested that philanthropy was simply and universal-ly welcomed along its course as a matter of gratuitous generos-ity by the giver and unquestioned benefit to the recipient. Infact, private giving for public purposes has regularly through-out American history been the subject of both pragmatic andideological skepticism, reflecting the social climates and atti-tudes of different times, particularly attitudes toward unequalwealth and the wealthy from which such a disproportionateamount of philanthropy flows.

Doubts about philanthropy, its equity and its accountability,have arisen with particular force in recent years, and thesedoubts and their implications are considered later in this re-port. Ye^ if some aspects of philanthropy are reasonablegrounds for concern in a democratic society, the implications oflittle or no philanthropy may be grounds for even greater con-cern in a pluralistic society. The case for private giving forpublic purposes—on at least as large a scale as exists today inthe United States—comes to rest to a major degree on thedesirability of there existing nongovernmental organizationsoperating for public purposes alongside government, and onthe practical reality that such organizations cannot depend ongovernment for support and still remain nongovernmental inany significant sense—certainly not, at least, if they are totallydependent on government. While this report considers thegrowing need—the desperate appeals in some cases—for govern-mental funds by many traditional parts of the nonprofit sector,

65

Commission studies of these areas stress the importance of acontinuing input of private giving and volunteer help in orderto maintain standards of excellence and preseve a degree ofindependence.

: Speaking for one of the major traditional recipients of pri-vate giving, higher education, one study asserts that privateinstitutions of higher education "must have these funds to en-sure their autonomous survival." Like a number oflother stud-ies this one refers to flexibility provided by private funds andto "an important measure of stability to help offset suddenshifts in federal funding." The report refers to "the; accumulat-ed wisdom that institutions of higher education are best able toperform their functions when they are funded from more thanone source, \vith more than a single taste." Finding an empha-sis in public health programs on short-range and immediateproblems, a report on the role of philanthropy in the healthfield emphasizes the need for private support for, long-rangepurposes—the advancing of national medical care standards,for instance. "Private philanthropy will be the only source ofsupport," the report states, "which will enable independenthealth institutions to pursue such alternative priorities." (Thebulk of federal spending on health—79 cents of every healthdollar—is for supporting existing health service activities*whereas 89 cents of every foundation dollar spent in the fieldgoes for longer-term, "capital goods" projects and research,according to a study by the National Planning Association.)

The ability to carry out and respond to different priorities—which is at the very heart of the pluralistic value of voluntaryorganizations—is iwhat private philanthropy ultimately affords,*and even, a relatively small amount of private funding can helpprovide a substantial degree of such diversity. In several in-stances, for example, Commission research took note of theincreasing flow of private funds to public institutions of highereducation and it was asserted that even in such governmentallycontrolled institutions private funds can provide an "edge ofquality," through special programs and expenditures aboveand beyond what governmental appropriations can or usuallydo allow. In a Commission report on philanthropy in the cityof Des Moines the mayor of that city found the flexibility of

66

private funding, although relatively small in dollar amountscompared to the city budget, to be an absolutely essentialcomplement to public funding in providing for basic municipalneeds. "Without private funding," he said, "the public servicesand improvement practices would collapse." A study of philan-thropy in England, where voluntary organizations are general-ly much more dependent on government financing than in theUnited States, similarly finds for that country's voluntary sec-tor an important role for even a small degree of private fund-ing alongside public support. Because of private funds the peo-ple who run such organizations, notes the study, "are less likelyto become (or feel that they are becoming) simple agents forcarrying out plans developed in [government offices].'"

Some kinds of voluntary organizations can hardly be expect-ed to function at all, or must function in fundamentally differ-ent ways, unless their basic support is private giving. A 1973study on environmental groups found, for instance, that thosethat relied on membership support tended to be more involvedin public advocacy on environmental issues and to use moremilitant tactics than did groups that depended on governmentgrants (or on corporate and foundation grants, for that mat-ter). Many new "public-interest" and "grass-roots" groups inareas such as environmental ism, consumerism and legal activ-ism exist at least in part, and in some cases very large part, toactively criticize and challenge government, and they must relyentirely on nongovernmental support to be effective in thisadversary role.

Philanthropy and the Powerless

Private giving today also plays a role which government byits own institutional nature is unable to play and which, in-deed J much of philanthropy itself is hesitant to venture into. Asdescribed in a Commission* report on philanthropy in the SanFrancisco area, this role is to help "submerged people who aretrying to get ahead." The role may also be defined as helpingto empower the powerless of American society, often non-white, non-middleclass groups that through their own resources

67

have been able to exercise little influence on the priorities andprocessess of majoritarian government or of other institutionalareas of our society. Giving for this purpose differs from old-style charity, from the filling of basic needs of the poor andunderprivileged. As consciously seen by some of the donors anddonees,; such giving is more a matter of helping groups toorganize and act so as to be able to effectively exact social andeconomic and political benefits or "rights" from society and itsinstitutions.

A Commission study on philanthropy and the powerless pro-vides a number of examples of such. giving—and getting—inrecent years, among them:

—The; welfare rights movement. Led by the National WelfareRights Organization, which was founded in 1967, this move-ment helped dramatize and bring to the nation's attention andthe]attention of government leaders the plight of welfare re-cipients. It also jserved, through the emergence ofi many localgroups, to instruct welfare recipients in their legal! rights re-garding procedures and levels of assistance and to inform manynon-recipients of their eligibility for aid. The major support ofNVVRO and an associated foundation came from churchgroups and a number of the more "activist" foundations.

I—Growth ojf minority business enterprises. Foundations,churches and Corporations have contributed substantial sumsin recent years fto help minority group members start or.sustainbusinesses^ mainly in urban areas. Because of? this help, manymedium-sized firms owned by minority group members have beenlaunched, and a sizable portion have succeeded and have grown.

—American Indians' rights. In the past few years churchgroups and foundations have devoted an increasing amount offunds to Indian programs; because of the federal government'sextensive involvement in Indian affairs, much of this giving hasgone to political lobbying and to legal activism through orga-nizations such as the Native American Legal Defense and Edu-cation Fund. Defining and extending the powen of Indian tri-bal governments and tribal legal institutions has been amongthe efforts funded for the purpose of empowering what inmany regards has been the most powerless segment in Ameri-can society. *

68

—Institutional reform. In the past decade philanthropy hassupported efforts to reform major institutions and to help es-tablish rights and jprocedures to protect the interests of mem-bers or inmates of such institutions. Prison reform efforts, forexample, have resulted in the elimination of some of the moreblatant brutalities of prison life and in introducing an elementof due process in the handling of prisoners. Funds that havegone to advocates of military justice have been successful inhalting the widespread practice of issuing less than honorabledischarges, which did not entail as stringent legal procedures asdid dishonorable discharges but which often had the same ef-fect: they could wreck a veteran's career or severely restrict hisjob opportunities. While most philanthropy for institutionalreform has involved public institutions, a notable success inthis area was centered on a private one, the United MineWorkers' union. Foundation support was instrumental in thesuccessful effort to rid the union of a deeply entrenched andcorrupt leadership and introduce a reform-minded administra-tion in its place.

As the Commission's report on philanthropy and the power-less notes, giving for all such purposes amounts to a smallpercentage of overall giving, a grossly inadequate amount, insome eyes, in light of the needs and the challenges involved. Byone estimate, less than one per cent of foundation giving in1972, 1973 and 1974 went specifically for the benefit of socialand ethnic minorities.. And in a paper for the Commissionentitled, "Who's Funding the Women's Movement?," the an-swer given is that very few institutional,philanthropic sourcesare. A survey of feminist organizations found that only aroundtwenty foundations and a dozen corporations were fundingsuch groups and those that were doing so were doing it at lowlevels.,In 1972 through 1974, it is estimated:, less than one fifthof one per cent of foundations* grants went to "projects de-signed to improve the status of women." The conclusion of thepaper is that "the women's movement has been almost entirelyshut out by the philanthropic establishment."*

At the same time, some feminist organizations have had*See comment by FRANCES T. FARENTHOLD, GRACIELA OLIVAREZ ANDALTHEA T. L. SIMMONS, page 197.

69

better success in raising money by direct mail solicitation. Sowhile the amounts of money going to such causes may be seen asinadequate—or, in some eyes, as excessive because of the socialfriction involved—the changes being sought almost surely wouldbe slower in coming, if ever, were it not for the practice of privatevoluntary; giving.

NOT KEEPING PACE

In light of the continuing, vital role of private giving for publicpurposes in American society, one major fact about philanthropythat stands out in the Commission studies should be a matter ofconsiderable concern to Americans. It is to the Commission. Thisis the evidence that while private giving is still large in the UnitedStates by comparison with other countries, and while it has growncontinuously in current dollar measurements ever since estimatesof philanthropy have been compiled, it has not kept pace with thegrowth of the economy over the last decade, and in constant,uninflated dollars, it has fallen off absolutely in the last few years.

As noted earlier, measuring philanthropic giving is a complexand imperfect art. While the federal government keeps tabs onitemized deductions for giving, two out of every three taxpayersuse the standard deduction and therefore include no specificaccount of charitable giving in their tax returns. Various means ofestimating undeclared giving have developed in recent years,however, and even by the most optimistic estimates, those puttogether annually by the American Association of Fund-RaisingCounsel, total giving has declined almost steadily as a per cent ofgross national product since 1969—from 1.98 percent then to 1.80per cent in 1974,

Ralph L. Nelson, an economist at Queens College, who hasmade several independent studies of philanthropic giving for theNational Bureau of Economic Research, the Carnegie Corpora-tion and the United States Census Bureau, comes to even lesspromising conclusions in a study for the Commission. Among hisfindings: "The evidence seems to.point quite consistently to theconclusion that, in the twelve-year period from 1960 to 1972,private philanthropy's share of the American economy exper-ienced considerable shrinkage."

70

Nelson's studies indicate that giving by individuals, in par-ticular, the cornerstone of private support for nonprofit organi-zations, has failed to keep up with gross national product orpersonal income for a number of years. As a proportion ofpersonal income, Nelson calculates, giving by individuals hasdropped by about 15 per cent between 1960 and 1972, from1.97 per cent of personal income in 1960 to 1.67'per cent in 1972.

A refinement on this barometer that might be said to bettermeasure the degree of personal sacrifice in giving is tabulatedby the Treasury Department's Office of Tax Analysis. In atable that looks at tax itemizers' "net contributions*'—whichare defined as contributions minus the reduction in federalincome tax that donors receive because of the tax deduction forthese contributions—giving is seen as dropping from 3.47 percent of adjusted gross income in 1956 to 2.10 per cent in 1970.

Reasons for the Decline

Why has there been at least a relative falloff in giving—byvirtually every reckoning? The ravages of inflation and reces-tsion no doubt,account for a good deal of the recent decline. Inthe Commission's survey of giving, the most frequent explana-tion by those who gave little or nothing to philanthropic causeswas, not surprisingly, that they did not feel they could affordto give. Yet the problems of the economy do nothing to ex-plain the sluggishness, at best, of giving in the boom years ofthe sixties and early seventies.

Declines in the largest category of donations—to religiousinstitutions—account for a sizable portion of the decline in^overall giving. Religious contributions dropped from 49.4 percent of all giving in 1964 to 43.1 per cent in 1974 according tothe American Association of Fund-Raising Counsel, a falloffthat is quite expectable in light of the fact that church atten-dance has declined about nine per cent since 1958 and enroll-ments in parochial schools, which have traditionally receivedabout 15 per cent of religious giving, have dropped off by onethird from their high point in 1964-65.

71

As noted earlier, low- and middle-income contributors pro-vide the bulk of donations, and it is significant that in terms ofnet contributions—or out-of-pocket costs once tax savings arecalculated—it is in the $10,000 to $25,000 income range thatgiving has fallen the most in recent years. This is not necessar-ily because those whose incomes have stayed within that rangeare giving less; the decrease may reflect the generally rapidincrease in average incomes in the period studied (1956 to1970) and the possibility that many of the large number oftaxpayers who newly arrived in.the $10,000 to $25,000 incomerange may have lagged in expanding their giving from whatthey were accustomed to contributing at lower income levels.

Tax inducements to giving are examined later in this reportIncreases in the level of the standard deduction in recent yearsmay have had some depressing effect on giving. In theoryj atleast, they should have lessened the impulse to give, becausecharitable contributions are not deductible if the standard de-duction is claimed in place of itemized deductions.

Are other, perhaps profounder factors at work as well indiminishing the level of giving? Although it is not easily tested,one distinct possibility is that because the scope of government,has expanded and continues to expand into areas that areprincipally identified in the public eye with philanthropy,Americans may be less inclined to feel that giving for publicpurposes is important. They may feel that government is al-ready taking care of much of what they are asked to contributeto, or that it should. In interviews for a series of Commissionreports on philanthropy in five American cities, a United Wayfund raiser in the San Francisco area cited such an attitude asthe reason for resistance to giving by one professional group."A lot of doctors," she said, "still tell us, 'I thought the govern-ment was doing all that sort of thing now. What are my taxesgoing for?3 "

At the same time, other evidence suggests that while thelevel of giving has declined, the spirit of giving may not bewaning so much as changing its objects and objectives, as ithas done in the past. A Gallup poll in 1972 found that 71 percent of Americans said that they thought private giving was asimportant as ever or more so. And successes in regularly raising

72

large sums of money by many new and some not so neworganizations—from United Ways to Common Cause to theNational Rifle Association—indicate a willingness by Ameri-cans to privately, voluntarily support nonprofit causes thatthey believe in and that they feel depend on private support.

Indeed, in terms of volunteer time given, as contrasted tofinancial support, there has been an impressive increase in re-cent years on both relative and absolute scales. According to a1974 Census Bureau survey commissioned by the government'sagency for voluntary service, ACTION, nearly one out of everyfour Americans (24 per cent) over the age of 13 does some formof volunteer work as compared to less than one out of five in1965—the finding of a Labor Department survey that year. Notonly are more Americans contributing time and labor, but theyare contributing more of it. In 1974, 63 per cent of those whosaid they did volunteer work estimated that they did morethan 25 hours of such work a year. In 1965, only 54 per centsaid they did as much volunteer work.

Financial support, for that matter, has held its own in mostnonreligious areas, at least until the last few years of nationaleconomic disarray; as previously noted, much of the overalldecline in giving is accounted for by a dropoff in religiouscontributions. Two relatively new categories of secular givingin the compilation by the American Association of Fund-Rais-ing Counsel—Arts and Humanities and Civic and Public giv-ing—have grown faster than the economy. In the process, theyhave been claiming an ever larger share of the philanthropicdollar over the last decade.

Giving, in other words, has hardly remained static in eitherits destinations or motivations. The graph on page 74 showsthe relative shifts among broad categories of recipients over thepast third of a century. Giving has shifted even more thanindicated because the graph does not show shifts within cate-gories, which in such vast and amorphous "areas as social wel-fare and health have been very sizable. However, the fluidityof giving patterns is still evident.

Whether recent trends will continue in the same direction orthemselves will shift, as they have done in the past, or will bejoined by major new kinds of recipients remains to be

.• ' " , .' ' 7 3 ' • ' ' • '

CHANGES IN GIVING

Percentage of Total GivingGoing to Each Recipient Area, 1940-1974

60%

40-

1940 1950 I960 1970 1974

Source:: Commission on Private Philanthropy and Public Needs

74

and in part to be guided by government tax policy, which asthis report later examines can influence both the amount anddirection of contributions. But the likelihood that changes arein the making is the one constant about philanthropy that canprobably be counted upon, especially in a day when very littleon the social landscape appears to be standing still;for verylong. Some of these shifts are likely to be painful to nonprofitareas that depend on recent or, in some cases, long-establishedpatterns of philanthropic giving, but the very prospect ofchange can and should be regarded as one of the strengths andvitalities of private giving—the fact that giving is fluid andadjustable enough to reflect the inevitably shifting patternsand priorities of any society that is itself strong and vital andresponsive to the free choices and inclinations of its members.

75

Sources for Chapter II

ACTION, American Volunteers 1974, U.S. Government Printing Office, 1975.

American Association of Fund-Raising Counsel, Inc., Giving U.SA., 1975Annual Report.

Thomas R. Asher, Public Needs, Public Policy and Philanthropy*

Robert J . Blendon, The Changing Role of Private Philanthropy in Health Affairs,*

Landrum R. Boiling, Statement Submitted^ to Subcommittee on Foundations of Senate FinanceCommittee, June 1974. . .'.

Daniel P. Bourque and Rory Redondo, The National Planning Association, A Compari-son of Federal Government Expenditures and [Private Foundation Grants for Health and Health-Related Activities for Fiscal Year 1973*

Blair T. Bower, The Role of Private Philanthropy in Relation to Environment— Pollution.*

Gerard M. Brannon and James Stmad, Alternative Approaches to Encouraging PhilanthropicActivities.*

George F. Break, Charitable Contributions under the Federal Individual Income Tax: SomeAlternative Policy Options.*

Robert H. Bremner, Private Philanthropy and Public Needs: An Historical Perspective.*

Sarah G. Carey, Philanthropy and the Powerless.*

John J. Carson and Harry V. Hodson, eds., Philanthropy in the '70ys: An Anglo-AmericanDiscussion, Council on Foundations Inc., New York, 1973.

Earl F. Cheit and Theodore E. Lobman III, Private Philanthropy and Higher Education.*

Wilbur J. Cohen, Some Aspects of Evolving Social Policy in Relation to Private Philanthropy.*

Commission on Foundations and Private Philanthropy, Foundations, Private Giving andPublic Policy, University of Chicago Press, Chicago, 1970.

Committee on the Law and Practice Relating to Charitable Trusts (Nathan Commitstee), Report m Charitable Trusts, Her Majesty's Stationery Office, London, 1952.

The Conference Board and the Council for Financial Aid to Education, Annual Sunny ofCorporation Contributions 1974.

Council on Foundations, Inc., Private Foundations and the 1969 Tax Reform Act.*

Fred R. Crawford, Non-Economic Motivational Factors in Philanthropic Behavior.*

Frank G. Dickinson, The Ckanging Position of Philanthropy in the American Economy, Nation-al Bureau of Economic Research, New York, 1970.

Solomon Fabricant, "Philanthropy in the American Economy," Foundation News, Sep-tember-October, 1969, Vol. X, No. 5.

Martin S. Feldstein, Tax Incentives and Charitable Contributions in the United States: AMicroeconometric Analysis.* •

Martin S. Feldstein and Amy Taylor, The Income Tax and Charitable Contributions: Esti-mates and Simulations with the Treasury Tax Files*

Caryl P. Haskins, The Role of Private Philanthropy and Public Support of Science in the UnitedStates* ' '

Caroline Hightower, A Report on the Arts.*

Interfaith Research Committee of the Commission on Private Philanthropy and PublicNeeds, Stuart M. Lewis, Project Coordinator, Study of Religious Receipts end Expendituresin the United States*

76

Hans H. Jenny, Philanthropy in Higher Education.*

C Harry Kahn, Personal Deductions in the Federal Income Tax, Princeton University Press,1960.

Calvin Kentfield, Private Philanthropy in Des Moines*

Reynold Levy and Waldemar A. Nielsen, An Agenda for the Future.*

Paul R. McDaniel, Study of Federal Matching Grants for Charitable Contributions*

William G. McLoughlin, "Changing Patterns of Protestant Philanthropy 1607-1969,"in The Religious Situation, Beacon Press, Boston, 1969.

James N. Morgan, Richard F. Dye and Judith Hybels, Remits from Two National Surveysof Philanthropic Activity.*

National Center for Voluntary Action, A Report on Voluntary Activities and LeadershipOpinion.*

Ralph L. Nelson, Private Giving in the American Economy, J960-I972.*

Ralph L. Nelson, Estimates of Private Giving for 1973 and 1974*

Ralph L. Nelson, Analysis of Trends in Giving Since I960.*

David Owen, English Philanthrapy, 1660-1960, Harvard University Press, Cambridge,1964.

John P. Persons, John J, Osborn Jr. and Charles F, ••!eldman, Criteria for ExemptionUnder Section 501(c)(3).*

Jack Shepherd, Passing the Buek: Philanthropy in San Francisco.*

David Hortort Smith and Burt R. Baldwin, "Voluntary Association and Volunteeringin the United States," in Voluntary Action Mmartft !9?4$ D.C, Heath .&: Company,Boston, 1975.

Lawrence M. Stone, The Charitable Foundation: Its Governance.*

Emii M. Sunley Jr., Dimensions of Charitable Giving Reported on Federal Estate, Gifl, andFiduciary Tax Returns.*

Mary Jean Tully, Who's Funding the Women's Movement?*

United States Senate, Report of Proceedings, Subcommittee on Foundations, Commit-tee on Finance, Impact cf Current Economic Crisis on Funds and Recipients of Foundation Money,November 25, 1974.

Thomas Vasquez, Corporate Giving Measurements.*

Joseph L. Vigilante and Ruth Kantrow, The Voluntary Social-Agency Experiments, Innovates,Demonstrates, and Influences Public Social Policy: The Community Service Society cf New York1930-1970*

Richard E. Wagner, Death, Taxes, and Charitable Bequests: A Survey of Issues and Options*

Laurens Williams and Donald V. Moorehead, An Analysis of the Federal Tax DistinctionsBetween Public and Private Charitable Organizations.*

Ellen Winston, Some Aspects of Private Philanthropy in Relation te Social Welfare.*

Paul N. Ylvisaker and Jane H. Mavhy, The Role of Private Philanthropy in Public Affairs*

•Denotes reports and studies undertaken for the Commission.

n

Ill

THE HARD ECONOMICSOF NONPROFIT ACTFVTTY

In the midst of an economic downturn more severe than anysince the Great Depression, two headlined news stories wereamong those that seemed to epitomize the economy^ disarray.In the spring of 1975; the Ford Foundation announced that itwas cutting its staff and its disbursements by half following thefall in value of the foundation's assets by one third., A fewmonths earlier, 'Harvard University was reported to be "brac-ing for hard times." Layoffs for the Ford Foundation and hardtimes for Harvard University? The nation's largest foundation,with assets of two billion dollars—down from three billion—andour most abundantly endowed university—holding more than abillion dollars worth of assets—probably symbolize in manyeyes the very essence of institutional financial solidity, evenopulence. And if they were in trouble . . .

But if these particular bits of economic bad news may havesurprised many readers or only affirmed their gloomiest appre-hensions about the course of the economy, the difficulties ofthe Ford Foundation and Harvard University hardly represent-ed a sudden and novel development in the common terrain ofthe two large institutions, the nonprofit sector. The sector hasbeen in financial trouble for years. Pushes and pulls of econo-my-wide inflation and recession have certainly intensified thesector's problems. Plunging stock prices eroded endowments,such as the Ford Foundation's, and recession has inhibitedprivate giving. Meanwhile inflation has sent expenditures soar-ing, putting even greater strains on depleted revenue bases.Among the many tolls of inflation: fuel bills at some universi-ties and colleges have tripled within a matter of a few years.

Laments about economic and financial difficulties have, ofcourse, been heard throughout the economy in recent years;the voluntary sector has hardly been alone in suffering the

• I 79

strains of inflation and recession. Still, indications are that theeconomic maladies of the nonprofit sector not only reflecteconomy-wide strains but are also the result of dynamics en-demic to the nonprofit sector in particular. In fact, the finan-cial difficulties of many parts of the nonprofit sector were amatter of growing concern even in the midst of general pros-perity. In the late 1960's, for instance, when the economy wasbooming, one survey of the philanthropic landscape foundmatters bad and probably getting worse. "Even as things standright now," said this report, "many philanthropic institutionsare already living with an acute financial crisis, and if thingsgo on as they are without remedy, the crisis will become all themore acute in the future." That things were expected to go onas they were was indicated in a concluding passage of thereport: ". . . Without important hew sources of funds amount-ing to many billions of dollars, our society will feel the fullforce of what can be called the charitable crisis of the 1970's."

Financial Crisis

Now, in the mid-70*s, acute crisis does indeed appear todescribe the state of many parts of the nonprofit sector; exis-tence of whole areas within the sector may be threatened.Headlines regularly document this dire prospect, and it is thecommon theme of the reports this Commission has receivedfrom experts in the many different areas of the nonprofit sec-tor. "During the last several years," writes Hans H. Jenny, vicepresident of Wooster College, "beginning some time in the late1960's, higher education finance has suffered a gradual deterio-ration in both public and private sectors." The severest deterio-ration of all among institutions of higher learning has beensuffered by the private liberal arts college, so much so that,according to one Commission report, "to talk of the liberal artscollege's disappearance . . . is not to indulge in idle specula-tion." Indeed, around 150 private colleges have already disap-peared, shut down, since 1969. Another area of nonpublic edu-cation, private pre-college schooling, may be in even worseshape financially. "In the long run," says a report on this area,

80

"if the economic trends continue, the vast majority of nonpub-lic schools seem doomed, the exceptions being schools enjoyingthe support of the well-to-do or heavy subsidies from a fewremaining religious groups with conservative theologies orstrong ethnic emphasis." In fact, although the situation may,have stabilized in their regard of late, parochial schools, whicKaccount for the large majority of private primary and secon-dary institutions, have already; been closing their doors by thehundreds around the country in recent years.

Nonprofit arts organizations have similarly been in financialtrouble for a number of years on nearly every front, fromsymphony orchestras to museums. Social service organizationshave been slashing their budgets and reducing their staffs inorder to stay afloat, or in a number of cases have gone out ofbusiness completely.

Not all nonprofit groups, of course, are suffering financialproblems, and indeed a broad area of smallscale nonprofit or-ganizations on the frontier of nonprofit activity have relativelyminute budgets and modest fixed costs and, if they have prob-lems, they tend to think of them more as political than eco-nomic (see Chapter VII). Still, much of the traditional, highlyinstitutionalized part of the nonprofit sector is in trouble, inmany cases, profound trouble.

The sluggishness of private giving, examined in the previouschapter, is clearly a factor in the economic plight of manynonprofit organizations. Erratic government funding has alsoaccounted for financial strains in some areas of the nonprofitsector. Colleges and universities have built up facilities andstaffs in response to government programs, for instance, only tofind funding for some programs drastically reduced within afew years of their initiation. But the revenue side of the sector'sfinancial ledgers tells only part of the story. The other part isabout extraordinary increases in expenses, many of which ap-pear to be beyond the control or limitation of nonprofit causes,some, of which seem to be part of the special economics ofnonprofit activity.

81

RISING COSTS

A major factor in rising expenses is the fact that the costs ofgoods and services used in nonprofit activities have been goingup significantly more rapidly than in the economy as a whole,for a number of years. Nonprofit health institutions, for in-stance, have had to contend with the harsh fact of economiclife that since 1960 medical care costs have risen half again asfast as consumer prices in general. Higher education costs simi-larly rose about 76 per cent between 1963-64 and 1973-74,'compared to 49 per cent for the economy-wide cost-of-livingindex,

An overall estimate of the rate of increased costs of all chari-table nonprofit services has been made by economist RalphNelson, who has calculated price rises in various special areasof the nonprofit sector. From 1960 to 1972, he figures, or beforedouble-digit inflation set in for the economy as a whole, theannual growth rate in prices for the nonprofit sector was morethan 4 per cent compared to 3 per cent for the whole economy.

Some measure of how this rise in prices has eroded the pur-chasing power of nonprofit revenues is given in special price-deflating calculations by Nelson. The standard way of lookingat the trends in philanthropic funds from year to year has beento deflate money figures by the same proportions that the con-sumer price index or the gross national product is discountedin order to abstract out price rises that do not reflect "real"economic changes. Yet such mathematical adjustments fail toreckon with the fact that costs in nonprofit activity have risensignificantly faster than in the economy as a whole. In order totake account of these steeper price rises, Nelson deflates privategiving according to different price patterns in different non-profit areas. His conclusion: instead of doubling, as privategiving has done in inflated dollars, or rising by more than half,which is the picture that emerges when the usual, economy-wide deflation factor is applied to philanthropy, total privategiving increased the purchasing power of philanthropic organi-zations by a very modest 28 per cent between 1960 and 1972,from $9.3 billion to $11.9 billion. By comparison, in the same

82

period of rapid economic growth, gross national product in-creased more than twice as much as private philanthropicfunds in real purchasing power—by 62 per cent.

The Cost of Being "Labor Intensive"

Why has there been a sizable, and from the standpoint ofmany nonprofit institutions, debilitating difference in pricechanges between the nonprofit sector and the economy as awhole? The most frequent explanation is that much nonprofitactivity is comparatively **Iabor intensive": because it is in-volved mainly in the provision of* services rather than the man-ufacture of products, the nonprofit sector's primary resource ishuman labor. In higher education, for instance, up to 85 percent oi the budget goes to salaries and wages. Arts organiza-tions typically devote well over, half of their budgets to person-nel costs. For the theatre, the ratio is 62 per cent; opera, 66 percent; symphony orchestras, 77 per. cent; ballet, 62 per cent.The high proportion of labor usage by nonprofit services hasmeant more steeply rising prices partly? because labor costs ingeneral have risen faster than other prices in recent decades.Moreover, while many industries have been able to dampenthe impact of higher labor costs by introducing labor-sayingtechnology, the nature of much nonprofit activity is such thatit does not; lend itself to such economizings. A 1974 Ford Foun-dation study on the < performing arts explains the strains thislimitation builds intoi the economics of philanthropy. "The lev-el of costs is set by the general economy," says that study,"which is based on an industrial technology that enables out-put per manhour to increase steadily. But the technology oflive performance has no equivalent capacity to increase pro-ductivity. A play or a symphony written two hundred yearsago still has to be handcrafted by the same number of per-formers working the same length of time as they did at itspremiere." Much the same can be said for seminars or medicalexaminations, sociological research or family relations consulta-tions, can be said, In effect, of much of the large array ofservices that nonprofit organizations provide.

83

Not only is the nonprofit sector less able to save on laborcosts, but the wages and salaries it has to pay probably haverisen faster than other wages and salaries In the economy. Thisis so in part because they have risen from a lower base: workfor nonprofit organizations has traditionally been paid lessthan comparable work in business or government. But becauseof unionization, an increased minimum wage, and other fac-tors, the gap between the third sector's wage and salary ratesand those of the other two sectors has narrowed.

The Costs of Complexity

More difficult to put a quantitative yardstick to, but per-haps just as important in boosting the costs of certain areas ofthe nonprofit sector is the increasing complexity of many of thesocial and scientific problems and solutions that today concernnonprofit groups. Dr. John H. Knowles, president of theRockefeller Foundation, emphasized this factor in testimonybefore the Senate Finance Committee, in the course of talkingabout the economic problems of nonprofit institutions. Hespoke of "the complexities of a given social problem today . . .the complexities that face service organizations in education,health, transportation, day care, welfare reform, the plight ofminority groups, you name it. Now in contrast to perhapstwenty or thirty years ago when one individual might be ableto encompass this, researching the problems and trying to giveus sufficient information to solve problems, today the problemsare of such complexity that they require larger teams of inter-disciplinarians or interdisciplinary work to resolve in a rationalfashion the complex issues that face us, Twenty or thirty yearsago we could support research on the development of the yel-low fever vaccine which might have involved a small group ofpeople. Today we have to support that same number plus agoodly number of economists, political scientists, cultural an-thropologists to help us determine how we can use that infor-mation here and around the world, recognizing that there aresocial, economic and cultural determinants to the use of knowl-edge that we gained today that are much more heavily in-

84

volved in the successful amelioration of human misery."; A Commission report on philanthropy in the health field

similarly finds that in recent years there have been "develop-ments in medical science which added tremendously to the costof medical research, education, and care." The report explains:"The development of more complicated diagnostic and thera-peutic procedures carried out by new types of medical special-ists, assisted by substantial numbers of technicians, heavily in-creased the cost of doing medical care research. Special facili-ties, expensive equipment, lengthening training programs havebecome a necessity in modern medical research. Along withthis, medical and health professional education improved andincreased in duration and expense, as did the need for addedinvestment in buildings, equipment, faculty, and student aid.In addition, hospitals and clinics greatly expanded the qualityand scope of their services . . ."

Many, nonprofit organizations, in other words, not only havebeen unable to economize by reducing labor costs but actuallyface the need for more resources to tackle the same problems,as those problems' complexities have become more apparentand the tools for dealing with them more sophisticated.

The More Successful, the Greater the Deficit

Another expensive aspect of the economics of nonprofit ac-tivities is ,that many of these activities do not readily lendthemselves to economies of scale. And this is the basis of acostly irony: the more successful philanthropic "pioneering"has been in terms of reaching more people, the greater theoperating deficit faced by philanthropic organizations, or inmany cases whole philanthropic areas.

Underlying this irony is the fact that philanthropic servicesby their very nature and philosophy rarely pay for. themselves.One of the principles central to much philanthropy is the ideaof extending help or cultural enrichment to individuals regard-less of their ability to pay for it. Therefore, while many philan-thropically supported services have users* fees attached tothem, in very few cases do these fees begin to cover the full cost

85

of supplying the services. Tuitions cover two thirds of the costsof: educating a student, at best. Earned income in the perform-ing arts, most of it from ticket sales, covers one half to twothirds of costs, depending on the art form. Admissions to muse-ums account for only one third of operating expenses. Non-profit medical care is one of the few nonprofit services that, inrecent years, and in limited circumstances, is paid for nearly infull by its users.

So the more users there are the more unreimbursed expensesare incurred. And because there are' few economies of scale,there are few counterbalancing savings through lower per-usercosts of operation. This aspect of the economics of nonprofitactivity has been particularly significant in recent years—andhas contributed heavily to the financial strains of the* nonprofitsector—precisely because of the extraordinary "success" of pio-neering in expanding the ranks of users of nonprofit services.Spurred by a rapidly growing population and even more rap-idly growing gross national product, higher education enroll-ments doubled during the 1960's. The sixties were also thedecade of the "culture boom," in which arts activities flour-ished and spread widely, in many cases because of deliberate"outreach" programs. Health care organizations and facilitiesmultiplied, too. And with this expansion, nothing spread sofast and so hugely as the need for greater revenues to fill thebroadening gap between user payments and operating ex-penses. While some of this demand has been abating as thepopulation structure changes and becomes less youth-heavy,and as the economy as a whole has, at least temporarily,stopped growing, the expansion of nonprofit.services continuesto take its toll. In areas such as education, overcapacity may bebeginning to outweigh the direct burdens of expansion itself, assome institutions find they have built new high-overhead class-rooms and have fewer students to fill them. In these cases, adevastating double-barrelled economics is at work: the strainedfinances of accommodating what was a steep increase in thenumber of users are built into Institutions in the form of in-creased plant and payrolls, while today there are actually fewerusers to lielp pay the bills.

Finally, new philanthropic groups with new purposes have

86

sprouted or grown large in recent years to compete for whatlimited philanthropic resources there are—groups oriented to-ward urban and racial problems, environmental and consumerorganizations, and other politically and legally activist groups-all with their own appeals for support.

All told, the prevailing financial pattern ;of the nonprofitsector has become one of uncommonly higher costs, more re-sources required for old problems and new solutions, more us-ers needing greater aggregate subsidies for traditional servicesand new, less traditional groups adding their claim to the phil-anthropic pie. And it has been, in terms of private support, abarely growing pie all this time, not growing at all of late interms of the real purchasing power of private contributions.This is the pattern that underlies the very real financial diffi-culties—"crisis" is no hyperbole here—of the philanthropicworld. The question, which has been painfully faced by manyorganizations within the nonprofit sector, particularly thelarger, more traditional ones, is whether there is any recoursebut to turn increasingly to government to allay the crisis. Andthe question that should be faced by the American public iswhat the implications, the challenges and the hazards of thisdirection may be in terms of the people served by these organi-zations and in terms of the broad pluralistic value of theseorganizations to society as a whole.

Sources for Chapter III

Robert J . Blendon, The Changing Role of Private Philanthropy in Health Affairs*

John J. Carson and Harry V. Hodson, eds., Philanthropy in the '70's: An Anglo-AmericanDiscussion, Council on Foundations, Inc., New York, 1973.

Earl F. Cheit and Theodore E. Lobman III, Philanthropy and Higher Education.*

Commission on Foundations and Private Philanthropy, Foundations, Private Giving andPublic Policy], University of Chicago Press, Chicago, 1970.

Council on Foundations, Inc., Private Foundations and the 1969 Tax Refbrm Act*

Donald A. Erickson, Philanthropy, Public Needs and Nonpublic Schools*

Solomon Fabricant, "Philanthropy in the American Economy," Foundation Newst Sep-tember-October 1969, Vol. X, No. 5.

Caroline Hightowcr, A Report on the Arts*

Hans H. Jenny, Philanthropy in Higher Education.*

Julian H. Levi, Financing Education and the Effect of the Tax Laws.*

Reynold Levy, and Waldemar A. Nielsen, An Agenda fir the Future.*

Richard W. Lyman, "In Defense of the Public Sector," Daedalus, Winter, 1975.

National Center for Voluntary Action, A Report on Voluntary Activities and LeadershipOpinion* ,

Ralph L. Nelson, Private Giving and the American Economy, 1960-1972.*

David Owen, English Philanthropy, 1660-1960, Harvard University Press, Cambridge,1964.

United States Department of Health, Education and Welfare, HEW News, September2, 1974..

United States Senate, Report of Proceedings, Subcommittee on Foundations, Commit-tee on Finance, Impact of Current Economic Crisis on Foundations and Recipients of FoundationMoney, November 25, 1974.

Ellen Winston, Some Aspects of Private Philanthropy in Relation to Social Welfare*

Adam Yarmolinsky, The Tax Legislative Process and the Appropriations Process,*

•Denotes reports and studies undertaken for the Commission.

88

IVTHE STATE AS A

MAJOR "PHILANTHROPIST"

"Thus far, neither the shillings of the worldngman nor theguineas from British business have markedly relieved the pres-sures on philanthropic agencies. Of infinitely greater conse-quence has been the emergence of the state itself as a majorphilanthropist and benefactor of the voluntary service."

This assessment of the course of British philanthropy, madein the mid-1960's in a seminal work on the subject by DavidOwen of Harvard University, applies in essence to Americanphilanthropy in the mid-1970's. In recent years, governmenthas emerged in the United States as a major "philanthropist,"the major philanthropist in a number of the principal, tradi-tional areas of philanthropy.

By most definitions, including the Commission's, the govern-ment does not and cannot literally play the role of philanthro-pist because part of the basic definition of philanthropy is itsprivate, nongovernmental nature. Yet as a funder of nonprofitorganizations and activities, government ranks, figuratively atleast, as a very sizable "philanthropist" indeed. In 1974, ac-cording to the Commission's estimates (see p. 35), governmentfunds accounted for about $23 billion of the revenues of non-profit organizations compared to around $25 billion from allprivate sources of giving combined. At the same time, govern-ment has absorbed, and probably will continue to . absorb,many philanthropic functions or services, either through thespread of public institutions and agencies that are counterpartsof private organizations or through social programs that rendercertain philanthropic functions and services obsolete or redun-dant.

Government's expanding role as a "philanthropist" is rough-ly indexed by the growth rate of government non-defensespending as compared with private giving. In current dollars,

89

such expenditures at all levels of government quadrupled from1960 through 1974, while giving increased two and a half timesin the same period. Government's non-defense spending hasexpanded in the process from nine times that of philanthropicgiving to fourteen and a half times as much.

The growing role of government in philanthropy—or at leastwhat have been considered philanthropic purposes—is evidentat every turn in the nonprofit sector. In 1930, federal, state andlocal governments together spent about as much as; privatesources in the area of medical research and health facility con-struction. By 1973, government was spending three and a halftimes as much, and this in a health field where private philan-thropy has maintained one of its strongest thrusts. In medicaland health spending as a whole, the change has been evengreater. In 1930, the federal government was spending only 15per cent more than private philanthropy. In 1973, it wasspending nearly seven times as much.

The dominance of government support and public institu-tions in higher education has been more gradual, but no lesspronounced. For most of American history, private support hasbeen by far the most important element in higher education. Astudy for the Commission by Earl F. Cheit, associate directorof the Carnegie Council on Policy Studies in Higher Educa-tion, notes that a century ago all public funds accounted foronly 10 per cent of higher education's income. Tuition ac-counted for 30 per cent, private giving, 60 per cent. But publicspending passed private during World War II, and today therelative support of public and private funds are almost exactlythe reverse of what they were a century ago, with tuition,interestingly enough, accounting for almost the same propor-tion today as it did then, midway between the two extremes.

The GI Bill, which established tuition and living-costallowances for veterans who went to college, provided the ma-jor impetus to increased public spending in higher educationafter World War II. This student payment program could beused at private as well as public institutions, and it helpedsupport both kinds of institutions. Meantime expanding enroll-ments, spurred by the GI Bill, by prosperity and by a growingcollege-age population, required new facilities. So public insti-

90

tutions were enlarged or in cases such as the New York StateUniversity; system were virtually started from scratch to meetthe demand. Private higher education expanded as well; infact, enrollments today in private colleges and universities areat an all-time high. But because of the limited supply of pri-vate funds, private higher education was unable to grow as fastas publicly funded institutions. Thus, from 1960 there has beena gradual decline in the proportion of private colleges anduniversities and a steeper falloff in the ratio of students attend-ing private institutions. About two thirds of all institutions ofhigher learning were private in 1960. Today the proportion isnearer one half. In 1950, slightly over one half of all studentswere enrolled in private institutions. Today fewer than onequarter of college and university students go to private insti-tutions.

From Private Beneficence to Public Obligation

Help for the poor, which historically has been a bedrockobject of philanthropy, has been largely preempted by govern-ment in recent decades. This has happened not so much be-cause parallel public agencies have moved in to take the placeof traditional private social service agencies, though such asupplanting has occurred to some degree. More significantly,immense new programs have been launched and expanded inrecent decades that have altered society's whole institutionalstructure for, and attitude about, dealing with the problems ofthe poor. One observation in a study on the Community Ser-vice Society of New York City illustrates the profound; shiftthat has taken place. In the depression year of 1931, the studynotes, more than one third of what was spent for relief in thecity was privately contributed, principally by a charitable or-ganization with the now quaint sounding name of the Associ-ation for Improving Conditions of the Poor. The associationhas since merged into the Community Service Society and itspends far more than it did back in the thirties, mainly onresearch, education and community organization projects. Butthe conditions of the poor in New York City in the recession

. ,.'. 91

year of 1975 depended overwhelmingly on massive governmentoutlays under multibillion-dollar welfare and social insuranceprograms. , . • '•

The Great Drepression was the epochal spur to this change."The depression," writes historian Robert Bremner, "shatteredthe myth that private charity, could tide the deserving poorover bad times." And in so doing, it became the impetus forshifting help for the poor from an essentially private, "charita-ble" concern to a government responsibility, from dependenceon the beneficence ofs private organizations and individuals toa society-wide entitlement to at least a bare minimum stan-dard of living.

As a result of the ravages of the depression, Congress passedthe Social Security Act of 1935, which is the basis for a wholerange of federal and state assistance and income-support pro-grams, for the poor, the unemployed, the aged, the infirm—insum, the main beneficiaries of traditional "philanthropy." F.Emerson Andrews has described the Social Security Act as?"thelargest single stride ever made in bringing into the orbit ofgovernment those services that were formerly first charges onprivate philanthropy."

Some measure of the enormous impact of Social Securitylegislation can be seen in arithmetic such as this:

—In 1929, old-age, survivors, disability and health insurancedid not exist at all. In 1950, some $784 million was spentunder this program, which is what most people think of whenthey say Social Security. In fiscal 1974, more than S66 billionwas dispensed. :

.—In 1929, $60 million was spent by government on variousforms of assistance—what is generally known as "welfare." Infiscal 1974, the amount was more than $25 billion.

—Private philanthropy, by comparison, distributed in 1974around $2.3 billion in the whole "social welfare" category, ac-cording to estimates by the American Association of Fund-Raising Counsel.

The predominance of government in health, education, andmost dramatic of all, welfare, has been regretted and resisted atone stage or another by various groups within the nonprofitworld. On the other hand, this development can be and has

92

been looked upon as part of a process that reflects one of theabiding virtues of the nonprofit sector.

Earlier, parts of this report have noted the "pioneering" roleof nonprofit activity and the fact that in some areas, this pio-neering has, in effect, moved the activity beyond private phi-lanthropy's capacity for sustained subsidization. The process isdescribed by, David Owen in his observations on English phi-lanthropy, observations that would appear to apply to Ameri-can philanthropy equally as well. Philanthropy, Owen wrote,was central in shedding light on the dimensions of a socialproblem or growing public want, but having done so, it oftenproved unable by itself to solve the problem or fulfill the want."As soon as the terms of the problem were accurately defined,"he found, *'it was seen to lie well beyond the scope of voluntaryagencies." In more concrete terms, the director of Atlanta'sUnited Way, asked by a Commission reporter what the majorpending problems of that city were, answered health, youthguidance, emergency funds, day care and remedial care—all ofwhich were once considered to be principally the concerns ofvoluntary organizations. "But," he said, "because of our limit-ed funds, we just can't touch them. They're too big for us." Areport on, philanthropy in the Cleveland area takes note, in thesame vein, of "the arithmetic growth of private sector fundingin its attempts to meet the geometric growth of public needs."

As certain minimal levels of health, education and welfarehave increasingly come to be regarded as broad social needs tobe attended to as rights of citizenship rather than as benefitscharitably and selectively bestowed, the state has emerged asthe appropriate agency to oversee and allocate resources inthese areas. The point is illustrated in a book called The Wel-fare State published two decades ago, in which it is pointedout that The New York Times' annual appeal for contributionsto the "Hundred Neediest Cases*' was published in the LondonTimes in 1952, accompanied by the commentary that in Eng-land only ten of the 100 would have had to depend on privatehelp. Ninety would have had a claim to the help they neededas a matter of right under one government program or an-other. Possibly these days almost as many Americans from thatold Hundred Neediest list would find their needs answered by

93

the current array of government health and welfare programs.Should government help for the poor continue to change in

a direction that it appears to be moving, there would be evenless central a role fof private aid; This thrust is not towardhelping the poor per se but toward-ridding society of poverty.And eliminating poverty is increasingly seen as a matter ofredistributing income and wealth. What the poor need most ofall, according to this viewpoint, are: neither charitable services,governmental equivalents nor even assurances of minimal stan-dards of health, education and welfare, but money.

We are still a long way from guaranteed minimum incomesfor all Americans of course. But a move in this direction wasincorporated in the 1975 tax reduction measure—a small steptoward a negative income tax, under which people below cer-tain income levels receive government income supplements in-stead of paying taxes. If a full-scale income maintenance sys-tem evolves, the roles of nonprofit organizations that are nowstill mainly concerned with helping the poor will presumablychange further. It is safe to assume, however, that there willalways be an important role for nonprofit groups to play infilling the gaps, sometimes sizable ones—at the local level,among special groups, involving unrecognized problems—whichthe broad, often undiscriminating reach of governmental pro-grams and operations probably will always leave in aiding theunable or the unfortunate of society.

Government Financial Assistance

If a major effect on the growth of the welfare state has beento lessen the need for some philanthropic functions, it is clearthat many of these functions—and attendant organizations-remain. Schools, colleges and universities, hospitals and art in-stitutions appear to be as indispensable as ever. Governmentexpansions in these areas have not involved major institutionalchanges so much as simply helping to pay the bills. This helpis not, it should be clear, for propping up organizations for thesake of their own institutional survival; it reflects a politicallyarrived at determination that nonprofit organizations to or

94

through which public funds flow provide important publicbenefits to the direct users of the organizations' services, ulti-mately to society; as a whole. ; . ;

Among the many government programs that have sprung upin recent decades fto provide substantial public support fornonprofit activities are the following: ' ,

—The school lunch program, which reimburses private (aswell as public) schools for lunches; served. I .

; —Headstart grants, for preschool programs for,; poor children.—Donation of surplus properties to health and educational

institutions. | > :—Mortgage insurance for cooperative nonprofit housing con-

struction, acquisition or rehabilitation. •_:'..—Lease or acquisition by nonprofit associations or corpora-

tions of public lands for recreation, historical monuments orother public purposes.

—Grants for building hospitals and for other health-relatedconstruction, The Hi 11-Burton Program, which spurred theconstruction of hundreds of voluntary hospitals.

—A program that provides full-time, workers, paid by, govern-ment, for community projects (VISTA).

—Preferential postal rates, under w iich nonprofit organiza-tions can save as much as 73 per cent on mailing costs.

This sampling only includes benefits or subsidies that godirectly to nonprofit organizations to help support the servicesthey render to the. public. At least as important in some areasare government programs that help users of nonprofit services,users who might not be able to afford these services otherwise.Among these programs are medical allowances for the elderlyand the poor (Medicare and Medicaid)^ which' have becomemajor factors in the finances of voluntary hospitals. Federaland state scholarship aid has likewise become integral to thesupport of private colleges and universities. Indeed, ever sinceenactment of the GI Bill, student aid has been the principalvehicle of federal support for higher education; it now accountsfor more than 73 cents of every dollar of federal support tohigher education; or around $4 billion as of 1973.

95

Dilemma Over Control and Finances

This ever increasing amount of involvement by governmentin the finances of nonprofit organizations presents a dilemmafor the nonprofit sector. On the one hand, government moneyis needed—is a matter of life or death for many organizations—as the number and size of nonprofit groups has grown and theamount of private funding has, in recent years, moved relative-ly slowly and even fallen off as measured in deflated dollars.On the other hand, government money obviously comes withstrings attached, however invisible and unintentional they maybe. The more a private nonprofit organization depends on gov-ernment money for survival, the less "private" it is going to be,the less immune to the influence of public political processesand priorities.

All the same, government support for much nonprofit activ-ity is an indisputable fact of-life'that'must be lived with andreckoned with. The nonprofit sector has become an increasing-ly mixed realm, part private, part public, in much the samesense that the profit-making sector has—and not unlike thenonprofit sector itself once was. As the Commission's historicalsurvey points out, when it came to attending to public pur-poses, the lines between public and private resources and agen-cies were much less sharply drawn in earlier American historythan they have been in recent decades. In colonial days, whenpublic funds were low, public overseers of the poor would callon the churches for special collections of alms. Early philan-thropists often gave or bequeathed money to government forcharitable purposes. At the same time, private organizationsfrequently received government money without practical orideological qualms. Harvard University, like many of Ameri-ca's first colleges and universities, started out with governmentassistance, £400 from the General Court of Massachusetts, aswell as private, £400 and a library from John Harvard.Throughout the nineteenth century, too, it was not uncommonfor states and cities to subsidize privately run schools, orphanhomes, juvenile reformatories, hospitals and institutions for thehandicapped.

96

Although this practice of public support for private nonpro-fit organizations and the public services they provided wascommonplace, it was also subject to frequent criticism. And thelines between public and private services and support shar-pened over time. So if the lines are beginning to blur again, itis in a context of a certain mutual wariness. The burgeoningsize of government underlies and may even have intensified inrecent decades an uneasiness in voluntary areas over publicsupport. One survey for the Commission appears to reflect thisunease. It found -that among a sampling of voluntary sectorleaders, government-voluntary relations were the foremost con-cern of those questioned.

Seeking: a Balance

A perfect balance between a level of government control,which inevitably accompanies government financial support,and sufficient autonomy by the nonprofit beneficiary is per-haps unattainable. But various methods aimed at approachinga balance are emerging as the nonprofit sector's dependence onpublic support grows;. ^

Several federal! and state funding' organizations have sprungup in recent years which are appropriated sums to dispensewithin nonprofit areas, agencies such as the National Endow-ment for the1 Arts, the National Endowment for the Human-ities, the National! Institutes of Health, the Corporation forPublic Broadcasting and various state arts councils, Insulatedfrom daily politics, they operate somewhat like private philanthropic foundations, although they are periodically account-able to, and dependent on, legislatures for new funds, whichmakes them more susceptible to political priorities than areprivate foundations. In usual governmental fashion, for in-stance, they are inclined to approximate an equal geographicaldistribution of grants regardless of more intrinsic merits; of gran-tees. Still; within such limits, these "insulated" institutions seemgenerally to have played a valuable role. In the arts, wheregovernment aid is relatively new, these institutions account forthe great bulk of public support, and their funding has been at

97

least as beneficial, in some eyes, as some private sources ofsupport.

Another approach to government funding of nonprofit ser-vices that;; is already widely used in some areas is to subsidizeusers of services rather than directly fund the services them-selves. As noted above, the bulk of federal spending in highereducation is in the form of aid to students rather than toeducational institutions. In theory, at least, such aid does notinvolve the government as directly in the policies of institu-tions, beyond setting broad guidelines as to what organizationsqualify for user aid. ;

A greatly expanded program of tuition aid, aimed at nar-rowing the growing gap between public and private tuitions inhigher education, was proposed in early 1975 by the CarnegieCouncil on Policy Studies in Higher Education. Under theCounciPs plan, "tuition equalization grants" of $750 a yearwould be paid to students, half the money coming from thefederal government, half from the states. This is the latest ofnumerous proposals for tuition subsidies. At the pre-collegelevel, similar proposals have been suggested for supplying cred-its, "vouchers," to students who would then be free to spendthem—at public or private schools—as they see fit. This methodis seen as the potential salvation of hard-pressed private schoolsand colleges, especially those with religious affiliations whichthe courts have decreed to be constitutionally barred fromforms of direct governmental aid. Yet all such proposals haverun into heavy opposition from public education leaders, whosee student subsidies for private education as a threat to publiceducation systems.

As many studies made for the Commission suggest, perhapsthe most effective, and most possible, insulation of all frompurse-string control is to have more than one purse to drawfrom. A private organization may be totally reliant on publicsupport and, if the organization's activities, the social condi-tions and the institutional arrangements are right, still main-tain a significant degree of autonomy. But memories of loyaltyoaths as a condition of government funding still are fresh, asare recollections that the institutions that resisted such pres-sures had private as well as governmental resources to draw on.

98

Moreover, as Chapter II notes, the day-to-day attitudes ofthose who direct and staff nonprofit organizations are likely toexhibit more independence if they have a source of funds thatis not subject to official or legislative review. The presence of afirm core of private support, however small, in a private orga-nization that gets major public funding can be of crucial im-portance in determining whether the managers of the organiza-tion regard themselves and behave as independent operators oras civil servants. The importance of private support, in otherwords, may.be at least as great in a mixed nonprofit sector asin a purely private one, even if this importance may be, attimes, more subtle. ,

Private support itself, however, it must be recognized, doesnot fall outside the mixture of public and private influences.The amounts, sources and recipients of private giving are. af-fected by government through the tax laws. Indeed, becauseprivate giving is so basic to the independence of the nonprofitsector, government's influence on giving—which is by no meansneutral—poses some of the major issues to be resolved in thebroad and broadening intermix between the third sector andgovernment.

99

Sources for Chapter IV

Robert J . Blendon, The Changing Role of Private Philanthropy in Health Affairs*'•*

Daniel P. Bourque, Private Foundations and Federal Government Support for Education andEducation-Related Activities, Fiscal Year 1973, The National Planning Association, Wash-ington, D.G.* " : :

Blair T. Bower, The Role of Private Philanthropy in Relation to Environment—Pollution.*'

Gerard M. Brannon and James Strnad, Alternative Approaches to Encouraging PhilanthropicActivities."

Robert H. Bremner, Private Philanthropy and Public Needs: An Historical Perspective.*

John J. Carson and Harry V. Hodson, eels., Philanthropy in the 70's: An Anglo-AmericanDiscussion, Council on Foundations, Inc., New York, 1973.

Earl F. Cheit and Theodore E. Lobman III, Philanthropy and. Higher Education*

Bke Clemow, Search for the Bridge: The Stand-off Between City Hall and "Five Points" inAtlanta*

Wilbur J . Cohen, Some Aspects of Evolving Social Policy in Relation to Private- Philanthropy.*

Commission on Foundations and Private Philanthropy. Foundations, Private Giving andPublic Policy, University of Chicago Press, Chicago, 1970.

Committee on the Law and Practice Relating to Charitable Trusts (Nathan Commit-tee), Report on Charitable Trusts^ Her Majesty's Stationery Office, Ixmdon, 1952.

Fred R. Crawford, Non-Economic Motivational Factors in Philanthropic Behavior.*

Donald A. Erickson, Philanthropy, Public Needs andNonpublic Schools*

Solomon Fabricant, "Philanthropy in the American Economy," Foundation News, Vol.X., No. 5, September-October 1969.

Caryl P. Haskins, The Role of Private Philanthropy and Public Support of Science in the UnitedStates*

Caroline Hightower, A Report on the Arts.*

Hans H. Jenny, Philanthropy in Higher Education.*

C. Harry Kahn, Personal Deductions in the Federal Income Tax* Princeton University Press,Princeton, 1960.

Eric Larrabee, The Public Funding Agency.*

Reynold Levy and Waldemar A. Nielsen, An Agenda for the Future.*

Robert S. Merriman, Cleveland: Faint Halo Around a Solid Tradition of Giving.*

National Center for Voluntary Action, A Report on Voluntary Activities and LeadershipOpinion.*

David Owen, English Philanthropy, 1660-1960, Harvard University Press, Cambridge,1964.

John P. Persons, John J . Osborn, Jr. and Charles F, Feldman, Criteria for ExemptionUnder Section 50I(c)(3)*

Alfred M. Skolnik and Sophie R. Dales, "Social Welfare Expenditures, Fiscal 1974," inSocial Security Bulletin, January, 1975.

100

United States Government, Listing of Selected Federal Aid Available Exclusively to NonprofitOrganizations and Institutions, 1975.

United States Human Resources Corporation, Foundations' Responsiveness to Concerns ofMinority Groups,. San Francisco, 1975.

Joseph L. Vigilante and Ruth Kantrow, The Voluntary Social Agency Experiments, Innovates,Demonstrates, and Influences Public Social Policy: The Community Service Society of New York:;

1930-1970.*

Laurens Williams and Donald V. Moorehead, An Analysis of the Federal Tax DistinctionsBetween Public and Private Charitable Organizations.*

Ellen Winston* Some Aspects of Private Philanthropy in Relation to Socwi Welfare!* ;

Paul N. Ylvisaker and Jane H. Mavity, The Risk of Private Philanthropy in Public Affairs.,*

•Denotes reports and studies undertaken for the Commission.

VTAXES AND'NONTAXES

As long as there have been taxes, governments have beenable to influence giving and nonprofit activity by the ways inwhich they have levied, or not levied, imposts on donor, dona-tion or donee. The power of taxation has been.used at times inother lands to undermine nonprofit institutions and associ-ations. But the predominant pattern throughout American his-tory has been one of growing governmental encouragement ofprivate giving and nonprofit organization through the taxlaws.

The Spread of Nontaxation

(This encouragement has developed in the United States pri-marily through a broadening and deepening of immunitiesfrom taxation. Such immunities reflect ian underlying quid proquo—the belief that society is well compensated for tax rev-enues foregone because the activities and services thereby aidedand encouraged are of benefit. to society. A frequently citedjustification for tax immunities that affect nonprofit organiza-tions is that government, in fact, would itself have to supplymany of the services, fill many of the functions, of such organi-zations if they did not exist.

Exemption from property taxes is one of the principal im-munities enjoyed by nonprofit organizations and also one ofthe oldest. Following English precedents, such exemptions havebeen accorded in America to religious and educational organi-zations since colonial days. Secular charitable institutions ex-panded in number and generally became exempt from proper-ty taxes in the nineteenth century. Today, every state has someform of property tax exemption for nonprofit organizations,and exempt private nonprofit property encompasses no less

103

than one ninth of all property in the United States, it is esti-mated, and accounts for some $5 billion a year in unlevied taxrevenues.

Religious, educational, charitable and scientific organiza-tions have been exempt from federal income taxes, too, eversince today's basic income tax law was enacted in 1913. Cer-tain kinds of nonprofit organizations are exempt from certainother federal taxes as well. Nonprofit educational organizationsdo not have to pay excise taxes on purchases of items for theirexclusive use. Nonprofit hospitals and some nonprofit educa-tional organizations are exempt from federal taxes on tele-phone services. Charitable "drawings'* are exempt from the 10per cent federal tax on wagers.

But possibly the single largest tax immunity benefiting thenonprofit sector is a provision of the federal tax laws thatapplies not to nonprofit organizations directly but to those whogive to eligible nonprofit groups and institutions—the "charita-ble deduction" from personal income taxes. Under this provi-sion, the taxpayer can subtract a "charitable" donation fromhis or her income before calculating the tax to be paid. Likethe tax exemption, the tax deduction has expanded in scopeover the years. Only 15 per cent of a person's income wasdeductible when the charitable deduction was enacted in 1917.This was increased to 20 per cent in 1952, to 30 per cent forcertain types of nonprofit organizations in 1954, to 50 per centfor more kinds in 1969. In; 1974, approximately 30 millionpeople used the charitable deduction, thereby reducing theamount of federal income taxes they otherwise would havepaid by around $4 billion and, as Commission studies referredto later in this report indicate, increasing their giving to non-profit organizations by at least as much.

The long-range trend, in other words, has been one of gener-al expansion of tax immunity for the sake of nonprofit activity.A study of tax laws in other countries indicates that suchimmunity has become of far greater significance in size andscope in the United States than in any other nation. So deeplyrooted is this practice in American ways, in fact, that it wouldappear to enjoy almost constitutional status in many Ameri-cans* eyes. (Nontaxation of religious organizations is held by

• • ,' 1 1 0 4 ..

some legal authorities to be literally prescribed by the Consti-tution under the 1st Amendment prohibition against laws "re-specting an establishment of religion.")

Gountermovements

These are times, however, as this report notes elsewhere, inwhich many institutions and institutional arrangements in bursociety are being reexamined, and the degree and pattern ofnontaxation of charitable organizations and of philanthropicgiving is clearly among them. Indeed, nontaxation serves] as aconvenient, concrete focus for social concerns that have prob-ably, always been a counterpoint to the admiration and praisedirected at philanthropic giving; nontaxation serves as a focusin particular for a frequently evidenced wariness about therelationship of private giving to personal and institutionalwealth and power, a wariness that may well be growing in thisday, of heightened social sensitivities and broadening egalitar-ian sentiments.

In any case, there have been a number of signs in recentyears that tax immunities benefiting nonprofit organizationsmay no longer be generally considered above questioning.Among the signs is the fact that a number of communities inthe past decade have attempted to exact property taxes or"voluntary" payments in lieu of taxes from exempt organiza-tions that iise public services but have not had to pay for them.Mounting property tax rates to meet straining municipal bud-gets have been a major impetus to such challenges to the prop-erty tax exemption. "As is true with any tax source," a Com-mission report on tax exemption bluntly puts it, "the higherthe rate the more difficult to grant a free ride . . . "

There has been greater scrutiny of the income of tax-exemptorganizations, too, in recent years; income that flows from en-terprises that are run by, but are not directly related to thepurposes of, tax-exempt entities is now subject to taxation. Atthe federal level, the four per cent "auditing fee" tax on foun-dation income that was enacted in 1969 is viewed by somemainly as reflecting Congress's unhappiness with,foundations,but others glimpse a much broader implication, a precedent.

105

CHALLENGING THE CHARITABLE

DEDUCTION

Potentially the most serious challenge to the system of taximmunities affecting nonprofit activity concerns—directly andindirectly—the charitable deduction under the federal personalincome tax, which influences by far the largest source of pri-vate giving to nonprofit organizations, giving by individuals.

The income tax deduction was enacted just four years afterthe income tax itself became a permanent fixture of Americanlife. The deduction was part of the Second Revenue Act of1917, which steeply,boosted income tax rates to help pay forAmerica's entry into World War I, The main tax principle, orphilosophy, that was articulated in support of the deduction atthat time was the contention that the income tax should beimposed only on consumable income, that the governmentshould not tax the portion of a person's income that is devotedto charity, which was seen as going to public uses and not tothe giver's personal advantage or enrichment. The "incomedefinition" viewpoint remains the principal philosophical ratio-nale for the charitable deduction today, and it is subscribed toby a number of economists and tax experts.

The charitable deduction was enacted not only or even pri-marily as a matter of tax philosophy, however, but because ofhard practical considerations. It was feared that in reducingdisposable income, the new steep income tax rates would causeupper-income donors to cut back on their contributions to in-stitutions that depended on such gifts. Senator H. F. Hollis,one of the authors of legislation enacting the charitable deduc-tion pronounced this viewpoint in introducing the bill. People,he said, usually "contribute to charities and educational ob-jects out of their surplus . . . Now, when war comes and weimpose these very heavy taxes on incomes, that will be the firstplace where the wealthy men will be tempted to economize . . .They will say, 'Charity begins at home.' "

106

The need for private philanthropic funds to support majornonprofit organizations remains today the main pragmatic ba-sis for the charitable deduction, accompanying the philosophi-cal basis of the "income definition" rationale. Among the chal-lenges confronting the charitable deduction is the fact thatboth bases are today being questioned.

Philosophical Challenge

A major challenge to the philosophical basis of the charita-ble deduction lies in the contention that charitable giving isnot that different from other kinds of personal outlays andtherefore should not be treated differently under the incometax. This viewpoint is summarized in a study for the Commis-sion by Paul R. McDaniel of Boston College Law School. ". . ,Most economists and social psychologists/' he writes, "take the*scientific' view that charitable contributions are not simplyindividual sacrifices for the public good, but are actually con-sumption spending . . . In making a charitable gift, the1 indi-vidual is seen as purchasing status, the perpetuation of hissocial values, or on a less mercenary level, the satisfaction re-sulting from doing a 'good deed.' . . • And one can inquire asto whether the deduction operates equitably as an Incentivesystem to induce this form of consumption."

Overlapping this argument in recent years has been themore vigorous and somewhat less abstract contention of taxreformers that the charitable deduction is not distinct from anumber of other deductions that have been built into the in-come tax, and that all of them are wanting by the yardstick ofequity.

According to this viewpoint, all tax immunities are forms ofgovernment subsidy to whatever activity benefits from, nontax-ation. This is not a new idea. A president of Harvard Universi-ty, Charles William Eliot, acknowledged and attacked this wayof looking at tax immunity a century ago. "It has been oftenasserted," he said, "that to exempt an institution from taxationis the same thing as to grant it money directly from the publictreasury. This statement is sophistical and fallacious." But the

107

tax-immunity-as-subsidy viewpoint has gained considerable in-fluence among tax analysts in recent years. It was adopted by;the federal government in 1968, when the Treasury Secretary'sannual report included a "tax expenditure" section. This sec-tion lists the amounts by which the government is seen to besubsidizing various areas through forms of nontaxation or re-duced taxes. In the federal budget for fiscal 1976, $91.8 billionwas the total estimated for tax expenditures, including $4.84billion attributed to the personal income tax charitable deduc-tion (fourth on the list after deductions for state and localtaxes, for home mortgage interest costs and for pension contri-butions).

Nor is the tax expenditure viewpoint limited to tax analystsor government ledgers. A ghetto activist in Hartford who chal-lenges the pattern of corporation and foundation philanthropy,in that city was quick to evoke the viewpoint during an inter-view for a. Commission report. His position: "These corpora-tions and foundations are tax exempt. Therefore, part of themoney they spend is my money. Therefore, they should haveregulatory restrictions placed upon them that will force themto meet specific social criteria . . ." The result of one founda-tion's practices, he charged later, was "to use charitable giv-ing—a form of federal subsidy—to perpetuate the effects of pastdiscrimination."

When seen as a form of government subsidy or expenditure,the charitable deduction, like other personal income tax deduc-tions, is open to charges of inequity because of a pattern thatis, in effect, the inverse of the progressive structure of the in-come tax. The higher a person's income the higher the rate oftaxation under the income tax and therefore the more thegovernment foregoes—or "spends" in the tax-expenditureview—for any portion of such income not taxed. In otherwords, the government adds proportionately more of the subsi-dy to a high-income taxpayer's giving and proportionately lessto the low-income taxpayer's contribution.

Stanley S. Surrey of Harvard Law School, formerly AssistantSecretary, of the Treasury for Tax Policy, is the foremost pro-ponent of this way of looking at tax deductions, starting withhis advocacy of a tax-expenditure budget while he was in the

108

Treasury Department. Talking of the charitable deduction in aCommission discussion, Surrey illustrated the tax-expenditureviewpoint in this way: '; ;

"Let us look at this subsidy to charities which is given by thecharitable deduction. Well, it was a very peculiar subsidy; It'ssort of an upside-down affair. As you know, if a person in the70 per. cent bracket gives a sum of money, he is able to deductthat sum of money from his tax base, and in effect he is onlygiving 30 per cent, whereas when a person in the 14 per centbracket gives a sum of money, he is giving 86 per cent. Or toput it differently, if a $200,000 person gives 10 per cent of hisincome to charity, it really costs the government $14,000 to get$6,000 out of that person . . . If a $12,000 person gives 10 percent of his income to charity, it costs the government $324 toget $876 from this person. The charitable deduction works justupside down."

In a recent attack on what he described as the disproportion-ate benefit to high-income taxpayers of tax expenditures ingeneral, Senator Walter Mondale included the charitable de-duction and calculated what the effect of the deduction, fromthe tax-expenditure viewpoint, looks like in aggregate terms.Some $3.8 billion in tax expenditures, he figured, were ac-counted for by the charitable deduction in fiscal 1974 (hiscalculations put contributions to education in a separate cate-gory). Of this, 66'7 per cent went to families with adjustedgross incomes of more than $20,000, representing 14.6 per centof all taxpayers. "The concentration of tax expenditure benefitsin the higher income brackets," said Mondale, "is one of theimportant reasons these provisions must be examined withgreat care. If the federal government is, in effect, going to bespending money to support or reward certain activities, wemust determine whether it makes sense to do so under a systemwhich provides the highest benefits to those with the highestincomes."

The tax-expenditure viewpoint and its implications are byno means universally accepted. A major argument that hasbeen raised against the whole notion of tax "expenditures" isthat it implies that all income covered by tax laws is govern-ment money. It is only in this light, it is contended, that non-

, 1 0 9 • • : '• . .• .

taxation can be seen as a subsidy, or expenditure.The equity implications of the tax-expenditure viewpoint are

also challenged by those who argue that the alleged disparityof tax expenditures in favor of! high-income taxpayers:is merelythe mirrored reflection of the progressive income tax, which isstructured^ against them, lln other words, noritaxation of por-tions of higher incomes because of; tax exemptions or deduc-tions is! only higher, can only be viewed as a greater govern-ment expenditure, because the tax rates are set higher forup-per-income levels to begin with.

Perhaps the j principal counter-argument to the tax-expendi-ture viewpoint as far as its application to the charitable deduc-tion goes rests with the "income definition" rationale for thededuction. According to this reasoning, tax allowances for phil-anthropic giving cannot be looked at or measured in the sameway as tax privileges for other purposes because money givento charity is not an element of income that should be subjectto government's taxing power to begin with. Boris I. Bittker ofYale Law School posed the "income-definition" argumentagainst the "tax-expenditure" viewpoint this way in the sameCommission discussion in which Stanley Surrey took part:

" . . . The concept of income is not settled, cannot be settledthe way one can define water as H2O or lay down the laws ofgravity . . .Income is a political, economic, social conceptwhich takes its meaning from the society in which the term isused, in my view. And there are many definitions of income.. .But at the very core of the only definition that has the benefitof a consensus, there is a concept of consumption . . . I wouldassert that consumption certainly consists of what one spendson food, shelter and clothing for himself, his family, friends,what one saves to pass on to heirs and so on . . . But 2,000years of religious, philosophical and ethical views suggest thatwhat one gives to charity can properly be viewed differently . . .If, as I think, we have a powerful sense of difference betweengiving to charity and spending in other respects, I see no rea-son at all why in defining income one shouldn't exclude thoseitems like charitable contributions that our whole history tellsus represent a special kind of use of one's funds."

Yet another view that the Commission heard expressed by

110

tax experts was that those who support the charitable deduc-tion should have no argument with the tax-expenditure view-point, but should be willing to view tax savings from the chari-table deduction as a form of tax expenditure and simply assertthat, for special reasons associated with philanthropic giving^itwas a desirable form, of tax expenditure, whereas other formswere not necessarily desirable. This view in turn has been chal-lenged on the grounds that to regard charitable tax savings asa form of government expenditure is to undermine the "in-come definition" case for the deduction, because it means con-ceding that the charitable deduction is not fundamentally dif-ferent from other deductions and allowances.

The pros and cons of the tax-expenditure viewpoint continueto be argued, often heatedly, as do its implications for thecharitable and other deductions. Meanwhile, however,; theviewpoint seems to be taking an ever firmer hold within:gov-ernment. The tax-expenditure part of the Treasury Secretary'sreport was instituted in 1968 by administrative decision. In1974, Congress wrote the tax-expenditure viewpoint into law:it passed legislation requiring that as of 1975 a tax-expendituresection be included in the federal budget. In all likelihood, taxexemptions, deductions, credits—including those benefitingnonprofit organizations—will be increasingly scrutinized byCongress as if they were forms of government spending, what-ever the implications.

Pragmatic Doubts

Alongside of, and perhaps fueling, the philosophical chal-lenge to the charitable deduction, its logic and its equity, havebeen doubts, perhaps growing ones, about the pragmatic basisof the deduction—about the need for the deduction in order tomaintain essential organizations and services.

That the deduction was needed to maintain giving levelsand that this giving was essential to the survival of certainmajor institutions was * evidently little questioned when thecharitable deduction :was instituted in 1917, nor was the publicbenefit derived from cthose institutions questioned. Recurrently

111

since then, however, the assumed effectiveness of the charitablededuction as a stimulus to giving has been doubted by expertsand by political leaders. And in recent years, as private givinghas become a shrinking element in the support of traditionalobjects of philanthropy, the need for this giving has become amore subtle and in some eyes may appear to be a less compel-ling proposition.

Meantime the nation has moved from vigorous growth to aneconomy of high unemployment and inflation. Public budgetshave been severely strained in recent years. So the public bene-fit derived from objects of philanthropy probably tends thesedays to be regarded in relative more than in absolute terms, tobe weighed-^-along with the tax costs of philanthropy—againstother public benefits including those that have been eliminatedor restricted because of government budget cutbacks.

Cases in recent years in which some prominent well-to-doAmericans have paid little or no taxes in support of govern-mental services, in part because of deductions taken for chari-table giving, have put governmental versus philanthropicpriorities on the scales in a dramatic and highly publicizedway that has probably not enhanced public sympathies for thephilanthropic priorities. Observations by the then ranking Re-publican member of the House Ways and Means Committee,Rep, John Byrnes, made in the course of the 1969 tax reformhearings, reflect this probability. "The real problem here," hesaid, "is that certain people have a choice as to how the taxaspect of their income is going to be spent. Others have to letthe government say how it is going to be spent . . . And theymust also pay a higher price because some people with wealthhave said they do not want to support any of these governmen-tal services." "I feel that people who enjoy wealth . . , shouldbe encouraged to engage in more philanthropy," he went on."But when the incentive is given to use moneys [for philan-thropy] that otherwise would be going toward the payment ofGovernment services, and when we don't suffer from an. excessof that money, then perhaps our encouragement is misplaced..."

Is governmental encouragement of philanthropy through thecharitable deduction misplaced? This Commission does notthink so, for reasons that are discussed in the next chapter of

1.12

this report. Yet apart from the merit or lack of merit underly-ing such skepticism, the very fact that it was voiced by ramoderate and influential member of Congress is an indicationthat government encouragement of philanthropy may no long-er be—-if! it ever was—politically invulnerablesimply because ofits association with the cause of philanthropy.

Standard Deduction vs. Charitable Deduction

In fact, the charitable deduction has already proved in re-cent years to be highly vulnerable to at least indirect politicalerosion. Such erosion has taken place of late as a result of theexpansion of the "standard deduction." Since 1944, all taxpay-ers have had the option of deducting from their income for taxcomputation purposes a set amount or a proportion of theirincome as an alternative to adding up all the separate deduc-tions allowable to them—for home mortgage payments, localand state taxes, medical expenses and so forth, including giftsto charity. Those who take the standard deduction can effectan appreciable tax savings, but because no actual outlays needbe made to take the; standard deduction, such savings do notact as an inducement to any particular form of expenditure.Standard deductors, in other words, feel no inducements fromspecific deductions, including the charitable deduction.

Understandably, the standard deduction's effect on thecharitable deduction has been a matter of concern to the worldof philanthropy since 1944; but it tended to become less worri-some for many years as "itemizers," those who did not take thestandard deduction, rapidly grew in proportion to those whodid. Partly as a result of expanding home ownership, accompa-nied by a growing number of taxpayers with mortgage interestpayments to deduct, the number of itemizers increased fromless than one fifth (18 per cent) of all taxpayers soon after thestandard deduction was enacted to nearly half (48 per cent) in1970. But since then, the level of the standard deduction hasincreased, and so has the proportion of standard deductors. In1972, only 35 per cent of taxpayers itemized their deductions.A further increase of the standard deduction for 1975 returns

113

was expected to reduce those taking separate deductions—in-cluding the charitable deduction—to 31 per cent of all tax-payers.

This constricting of the reach of the charitable deduction interms of the number of taxpayers affected both reflects andmay further fuel political challenges to government's majorencouragement to giving. On the one hand, it signifies that thecharitable deduction is, along with other deductions, given alower political priority than tax simplicity and easing the taxburden on lower incomes—which are among the main purposesbehind higher standard deductions: At the same time, as fewerand fewer Americans avail themselves of the charitable deduc-tion, this tax provision's constituency may be narrowed, itspolitical underpinning weakened.

Such are some of the challenges, conceptual and concrete,social and economic—all having ultimate political implications—which the Commission finds to be confronting the charitablededuction as our society's principal institutional encouragementto philanthropic giving. This is not to say that such giving itselfis being challenged or that the objects and purposes of suchgiving are being challenged. Nor are the viewpoints or trendsthat present the;challenges by any means immune to changeand challenge themselves. Indeed, in the following chapter, theCommission offers front its own research and'expertise'what it-feels are powerful reasons for maintaining the charitable deduc-tion, whatever its defects may be. At the same time, the Com-mission feels that the challenges to the charitable deduction,however valid or invalid their premises or purposes might be,cannot be ignored t>y the nonprofit sector.

They are, therefore, viewed as part of the contemporary con-text in which the Cominission. addresses itself to recommenda-tions involving the changing course of American philanthropyand the nonprofit sector. These recommendations, and theweighings and further findings behind them, are the subject ofPart II of this report, which follows.

114

Sources for Chapter .V

Arthur Andersen & Co., Oversiew of Governmental Support and Financial Regulation of Philan-thropic Organizations in Selected Nations * ,

William D. Andrews, "Personal Deductions in an Ideal Income Tax?* Howard Law•Review*Vol.'86, No, 2, December, 1972.

Chauncey Belknap and Philip Mandel, "The Federal Income Tax Exemption of CharitableOrganisations: Its History and Underlying Policy* Rockefeller Foundation, Hew York, 1954,

Boris I. Bittker and Stanley S. Surrey, Philanthropy ami the Tax System, CommissionDiscussion, January 15, 1974,*

Landrum R. Boiling, Statement Submitted to the Subcommittee on Foundations, of tht SenateFinance Committee, June 1974.

Gerard M. Brannon and James Strnad, Alternative Approaches to Encouraging PhilanthropicActivities.*

George F, Break, Charitable Cmiributims Under the Federal individual Income Tax: AttermtiwPolicy Options** .• ,,

John J. Carson and Harry V. Hodson, eds.. Philanthropy in the '70's; An Anglo-AmericanDiscussion, Council on Foundations, Inc., New York, 1973.

Vivian Comtek, Money Aboves Action Below: Philanthropy in Hartford;*

O. Harry Kahn, Personal Deductions in the Federal Income Tax% Princeton University Press,Princeton, 1960. *

Irving Kristol, "Taxes, Poverty and Equality," in 71* 'Public Interest* Fall, 1974

Julian H. Levi, Financing Education and the Effect of the Tax Lams.*

Paul R. McDaniet, Study of Federal Matching Grants for Charitable Contributions.*

National Center for Voluntary Action, .A Report on Voluntary Activities and LeadershipOpinion,*

John P. Persons, John J, Osborn J r . and Charles F. Feldman, Criteria for ExemptionUnder Section 501 (e)(3)*

John F. Shannon and L. Richard Gabler, The Exemption of Religious, Educational andCharitable Institutions from Property Taxation,* , :

U.S. House of Representatives, Ways and Means Committee, Hearings en Tax Treatmentof Charitable Contrieutioniy February 27, 1969. ' • .

U.S. Senate, Report of Proceedings, Subcommittee on Foundations, Committee onFinance, Impact of Current Economic Crisis on Foundations and Recipients of Foundation Money,November 25, 1974."; • : ' "" *- .- . '.-

William Vidorey, "Private Philanthropy and Public Finance," in Altruism, Morality andEconomic Theory, Edmund S. Phelps, ed., Russell Sage Foundation, New York, 1975.

Richard E. Wagner, Death, Taxes and Charitable Bequests: A Survey of Issues and Options.*

John A. Wallace and Robert W, Fisher, The Income Tax* Deduction for Charitable Conirikt-*lions fy Indimdmls*

Laurcns Williams and Donald V. Moorehead, An Analysis of the Federal Tax DistinctionsBetween Public and Private Charitable Organizations.*

•Denotes reports and studids undertaken for the Commission.

115

PART IITOWARD A STRONGERVOLUNTARY SECTORConclusions and Recommendations

of the Commission

INTRODUCTION TO PART II

At this point in its report, the Commission turns to specificrecommendations aimed at strengthening and improving thestructures and processes of the voluntary sector, recommenda-tions that are aimed ultimately at increasing the benefits, di-rect and indirect} material and spiritual, that the sector pro-vides society. These recommendations are based on a numberof broad conclusions by the Commission about this area ofAmerican life, about changes and challenges to established pat-terns within this area, and about continuities as well.

The Commission feels that the data and expert opinion andanalysis it has consulted, as summarized in the previous chap-ters, affirms that the "third sector" plays a large and vital rolein American life, especially important today as a counterbal-ance to the giant institutions of society's other two sectors-business and government. The third sector provides, in effect,an arena within which the individual, often a barely visible oraudible force in today's society, can exercise personal initiativetoward the betterment of his community or of the nation orhumankind as a whole.

Far more significant in size and scope than in any othercountry, the third sector's array of private nonprofit organiza-tions also reflects a deeply rooted American tenet which hasbeen reinforced by recent tremors in the nation's governance—the conviction that no single institutional structure should ex-ercise a monopoly on filling public needs, that a reliance ongovernment alone to fill such needs not only saps the spirit ofindividual initiative but risks making human values subservi-ent to institutional ones, individual and community purposesto bureaucratic conveniences or authoritarian dictates.

The evidence presented to the Commission and the exper-ience of many Commission members themselves also indicatesthat private support is an essential underpinning of nonprofitorganizations, that the autonomy of such organizations clearlydepends on private contributions'of-money and labor and thatthe pluralistic value of third sector organizations depends on ahigh level of autonomy. Although greater public funding' of

119

many traditional nonprofit services appears inevitable as one ofthe on-going changes affecting the voluntary sector, the veryfact of an alternative source of support can preserve a signifi-cant degree of independence in outlook and control in a pub-licly funded "private" organization that might otherwise be-come indistinguishable from a government agency.

The Commission believes that government must not try tosolve all our problems. The great strength of our society hasbeen individual initiative, which has long been reflected inAmericans' tendency to pursue common goals through volun-tary organizations and associations. Philanthropy, a means, notan end in itself, is a way of exercising and supporting suchinitiative to make possible alternatives to government, to sup-plement government efforts and to help assure the mainten-ance of a pluralistic society.

The Commission feels, therefore, that the level of philan-thropic giving must be increased if giving and nonprofit activ-ity are to continue to play major roles in American life. Notonly do many specific nonprofit causes depend for their auton-omy on such support and many beneficiaries of nonprofit ser-vices rely on such aid for their particular benefits, but the verycharacter of American life depends on individuals' feelings ofmutual obligation and the exercise of pragmatic altruism,which are expressed in and nurtured by private giving forpublic purposes.

Yet, despite the broadly significant role of private giving,two factors that the Commission has examined cast doubts onwhether the level of private giving, in relative and perhapseven absolute terms, is likely to be sustained, let alone in-creased, without deliberate and energetic efforts toward thisend. One factor is the estimation that while the giving of timeand labor—volunteer work—has increased in recent years, thegiving of money and property has fallen off in relation to theeconomy as a whole. The other factor is that government'sprincipal encouragement to private giving—the charitable de-duction—is being questioned, at least by some, largely in termsof egalitarian values, and is being eroded by other governmen-tal priorities. Neither factor by itself appears to present animmediate severe threat to Americans' deeply ingrained prac-

120

tice of private giving. Yet together, the Commission feels, theseare not developments that can or should be ignored.

Thus the first chapter of Part II of this report deals withrecommendations involving tax proposals that affect philan-thropic giving. This set of recommendations Is followed byanother which is aimed at improving the "philanthropic pro-cess"—the interaction of donor and donee and the public atlarge that guides giving and nonprofit activity toward sociallybeneficial purposes—and at building public confidence in theprocess, which must underlie continuing financial and politicalsupport of the nonprofit sector. Finally, this report .finds con-tinuous examination, representation and strengthening of thesector to be tasks that call for establishment of a permanentcommission on the voluntary sector.

All these recommendations are aimed at sustaining and rein-forcing the nonprofit sector as a major institutional area andforce in American society. Ultimately, of course, the sector'sown performance, the services and functions it provides—orbecause of institutional inertia and narrow self-interests fails toprovide—will do more than any set of structural changes toaffect the health and vitality of the sector as a whole.

So an ultimate Commission charge to organizations and in-stitutions of the nonprofit sector is to be constantly aware thatthough privately controlled, they exist to pursue public pur-poses and in various ways are answerable to the citizenry as awhole. No institution or set of institutions automatically de-serves public support and all must be aware of the need torecurrently demonstrate, by deed and by openness to publicexamination, their worthiness of this support. At the sametime, the Commission cannot stress too much to the Americanpublic the importance of sustaining a large and vigorous vol-untary sector. While Americans as a whole may take the sectorfor granted, it is worth noting that most other people in therest of the world do not. They do not for the simple reasonthat they have nothing like it. And the Commission feels thatthey are the poorer for the absence.

121

VIBROADENING THE BASE

OF PHILANTHROPY

It is entirely appropriate, this Commission believes, that as anation we encourage private giving to nonprofit "charitable"organizations and that we do so by governmental means. It isappropriate because these organizations play an indispensablerole in American life and because private giving is essential notonly to their autonomous existence but also for maintainingthe level of services and benefits they provide to ultimate bene-ficiaries. Governmental encouragements to giving are appropri-ate, further, because giving provides an important mode ofcitizen expression. By saying with his or her own-dollars whatneeds should be met, what objectives pursued, what valuesserved, every contributor exercises, in a profound sense, a formof self-government, a form that parallels, complements andenriches the democratic electoral process itself.*

Yet if the appropriateness of governmental encouragementsto giving is, we believe, firmly based and widely accepted,criticisms have arisen in recent years from some quarters con-cerning the principal existing form of encouragement—thecharitable income tax: deduction. The main criticism, as notedelsewhere in this report, is that the deduction provides a great-er inducement, the higher the giver's income, and that it there-fore serves to favor causes of upper-income contributors.

Accordingly, one of the major undertakings of the Commis-sion has been to examine the deduction and possible alterna-tives to the deduction arid to attempt to reach a consensus asto which particular form of encouragement is most suitable tothe purposes of charitable giving and the broader purposes ofo u r 7 s o c i e t y . ' • • '•••" - • • . • • • • '_ • • •

A number of proposals for new kinds of inducements togiving have been put forward in the last few years; some have*See comment by MAX M FISHER, page 201.

123

been developed In detail specifically for the Commission's con-sideration. In examining and weighing these, along with theexisting charitable deduction itself, we have borne in mind anumber of objectives—and we have ultimately recognized thatno particular form of inducement will fully attain all of theseobjectives. Indeed, as we have gone through an extensive pro-cess of research, analysis and judgment, we have come to real-ize that there are some virtues and some shortcomings in all ofthe proposals examined, and that preferences among themmust accommodate a variety of often competing consider-ations.

Objectives

These are the six objectives by which the Commission hasweighed different kinds of encouragement to giving:

1. To increase the number of people who contribute significantlyto and participate in nonprofit" activities.

The Commission's survey of taxpayers, described in ChapterII, indicates that giving and direct participation in nonprofitactivities—volunteering—tend to go hand in hand. The Com-mission believes that the number of people who engage ineither or both should be increased because of the benefits tosociety from nonprofit activities, including benefits to the par-ticipants in such activities. It is also important for the long-runhealth and stability of the third sector, the Commission feels,that as many Americans as possible give significant amounts oftime and money to, and therefore have a direct interest in thedurability of, nonprofit organizations and the nonprofit sectoras a whole.

2. To increase the amount of giving.As Chapter II notes, the level of giving by individuals has

declined markedly in recent years as a proportion of personalincome and of the gross national product. Chapter III describeshow giving has declined even more steeply in purchasing pow-er, because goods and services for which contributions are usedhave gone Up in price more than the price level of the economyas a whole. Between declining relative amounts of giving and

124

the exceptionally higher costs facing nonprofit organizations, itis estimated that the relative purchasing power of charitablecontributions declined from 2 per cent of GNP in 1960 to 1.5per cent in 1972, This level has undoubtedly fallen off evenfurther since 1972, as giving itself has decreased, absolutely, inconstant dollars.

In order to restore giving to its former level, an increase incontributions of one third would be needed, or around S8 bil-lion based on current giving levels. If such an increase standsas an upper goal for encouragements to giving, a minimumgoal is suggested by estimates that giving will have to grow onthe average by 11 per cent a year to maintain even its currentreduced impact. This estimate is based on projections that thegross national product will grow, in undeflated dollar amounts,by 10 per cent a year for the foreseeable future and on expecta-tions that costs of nonprofit activities will continue to rise 1 percent faster than costs in general.

A new base level of giving one third higher than at presentin order to restore old giving levels and a continuous growthrate of 11 per cent simply to stand still pose no modest rangeof goals, considering that for the last five years giving hasincreased only 7 per cent a year on the average, or less thanthe rate of inflation. Yet the Commission feels that substantialgoals must be pursued if an independent third sector is not toslowly erode away or become an adjunct of government be-cause of insufficient private support. Further, even the ambi-tious goals set forward here relate only to existing or past levelsof giving. They may not be ambitious enough, because they donot take into account that many new groups with new pur-poses and new constituencies have, as observed earlier in thisreport, sprung up with new demands on the resources of phil-anthropy. Nor do they take into account ever-growing de-mands for the services of traditional philanthropic organiza-tions.

3. To increase the inducement to giving by those in low- andmiddle-income brackets.

Within the context of the progressive income tax, the cost ofgiving a dollar goes down as a contributor's tax bracket goesup. Whether this is inequitable or not can be, and is, argued,

• . . •• • '. •. • . - ' • ' 1 2 5 ' '' ' . • • • . : • •

and Chapter V summarizes the major sides of the argument.But unquestionably the lower-income giver has less of an in-ducement to give than does the higher-income donor, and as apractical and political matter, this gives lower-income givers,who constitute a sizable portion of all citizens, less reason togive to and to feel a stake in the nonprofit sector. More thantwo thirds of all taxpayers, as noted, have no tax; inducementto give at all because it is less costly for them to take thestandard deduction than it is to take the charitable deductionalong with other itemized tax deductions. Thus, apart fromconsiderations of equity, the Commission feels that widelyunequal giving inducements create some risk to the continu-ance of any inducement at all, and to the giving induced. Forthis reason alone the range in inducements should be narrowedby raising the level of inducements to lower incomes.

4. To preserve private choice in giving.Government currently influences giving through the tax sys-

tem by determining what is or is not a tax-deductible causeand by setting percentage-of-income deduction limits. For giv-ing to provide a mode of individual expression and of citizeninfluence on the course of society and its institutions, givingmust be contained and influenced as little as possible by collec-tive, governmental determinations or, as one Commission re-port notes, giving becomes just another way for government todo what it wants to do anyway.

5. To minimize income losses of nonprofit organizations thatdepend on the current pattern of giving.

While the Commission recognizes that the divisions and des-tinations of the philanthropic dollar have changed consider-ably over, the span of American history, and that they arebound to continue changing as needs change and as prioritiesof contributors and donees' reliances on public versus privatefunds themselves shift, the Commission feels that it is not anappropriate time For major decreases in any area of privategiving. This is because, as delineated in Chapter III,, nearly allnonprofit organizations are facing extreme financial pressurestoday. Whether, in the long run, inducements to giving shouldbe oriented towards what are today the hardest pressed organi-zations or whether private giving would better serve public

126

needs if it were guided towards other purposes, is another,broader matter that should be examined by any future studyof philanthropy and the nonprofit sector.* For now and theforeseeable future, however, the Commission" feels that any in-ducements to giving should not be constructed so as to discour-age giving to current recipients.

6. To be as "efficient" as possible.The new levels of contributions stimulated should at least

approximate the amount of government revenue foregone inorder to provide this stimulus.

Three Approaches

The Commission has considered, and has weighed in termsof the above objectives, three basic approaches to providingpublic encouragement to private giving: the charitable deduc-tion itself, including modifications; tax credits; and matchinggrants. The charitable deduction permits a taxpayer to sub-tract the'amount of his or her giving from the total incomeupon which taxes are computed;, A tax credit permits a taxpay-er to subtract a specified amount or percentage of annual giv-ing from the amount of income tax owed. Under matchinggrant proposals for encouraging giving, the government distrib-utes to charitable organizations a percentage of either theamount each person gives or the amount each organizationreceives from private sources.

CONTINUING THE DEDUCTION

<' Members of the Commission are virtually unanimous in con-cluding that continued use of the charitable deduction shouldbe the primary'means of public encouragement of? private giv-ing, A number of considerations have led to this conclusion, v

'•See comment by MAX M. FISHER, page 202.

127

Giving Should Not Be Taxed

For many Commission members the charitable deduction isa philosophically sound recognition that what a person givesaway simply ought not to be considered as income for purposesof imposing an income tax. There is no fixed definition ofincome; it is a concept that acquires meaning by the context inwhich the term is used. In the context of personal incometaxation, the Commission believes it is appropriate to defineincome as revenue used for personal consumption or increasingpersonal wealth and to therefore exclude charitable giving be-cause it is neither. We recognize that in some eyes giving mon-ey away can be and isi considered a form of consumption. Inreturn for a contribution, a donor in some circumstances mayacquire enhanced status in the community, or even power andinfluence, and will often derive some measure of ego satisfac-tion.

For countless numbers of donors, however, the Commissionbelieves that private giving is primarily altruistic, that mostpeople do not enhance their wealth or their power when theygive and are not providing for their personal needs, and thatthey should not therefore be taxed on the amount of moneythey give away. We think it entirely appropriate, in otherwords, for the person who earns $55,000 and gives $5,000 tocharitable organizations to be taxed in exactly the same way asthe person who earns $50,000 and gives away nothing.

A Proven Mechanism

The charitable deduction has been a widely accepted devicethat has been part of the income tax laws virtually since theiradoption. It has proven itself simple to|administer, requiringlittle more government manpower or mechanism than is need-ed in any case for income tax collection and verification. Con-stitutionally, it stands unassailed, whereas other proposals suchas federal matching grahts or credit systems risk running afoulof constitutional prohibitions, at least as far as donations to

128

religious organizations are concerned. And it is a familiar de-vice that has come to be relied upon both by those who giveand by the institutions to which they give. While these factorsalone do not justify retention of the deduction or resistance todepartures from the deduction, they, do place a burden uponthose who criticize the deduction to demonstrate the overallsuperiority of alternatives.

, An "Efficient" Inducement

Commission studies show also that the charitable deductionis a highly "efficient" inducement to giving. Ever since thededuction's enactment six decades ago, an argument has beenwaged among tax analysts and others interested in the deduc-tion as to whether the amount of tax revenues not collectedbecause of the deduction is matched by at least an equal in-crease in charitable contributions attributable to the deduc-tion.

When this Commission began its work, there was little hardevidence in answer to this elementary question. What data andanalysis there were suggested that tax deductions had only aminor effect on contributions. However, a series of econometricstudies on the effectiveness of the deduction undertaken for theCommission by economist Martin Feldstein and colleagues atHarvard University indicates that the increase in charitablecontributions induced by the charitable deduction is greaterthan tax revenues lost.

By analyzing, with the aid of computers, aggregate InternalRevenue Service data by income class from 1948 to 1968,household survey data for 1963 compiled by the Federal Re-serve Board and Treasury data for 1962 and 1970, Feldsteinconcluded that for each dollar of tax revenue lost by virtue ofthe deduction, charitable organizations receive between SI.15and SI.29 in additional contributions. (In economic terminol-ogy, the price elasticities of charitable giving were found torange from -1.15 to -1.29.)

In all, according to projections from these calculations, from$6.7 to $7.5 billion in giving by individuals in fiscal 1976

129

would be attributable to the loss of S5.8 billion in tax revenues.Feldstein's analysis also indicates that approximately one quar-ter of all giving is induced by the charitable deduction*

The effectiveness of the charitable deduction was furtherevidenced, if somewhat equivocally, in the Commission's sam-ple survey of taxpayers. Few taxpayers appeared to know, theirmarginal tax rates and thus few were able to estimate howmuch lower their net cost of giving was after taking a charita-ble deduction, and most respondents denied that tax consider-ations influenced their own charitable giving. Still, those whoitemized deductions and thus availed themselves of the charita-ble deduction reported giving markedly more on the average—at ever).' income level—than those who used the standard de-duction: While some of this difference can be accounted for byfactors other than use or nonuse of the charitable deduction, aconclusion of the survey was that the differences "are so largeas to imply there must be a substantial tax incentive to char-ity" among itemizers. The differences are shown in the tableon the following page.

Insulation from Government

Another major virtue of the deduction is its relative insula-tion from political or bureaucratic manipulation. Comparedwith other forms of encouragement such as matching grants,the deduction as a mechanism is not subject to fine-tuning tofit administratively or legislatively determined goals. It thusleaves the greatest leeway to individual, as contrasted to collec-tive, determination of giving patterns, and this is seen as beingof decisive importance in maintaining the pluralistic role thatthe nonprofit sector should play* Congress and the InternalRevenue Service, to be sure, exercise definite limitations on thecharitable deduction through their respective powers to decideand to interpret decisions as to which organizations may re-ceive tax-deductible gifts. And in recent years, some groupshave complained that the IRS has used its power improperlyto disqualify certain organizations for narrow political or ideo-logical reasons. Yet the power to determine donee eligibility

• • . - • • 1 3 0 ' • -

AVERAGE GIVING BY INCOME QFITEMIZERS

AND NON-ITEMIZERS

1973

Adjusted Gross IncomeLess than $4,000$4,000 - 7,999$8,000 - 9,999$10,000-14,999$15,000-19,999$20,000 - 29,999$30,000-49,999$50,000 - 99,999$100,000- 199,999$200,000 - 499,999$500,000 or more

Itemized$ 119*

215314407600800

1,5645,679

17,10639,76371,316

Did NotItemize

$ 6989

. 117201329354171*

3,190*816*

8,892*5,000*

*Based on fewer than 25 observations

Source; Sample survey For the Commission on Private Philanthropy and PublicNeeds by the Survey Research Center of the Institute for Social Researchat the University of Michigan and the U.S. Census Bureau

131

would presumably have to accompany any other form of gov-ernment encouragement to giving while in addition other pro-posed forms, because of easier adjustability of their mecha-nisms, would offer opportunities for recurrent governmentalreview and manipulation. ,

Matching grants and credits are also, the Commission feels,more susceptible to political manipulation because they can beseen to involve government funds. Matching grants in factwould flow directly from the .Treasury. And the governmentcan reasonably be considered to have an equally strong claimto funds involved in tax credits, because such funds wouldotherwise have to be paid in taxes. The Commission recognizesthat there are those who consider money given to charity to begovernment money as well if it is deducted from income onwhich taxes are based, but the Commission emphatically doesnot share this view. We understand, of course, that the federalgovernment now computes a tax-expenditure budget and in-cludes in that calculation the amount of taxes not collectedbecause of the charitable deduction. We have no quarrel withthat inclusion as a bookkeeping technique. But it does nottransform a private gift into a government grant, nor should itsubject deductible giving to the same potential for manipula-tion that the Commission feels hovers over matching grantsand tax credits as true users of government funds.

Allocation Effects

In favoring retention of the charitable deduction, the Com-mission was also concerned about the different allocation ofphilanthropic giving that elimination of or substitution for thededuction would, the evidence indicates, effect. As Chapter IIof this report observes, the destination as well as the amount ofgiving differs markedly among income levels. Add to this thefact that the current tax deduction system makes the cost ofgiving lower, the higher a giver's income and that a lower costappears to be a highly effective inducement to giving. Whatfollows is that current giving patterns under the deductionreflect the preferences of upper incomes quite out of proportion

•• ' " . . • • • • • 1 3 2 • • . • ' " • . • • : -

to their numbers alone.* It also follows that any significantleveling down of current giving inducements would reduce giv-ing to the types of recipients generally chosen by upper-incomegivers: Feldstein's studies include the following projection,based on 1970 income and tax figures, of what would happenif the charitable deduction were totally eliminated:

Taxpayers having incomes of $10,000 to $15,000 would re-duce their gifts by 22 per cent (from an average of $290 toS225). Taxpayers in the $100,000 to $500,000 class would cutback their giving by 75 per cent, from average annual contri-butions of $9,184 to $2,246. In all, the totalof $17.3 billion inindividual giving estimated for 1970 would be reduced by 26per cent if there were no deduction. What would the effect onrecipients be? Giving to religious organizations, where contri-butions by lower-income Americans predominantly go, wouldfall by 22 per cent. Gifts to educational institutions and hospi-tals, to which higher-income givers direct a large share of theircontributions,1 would drop by nearly one half.

The effect of simply eliminating the deduction would, inother words, bear heavily on current recipients of philanthro-py, particularly traditional secular institutions that are, asChapter III describes., among the financially hardest pressed ofnonprofit organizations,

The effect of replacing the deduction with a tax credit or amatching grant would be similar, to the extent that any suchalternatives cut down inducements to higher-income givers andincreased them for lower. Thus a 30 per cent charitable taxcredit, which was one of the proposals the Commission consid-ered, would induce approximately 9 per cent more giving thanthe current deduction does, according to the Commission'seconometric projections. But because a 30 per cent credit pro-vides more of a tax saving than most low- and middle-incometaxpayers now enjoy using a deduction and less than mosthigh-income taxpayers enjoy, giving to education and to hospi-tals would decrease by around one third each, while giving toreligion would rise by around 14 per cent, absorbing most ofthe overall increase in contributions.

*See, comment by MAX.. M. USHER,- page 203. : ' . . • , . " • •

: • •• •... : : ' 1 3 3 ' ' ' . . . : '

Reflecting the Progressive Income Tax

In expressing a strong preference for the charitable deduc-tion as the basic governmental incentive for private giving, theCommission recognizes that this approach is subject to criti-cism on the ground that it creates an inverse relationship be-tween the cost of giving and an individual's income tax brack-et. The net cost after taxes of giving one dollar is 86 cents forsomeone in the 14 per cent bracket and only 30 cents forsomeone in the 70 per cent bracket. Plainly the charitablededuction makes giving less costly for those in the higher taxbrackets. It must also be recognized, however, that this result isa consequence of the progressive rate structure of the incometax. The upper-income taxpayer pays not only more tax dollarsthan the lower-income taxpayer but also pays taxes at a higherrate.

Since most members of the Commission believe it is philo-sophically sound not to consider money given to charity asincome, they, accept the consequences that a progressive ratestructure applies to the relative costs of giving.

"Leadership Effect"

Further, while it is recognized that the present deductiondoes give- more inducement to someone in a higher incomebracket than someone in a lower bracket, it is also recognizedthat, as a practical matter, the giving of large sums by those inhigfier brackets often leads others to give and that this "leader-ship effect" can be a significant element in spurring giving as awhole.

134

EXTENDING AND AMPLIFYINGTHE DEDUCTION

On balance, the Commission believes that the virtues of thecharitable deduction significantly outweigh its defects as bothvirtues and defects have evidenced themselves over, six decadesof the deduction's existence. We are also strongly persuadedthat in comparison with other inducements to giving, thecharitable deduction is preferable and should remain: as thebasic governmental encouragement of private giving. TheCommission recognizes, however, that some changes are re-quired both to broaden the base of private giving and to * meetsome of the criticism that the charitable deduction has encoun-tered. We therefore recommend:

1. That to increase inducements for charitable giving, all tax-payers who take the standard deduction 'should also be permittedto deduct charitable contributions as an additional itemized de-duction*

2. That an additional inducement to charitable giving should beprovided to low- and middle-income taxpayers. Toward this ena\the Commission proposes that a "double deduction" be institutedfor families with incomes of less than $15,000 a year; they wouldbe allowed to deduct twice what they give in computing theirincome taxes. For those families with incomes between $15,000and $30,000, the Commission proposes a deduction of 150 per centof their giving,*

Extending the Charitable Deduction

In recent years, as noted earlier in this report, a significantdevelopment has occurred with respect to the income tax lawsthat has made the charitable deduction less of an inducementto low- and middle-income taxpayers. This development is therising level of the "standard deduction"—the. sum of moneythat the tax laws allow each taxpayer to deduct in lieu of all

*Sce dissents by ELIZABETH* J. McCORMACK, page 203, J>y GRACIELA OU-VAREZ, page 204, and by ALAN PIFER, page 205.

135

the Itemized deductions to which he or she is entitled. Formarried taxpayers filing joint returns, the maximum standarddeduction has risen from $1,000 in 1970, to $2,600 in 1975.This increase in the standard deduction has brought about amarked decrease in the proportion of taxpayers who itemizetheir deductions and who thus derive any benefit at all fromthe charitable deduction. In 1970, nearly, one half of taxpayersused the charitable deduction; now fewer than one third do.The falloff of those taking the charitable deduction coincideswith and may partly account for the relative sluggishness ofoverall charitable giving in recent years.

Extending the deduction would make it available to thenearly 60 million taxpayers who do not currently benefit fromit as an inducement to giving because they take the standarddeduction. According to Feldstein's econometric projectionsmade for the Commission, giving would increase by $1.9 bil-lion in 1976, or an average of about $40 per taxpayer newlyreached by the charitable deduction. The reduction in govern-ment tax revenues because of increased use of the deductionwould be around SI.7 billion.

This increase in giving and decrease in tax revenues wouldresult because extending the deduction would give nearly 60million taxpayers in effect at least a 14 per cent tax writeoff onevery charitable dollar, where they now face no tax savingdirectly attributable to giving. The 14 per cent figure repre-sents the minimum income-tax bracket, in which deducting adollar of charitable giving has the effect of lowering taxes by14 cents. Taxpayers in higher brackets would enjoy a corre-spondingly, higher tax-savings, and receive a correspondinglygreater inducement to give.

The Commission believes that extending the deduction tonon-itemizers would go a long way toward meeting several ofthe objectives the Commission has set down. Both the numberof those giving significant amounts of time and/or money andthe overall level of giving should increase sizably. Nine tenthsof taxpayers with incomes above $25,000 itemize their deduc-tions. Therefore recipient areas favored by lower income levelswould receive most of the increased giving, but not at theexpense of other areas. Extending the deduction, moreover,

136

would maintain a principal virtue of the deduction itself—itsrelative insulation from government manipulation.: We; recognize, of course, that the proponents of every deduc-

tion presently allowed by the tax laws could argue with equalplausibility that the use of each deduction would be increasedif it were available as an itemized deduction in addition to thestandard deduction. If all such arguments prevailed, therewould be no point in having a standard deduction, which wasintroduced into the tax laws to serve the important purpose ofpromoting simplification in filling out tax forms. The case forallowing the charitable deduction to be itemized by thoseusing the standard deduction rests, however, on the propositionthat the charitable deduction is in a real sense different fromall other deductions and entitled to special, preferential treat-ment. !

The difference lies in underlying rationales for tax deduc-tions. The two most common are: to alleviate the impact ofextraordinary, unanticipated expenses and to encourage a par-ticular type of expenditure. Among deductions enacted for thefirst reason are those for higher than normal medical expenses.Among the latter are deductions for interest on home mort-gages, designed to promote home ownership. Both types ofdeductions involve expenditures to satisfy personal needs.

By contrast, the charitable deduction provides an incentivefor an expenditure whose essential characteristic is promotionof public purposes. And significantly, unlike the payment ofstate taxes, which is also deductible and which also supportspublic purposes, the charitable expenditure is entirely volition-al. It is the only expenditure for public purposes that eachperson decides individually whether or not to make. We do notdoubt the hardship of excessive medical expenses nor the vir-tues of .home ownership. We do contend that private giving isessential to the nature and quality of life in American society.Because of the fundamental importance of the dollars spentand the urgent need to increase the number of donors and thenumber of dollars they give, the principal governmental incen-tive to jprivate giving should be recognized as a special deduc-tion, broadly available to all taxpayers, whether or not theyuse the standard deduction.

137

Extending the charitable deduction to those who presentlydo not itemize will regrettably detract somewhat from simpli-fied preparation tof tax returns The taxpayer now using thestandard deduction^ can determine from a table what taxes areowed, or, if the taxpayer's income is $20,000 or less, the IRSitself will calculate the tax billl If the charitable deductionwere available outside the standard deduction, any taxpayerusing it iwould have to subtract charitable giving* (plus thestandard deduction^ and personal and dependent exemptions)from his or her income, and then compute the tax. Of course,no taxpayer would be required to do so; use of the charitablededuction would simply be available in addition to the stan-dard deduction for every taxpayer who was willing uto put upwith the slight extra inconvenience. We think that many of thenearly 60 million taxpayers who now take the standard deduc-tion would be willing to avail themselves of an additional,itemized charitable deduction and that donee organizationswould explain the virtues of doing so. The added inconven-ience, we believe, is far outweighed by the additional privategiving to be generated and, perhaps of greater importance, theenlistment of millions of people into a new pattern of privategiving.

\ A New Incentive for Low- and Middle-Income Contributors

. • • • ' • • • " i : - y • • • " ' ' . , • - ' . • , • • '

While extending the charitable deduction to nonitemizerswould provide an inducement for giving to millions of taxpay-ers who now derive no tax savings in connection with theircontributions, the Commission recognizes that at the lowestincome levels, the inducement would still be small in compari-son to that available to highest-income contributors—14 centsin tax savings for each dollar given as against 70 cents.

Moreover, the amount of giving that can be induced by theregular charitable deduction is strictly limited, and the $1.9billion increase that is projected for extending the reach of thededuction to all taxpayers falls considerably short of the $8billion goal needed to restore giving to its former relative level.Therefore, the Commission has considered a variety of addi-

138

tional proposals to stimulate giving further and to provide low-and middle-income contributors in particular an additional in-centive for giving. . • , . . , ;

A minority of the Commission members favored some formof tax credit for providing this additional inducement.* Butthe majority.; preferred to stay within the deduction mecha-nism. Very little support was expressed for government match-ing grants as a way of further stimulating giving. These aresome of the proposals and considerations that were involved inthe Commission reckonings.

A Supplementary Credit;,

Commission members favoring tax credits tended to be per-suaded in this direction mainly by the fact that, unlike thededuction, credits operate independently of the progressivestructure of the income tax and therefore provide the sameproportionate tax savings to all taxpayers regardless of theirincome. Under a 25 per cent credit, for instance, every taxpay-er could subtract 25 per cent of his ^contributions from thetaxes he or she ovyes. This uniformity of inducement was seenby some Commission members as being more equitable thanthe deduction and was considered preferable for this reason.

. Perhaps the most dramatic credit proposal that the Commis-sion considered was to allow every taxpayer a 100 per centcredit up to $100 of charitable giving. Every taxpayer couldthereby reduce his or her taxes by $100 by giving $100 tocharity. Every donee organization could solicit $100 contribu-tions from every taxpayer, using the seemingly irresistible argu-ment that the donation would literally not cost a penny. Un-fortunately, according to the Commission's econometric projec-tions, a credit designed in this fashion would stimulate verylittle new giving; these projections suggest that its principaleffect would be a reduction in taxes by those who now give.The 100 per cent-$100 credit, it is estimated, would generate$500 million in new giving at a revenue loss of $5 billion.

Some Commission members questioned the assumptions*See comment by ELIZABETH J. McCORMACK, page 205.

1S9

upon which these projections were based, feeling that they donot take into account a new dynamic that would be set inmotion by the $100 credit. And the Commission as a wholerealizes of course that such projections must be weighed withcaution, based as they are on certain simplified models of hu-man motivations and behavior in an area in which motivationsand behavior are anything but simple. Yet even granting theuncertainties surrounding projections of the impact of new giv-ing incentives, few members of the Commission were willing toendorse a technique that might operate anywhere near as inef-ficiently as the projections indicate—producing only one dollarof increased giving for every ten in tax revenues uncollected.

Far more '"efficient," according to the projections, would bepartial tax credits, by which taxpayers could credit a portion,say 25 or 30 per cent; of giving against the taxes they owe. Ingeneral, such partial credits are projected as increasing givingmore than they decrease tax revenues.

The Commission considered both optional and "add-on"partial credits. Under an optional credit, all taxpayers wouldhave the choice of either using the credit or using the deduc-tion to reduce their taxes in connection with charitable giving,whichever provided the largest reduction. The add-on creditthe Commission considered would be allowed to taxpayers,below a specified income ceiling, as an addition to the deduc-tion. Contributors would be able first to deduct their givingfrom income in calculating their taxes, and then to subtract apercentage of the same giving—10 per cent in the specific for-mula the Commission considered—from the tax obligation it-self.

Even as supplements to} rather than substitutes for, the de-duction, however, tax credits for giving were regarded withsome skepticism by most Commission members because anycharitable tax credit was seen as a potential step toward substi-tuting a credit for the charitable deduction altogether.*

•See comment by MAX M. FISHER, page 207.

140

The Double Deduction

Instead, a majority preferred a new, extra deduction as ameans: of providing further inducements to low- and middle-income givers and of increasing the level of giving. The formu-la favored was a 200 pen cent "double" deduction for familieswith incomes of under $15,000 (or for individuals with incomesbelow $7,500) and a 150 per cent deduction for families withincomes between $15,000 and $30,000 (individuals between$7,500 and $15,000). The Commission recognized that in; thedrafting of legislation this proposal would have to be technical-ly refined. ,

This addition to -the Commission's recommended extensionof; the charitable deduction to non-itemizers would have theeffect of doubling the potential tax sayings for, giving for alltaxpayers whose income falls below $15,000 and of raising? thesavings by one half for those in the $15,000-to-$30,000 incomeTange. The current minimum tax savings for itemizers—14cents on the contributed dollar, corresponding to the minimum14: per cent tax bracket—would rise to 28 cents on the dollar.Tax savings for those with higher marginal tax rates would riseaccordingly—up to around 48 cents on the dollar for a familyof four close to the $30,000 income limit, whose marginal taxrate averages around 32 per cent.

Not only would the extra deduction provide a substantialadditional inducement for giving to low- and middle-incometaxpayers, but according to projections, both the amount ofgiving induced and the "efficiency" of inducing it would beimpressive. The extra deduction would Increase giving by asmuch as $9.8 billion, at a tax loss of $7.4 billion. When theseamounts are added to changes from extending the deduction tonon-itemizers, the overall increase in giving from both extend-ing and amplifying the deduction, is projected to be $11.7 bil-lion, with a corresponding $9.1 billion decrease in tax revenues.

Use of an extra deduction as an incentive was preferred bymost Commission members for all of the reasons that make thecharitable deduction itself the basic preferred means of stimu-lating private giving. In addition to those virtues, an extra

141

deduction is seen as having the special advantage of beingeasily understood. An inducement to giving directed especiallyat those in low- and middle-income brackets, who infrequentlyreceive guidance from tax experts, should be clearly and read*ily understandable to be effective, and many members felt thatpeople would readily understand and respond to a tax provi-sion that permits deduction of twice or one and a half timesthe level of contributions.

While recommending this extra deduction as the best meansfor broadening the base of charitable giving, the Commissionrecognizes that other considerations such as the budgetary im-pact of the extra deduction must be considered by Congress indetermining how and when such a proposal can be implement-ed. It should be borne in mind in any such consideration,however, that the net budgetary impact would be less than thetax loss projected since the charitable contributions stimulatedwould to some extent reduce the need for governmental expen-ditures in the areas to which the new giving would go. TheCommission is also aware of the administrative concerns whichmust be taken into account in implementing these deductionproposals. We would anticipate, for example, that the IRSwould make appropriate requirements, such as written proof ofcontributions, in order to assure protection of tax revenues.

In addition to our consideration of basic incentives for chari-table' giving ;and ''specific techniques' for -increasing cohtribu--tions by all individuals and providing an increased incentivefor giving by low- and middle-income groups, the Commissionhas also focused upon several specific issues that arise in con-nection with charitable- giving;and' tax'policy. These 'concernthe minimum tax, gifts of appreciated property, charitable be-quests arid corporate giving.

MINIMUM TAXLying just beneath the surface of any consideration of phil-

anthropy and taxes is the view held by some that charitable

142

deductions,- particularly for those in higher-income brackets,are "loopholes," just another way to avoid paying their fairshare of taxes. One response to this viewpoint has been effortsto include under any new minimum income tax legislation theamount of income a person gives to charity. The effect of suchan inclusion would be, in some circumstances, to make a per-son's charitable contributions subject to tax, and to thereforelower the overall level of giving.

A minimum tax device is now contained in the InternalRevenue Code. It does not cover charitable deductions. Butthere has been considerable debate in Congress and in theAdministration in recent years, particularly among tax experts,as to whether any new minimum tax legislation should includethe charitable deduction. Those who advocate inclusion saythat without it, some taxpayers would still be able to pay littleor no income tax. Others do not accept this argument TheTreasury Department, which had previously supported includ-ing the deduction, reversed itself in mid-1975 and advocatedexclusion—"in view of the dire financial position in which in-flation has left so many private charities."

This Commission does not consider deductible charitablegiving to constitute a tax loophole, and it does not consider thetime and economic circumstances as appropriate, in any case,for any measure that would have the effect of reducing giving.Therefore, the Commission recommends:

That income deducted for charitable giving should be excludedfrom any minimum tax provision,*

APPRECIATED PROPERTY**

Soon after the charitable deduction became part of the fed-eral tax law covering the income tax, in 1917, the'InternalRevenue Service was called upon to make what seemed to bean innocuous and not widely significant ruling. When proper-ty—in the form of stock or a work of art, for instance—wasgiven to charity, how was that property to be valued as a•See dissent by ELIZABETH J. McCORMACK, page 207.••See comment by MAX M. FISHER, page 208.

143

deduction from taxable income? The IRS decided that thecurrent market value of the property should be deductiblerather than simply the cost to the giver.

But if the implications of the decision seemed slight at thetime, in recent decades the tax treatment of "appreciated prop-erty" gifts to charity has come under strong attack from certainsources.; It is perhaps the most•<controversial issue which, theCommission has considered. The controversy stems from thefact that the appreciated property ruling provides an addedinducement for property contributions—so much of an induce-ment that a contributor stands to benefit financially in extremecases by giving away property rather than selling at—and thisinducement is one that applies almost exclusively to very high-income donors.

Based on estimates prepared by the Treasury, approximately50 per cent of reported property gifts are made by personshaving annual incomes of $100,000 or more. Polling for theCommission by the University of Michigan's Survey ResearchCenter (see page 55) found that only a small percentage ofpeople in the lower-income categories made non-money gifts tocharity, but the percentage rises at the highest incomes, reach-ing 47 per cent for those with incomes of 3500,000 or more andaccounting for 80 per cent of all charitable giving by thisgroup. Thus the appreciated property provision is a principaltarget of those who claim that the income tax deduction forcharity inequitably amplifies the influence of wealth within thecharitable sector.

The appreciated property deduction acts as a strong induce-ment to giving by taxpayers interested in selling rather thanholding on to property, because of its relation to other taxlaws, particularly the tax on capital gains. By giving propertyto charity instead of selling it, the giver does not have to pay acapital gains tax on the appreciated value of the property, andthis means that the tax savings from a gift may be close to oreven in some cases exceed the proceeds after taxes if the prop-erty is sold.

The appreciated property tax allowances provide added in-ducements to give that are not related to the value of the giftto the charitable recipient. Two people with the same income

144

and giving the same amount to charity are treated differently,depending upon whether one gives cash and the other proper-ty. Further, since the after-tax cost of the contribution is relat-ed to the increase in value of the donated property, the size oftax inducement does not correspond to the size of the benefitobtained by the charitable recipient or society as a whole. Inshort, the critics argue that the treatment of appreciated prop-erty cannot l;be justified on principle.

This is, in essence, the case against the appreciated propertyallowance, and it is a case that has been energetically made bytax reform advocates in recent years. Proponents of the existingtax allowance for appreciated property make several counter-points, however.

First, many institutions rely heavily for support on appreci-ated property gifts, primarily private colleges, universities, hos-pitals and cultural organizations that tend to be the principalrecipients of contributions by upper-income givers. This is notonly because proportionately more high-income givers givenon-cash gifts than do lower-income donors. It is also becauseat upper-income levels those who give appreciated propertygive far more generously than those who contribute only cash.Treasury statistics show that the average gift by non-cashgivers with incomes of $500,000 or more is four times the sizeof the average gift of those at the same income level who giveonly in cash. Thus, according to computerized simulations,overall giving would drop by 3 per cent if the appreciatedproperty allowance were eliminated, and the greatest propor-tion of the loss would be borne by educational organizations,which could expect an 8 per cent decrease in private fundsthey receive, or around $50 million less a year, based on 1970dollar values. Many institutions assert that support induced bythe appreciated property allowance is critical to the sustainingof their customary standards, some to their very existence.

In addition, proponents of the appreciated property provi-sion point out that the cases where the donor actually benefitsfrom giving are exceedingly rare. Moreover, they argue thatany "tax savings" from exclusions of appreciated property fromcapital gains tax is illusory since the donor is not compelled toeither sell or donate property; the donor may retain the prop-

• • " 1 4 5

erty until death and thereby, under current tax laws, avoidcapital gains tax liability entirely; imposing a tax upon lifetimeproperty donations, according to this argument, would dry upor defer'gifts to charitable organizations.* r

Perhaps the most compelling argument heard by the Com-mission in favor of retaining the appreciated property deduc-tion follows from the last observation—the point being that theappreciated property provision cannot be looked at, legally orsocially, in isolation. The fact is that property can now pass,with its appreciated value untaxed, to heirs at death or toothers in non-charitable gifts during life. As long as these pro-visions are part of the tax law, the Commission feels it makeslittle sense to tax such appreciation only when a gift goes to acharitable organization. Such a limited change in the taxationof appreciated property would simply reduce gifts to charitywith only slight increase in revenue to the Treasury. Most ofthose now giving appreciated property to charity would notcontinue their giving pattern and pay tax on the value of theappreciation. They would stop making such charitable giftsand transfer the property instead to family and friends duringlife or hold it for similar disposition at death.

Recommendation

While many Commission members agree that the appreciat-ed property provision in the charitable deduction, when lookedat by itself, challenges standards of both tax principle andsocial equity, it is also felt that the provision must be looked atin a broad context and that when it is, its positive featuresoutweigh its negative ones. Part of that context includes thegood that is derived from gifts of appreciated property. An-other part is the general tax milieu in which the appreciatedproperty provision exists and from -which it cannot be analyti-cally separated. Accordingly, the Commission feels that theappreciated property provision should be retained. At the sametime, it feels that clearly no one should be able to actuallyrealize a net financial gain through use of the charitable de-

*Sec comment by BAYARD EWING, page 209.

146

duction. The Commission therefore recommends:That the appreciated property allowance within the charitable

deduction be basically retained but amended to elimmati* any pos-sibility?; of personal financial gain through tax-deductible charita-ble giving.*

CHARITABLE BEQUESTS

". „ .A hand in the contribution boxes of the country." In1902 the House Ways and Means, Committee so described an1894 federal inheritance tax law which did not except fromtaxation bequests to charitable organizations. The federalestate tax law, its modern descendant, permits a deduction forcharitable bequests, a deduction that has inspired nearly asmuch controversy in recent years as its counterpart in the in-come tax.

Bequests are an important source of voluntary support forprivate nonprofit organizations. According to Giving USAycharitable gifts at death of $2.07 billion accounted for 10 percent of total giving by individuals to charity in 1974. Between1965 and 1974, charitable bequests more than doubled, fromless than $1.02 billion* to more than $2.07 billion. In 1970-1971,transfers at death furnished almost 17 per cent of voluntarysupport to the 1,080 private colleges and universities surveyedby the American Council on Education.

Substantial charitable bequests were made before the adventof the modem estate tax. But since their enactment in 1916,federal death taxes have been a major stimulant for privategiving. The federal estate tax is imposed on all property ownedor controlled by a person at death, with offsets allowed forexpenses, debts, taxes, charitable bequests and bequests toone's spouse (limited to 50 per cent of the estate), and a$60,000 exemption. The tax affects only a small, the wealthiest,segment of the population. About 9 per cent of all adult dece-dents own more than $60,000 at death, requiring the filing ofsome 175,000 estate tax returns in 1973. Of these returns, only121,000 were taxable, meaning that 6 per cent of all estates

•See comment by GRACIELA OLJVAREZ, page 209.

147

were liable for any estate tax. Treasury Department correla-tions of income and wealth indicate that estate tax is paidalmost exclusively by. families with incomes above $20,000.

Within this segment of society, the steeply progressive ratesof the estate tax, rising to 77 per cent on taxable transfers inexcess of $10 million, do affect how property is passed at death.A wealthy person is given few choices in disposing of his or herproperty. The incentive to leave funds to charity is strong: inestates which exceed $5 million, $125 went to charity for every$100 bequeathed to individuals.

Tax inducements to charitable bequests have been subject tosome of the same criticisms and proposals for changes as hasthe charitable income tax deduction, and in considering possi-ble alternatives to the current system for bequests, the Com-mission has looked at them in terms of many of the samecriteria it applied to the income tax deduction and alternativesto that measure.

Equity

Because the choice for wealthy individuals is largely betweenleaving their property to charity or paying it to the govern-ment as taxes, the charitable bequest deduction can be charac-terized as enabling these individuals "to make decisions con-cerning the expenditure of public revenue, or, somewhat moreaccurately," writes Richard E. Wagner, of Virginia PolytechnicInstitute, "the expenditure of what otherwise would have beenpublic revenue." Such decisions are limited to those of thatnarrow segment of society that pays estate tax, and the poweris allocated within this group in relation to their wealth andthe tax rates imposed on their estates. The wealthiest 2 percent of taxable decedents5 estates (or less than two tenths of 1per cent of all decedents' estates) account for 63 per cent of alldeductions for charitable bequests.

So the main benefit of tax deductions for such bequests goesto organizations selected by wealthy benefactors. And not sur-prisingly, critics indict the bequest deduction for allowingwealthy testators to exert what they believe to be a dispropor-tionately large influence on the use of what would otherwise be

148

government revenues. As in the case of the income tax deduc-tion, matching grants and credits have been proposed as analternative to the bequest deduction.

There is, however, another view of the federal estate taxwhich fully justifies the equity of the bequest deduction, ren-dering resort to matching grants or tax credits unnecessary ifnot unwise. President Franklin Roosevelt in 1935 urged a sharpincrease in estate tax rates to near their present levels in orderto prevent the concentration of static wealth in private hands."Great accumulations of wealth," he said "cannot be justifiedon the basis of personal and family security." Indeed, bothTheodore Roosevelt and Andrew Carnegie considered that theprincipal virtue of heavy death taxation was its limitation onthe transfer of excessive accumulations of wealth.

If the main purpose of the estate tax is regarded as a limita-tion on the passing of wealth to private hands in the nextgeneration, then charitable bequests should not be taxed.Transfers to charitable organizations are consistent with thepurposes of the estate tax since they remove wealth from directprivate control and commit it to what are deemed to be publicpurposes. As Martin Feldstein points out, because the deduc-tion is an effective incentive for charitable bequests, "privateintergenerational transfers of wealth to individuals are there-fore reduced [and] because charitable gifts are increased bymore; than taxes are reduced, the personal heirs now receiveless than they would if the current deductions were eliminat-ed," Taxing charitable bequests or otherwise discouragingthem would defeat a principal objective of the estate tax.

Allocation Effects

Whatever the equities, switching to matching grants or taxcredits may not be sound as a matter of public policy becauseofs the effect that change might have on organizations whichreceive a major share of tax-induced bequests. Hard Informa-tion is lacking, but one study suggests that social welfare orga-nizations received 45 per cent of estimated charitable bequestsreported in estate tax returns filed in 1957 and 1959; scientific,literary, and educational organizations received 23 per cent of

•' ' ' 149 ,

these bequests; religion, 14 per cent; and all other organiza-tions (which includes foundations), 17 per cent.

Again, Feldstein determined that the percentage: of estatesbequeathed to religious organizations remains fairly constantfor estates of all sizes, but the percentage given to privateeducational organizations tends to increase as thej size of theestate increases. This implies that bequests to private educa-tional organizations are more sensitive to the tax inducementthan bequests to religion. Any change in the tax law thatreduces1 the bequest incentive can be expected to affect privatecolleges and universities more severely than churches.

Using different data sources, Michael J. Boskin, a Stanfordeconomist, comes to the same general conclusion! He estimatesfrom 1969 data that if the deduction were replaced by a 30 percent estate tax credit, the Treasury would gain about $227million in taxes, but charitable organizations would lose be-quests totalling $360 million. Because educational and socialwelfare organizations tend to receive bequests from testators atthe upper end of the estate tax rate structure, a reduction inthe taxi incentive would result in their loss of $353 million,while churches Avould lose only $7 million.

Percentage Limits

'Even if the deduction is retained, others urge that it shouldbe limited. Unlike income tax charitable deductions, which arerestricted to 50 per cent of income, there is no percentage limiton bequest deductions. This means that a testator can choosenot to pay estate tax by bequeathing all his property to char-ity. Evoking a sentiment which underlies the minimum incometax idea, critics assert that no tax should be avoidable as amatter cif personal option, that all estates, therefore, even thosebequeathed entirely to charity should pay some death tax. A50 per cent limit on the amount of an estate that could bededucted for charitable giving is one of the main proposals putforward to assure that some estate tax is paid.

However, Boskin's analysis suggests that there would bequestionable benefits at best in restricting the bequest deduc-tion to a 50 per cent ceiling. While only 2 per cent of estates

150

filing estate tax returns give more than 50 per cent to charity,the amount given is substantial—S338 million in 1969 dollars,or about one sixth of all charitable bequests. Limiting thededuction to 50 per cent would cause about half these bequestsnot to be made. Boskin estimates that charitable organizationswould lose $189 million in bequests, while estate tax revenueswould increase by $43 million, a loss: of $4.40 to charity foreach dollar gained by the Treasury. In other words, a 50 percent ceiling on charitable bequests would appear to substan-tially reduce the flow of funds to nonprofit organizations.

Recommendation

The Commission was not persuaded that any of the suggest-ed changes in the charitable bequest deduction would makethe system more equitable. Instead, the changes would reducebequests to private organizations, particularly to private col-leges and universities, without much being gained in equity ortax revenues. Therefore, the Commission recommends:

That the charitable bequest deduction be retained in its presentform.*

CORPORATE GIVING

Near the depths of the Great Depression, in 1935, Congressamended the Internal Revenue Code to allow corporations todeduct charitable contributions from their taxable income. Indoing so, Congress in effect gave national approval and en-couragement to the practice of giving by corporations to non-profit activities, a practice that had been .growing, slowly, sincepre-Civil War days when railroads contributed to the construc-tion of VMCA buildings around the country, and more rapidlysince World War-1 when corporations contributed heavily tolocal War Chests and to Red Cross campaigns.

At the same time that it allowed charitable deductions forcontributions, Congress put a 5 per cent limit on the propor-:

*See dissent by GRACIELA OLIVAREZ, page 210.

151

tion of net income that any corporation could deduct. Thislimit reflected the viewpoint that had been expressed in earliercourt -decisions barring charitable contributions by corpora-tions—the view that the business of business is business andthat a company had an obligation to confine the use of itsresources directly to the pursuit of profit, an obligation both toits shareholders and to the society, at large, which according toclassical economic analysis was served best when producers ofgoods or services attempted to maximize profits. :

Reservations about corporate giving to charitable activityare still expressed in these terms by some economic conserva-tives. Ironically, in their doubts about or outright opposition tocorporate giving, conservative skeptics are joined from the op-posite end of the political spectrum by those who regard corpo-rate giving as an instrument of corporate conservatism. ". . .Itis especially inapposite for business corporations to play anyrole in the philanthropic process," asserts an activist critiqueaddressed to the Commission, a critique that advocates redis-tribution of wealth as the principal role of giving and non-profit activity. ". . .The real problem posed by corporate 'phil-anthropic' activity is that corporations are the embodiment ofconcentrated wealth. As such, they can hardly be expected tounderwrite the political needs of Americans who wish to redis-tribute and deconcentrate that wealth."

Still, corporate giving has tended to be more and more ac-cepted, and indeed relied upon, by the philanthropic world inthe positive light that underlay the granting of tax deductionsfor such giving, and the 5 per cent limit accordingly has tend-ed to be regarded less as a restraint than a hopeful goal.

Changes in attitudes and philosophies about the relationshipof business and society account for changing attitudes aboutcorporate philanthropy. Corporations increasingly have beenregarded as having obligations that transcend profit-making;the market place is no longer generally seen as the only appro-priate dictator of corporate behavior. Related to a broadenedpublic perception of the social role of corporations is a widen-ing sense by corporations themselves of their own institutionalself-interests. In the sights of many modern corporate managersand owners, profit-making is accompanied by—some analysts

• ' • • ' • • 1 5 2 : • • • • • '

have even found it to be secondary to—long-term institutionalsurvival and growth.

The influence of such viewpoints on giving is reflected in asurvey of some 400 corporate chairmen and presidents madefor the Commission by The Conference Board. The corporateleaders were asked to indicate the most important reasons formaking contributions. The reasons that were most frequentlycited were "corporate citizenship" and "protecting and improv-ing the business environment." (Altruism, by comparison, wasmentioned by few executives.) "A company . . . simply cannotsit back with an outmoded concept that its only objective isprofitability,"; said one executive in the survey in explainingwhy he felt a:company should have a contributions and publicservice program. "The corporation operates as part of a greatersociety," said another executive. ".'. .It takes a healthy societyfor corporations to operate; they should contribute to thathealth."

As the idea has grown that corporate giving is both an obli-gation and a matter of institutional self-interest, so have boththe amount and the relative level of corporate giving. Until theSecond World War, giving had generally averaged less thanone half of 1 percent of the net income of corporations. By thelate 1950's the proportion had doubled. Moreover, this increaseonly takes account of giving deducted on corporate tax returns;it does not include giving that is counted as a business expensenor does it include non-cash aid and other forms:of sociallybeneficial activities that have also increased under the bannerof "corporate \ social responsibility." These additional "contri-butions," in the broad sense of the word, include: invest-ments—in areas such as urban renewal and environmental pres-ervation—that corporations would ordinarily not make becauseof the risk involved; job training for the disadvantaged and forthe physically, and mentally handicapped; "loans" of employ-ees, on company time and company payrolls, to give technicalassistance to charitable organizations and to government. Ac-cording to a Conference Board estimate, if a price tag were puton such activities, corporate giving of around $1 billion in 1974would be at least doubled.

The Commission recognizes, moreover, that the primary, if

153

not only, business of business is still business and that a corpo-ration's benefits to society stem mainly, from how it conductsits basic operations, from its relations to its customers, its em-ployees, its owners and the public. In any particular corpora*tion's overall-role as a responsible social institution, in otherwords, giving is bound to play a relatively small and limitedpart.

At the same time, the profit sector's support has come to bean important element in several parts of the nonprofit sector,and the Commission believes that such support can and shouldbe a considerably larger factor in the future—that, indeed, cor-porate giving remains the last major undeveloped frontier forprivate giving to philanthropic causes.

Corporate giving: can be larger, the Commission believes, inlight of the vast funds that flow through corporate treasuries,and it should be larger, both as an exercise of the corporateworld's social responsibilities and, ultimately, because of thisworld's own self-interest in preserving a strong and healthynonprofit sector as a balance to government

The Commission's belief that corporate giving can andshould be larger reflects the fact that while corporate givinghas grown over the long range it has stood still as a proportionof corporate income in recent years, at around 1 per cent of netincome. In fact, the evidence is that most companies still dolittle or no giving at all. Of some 1.7 million corporations thatfiled income tax returns in 1970, only 20 per cent reported anycharitable contributions and only 6 per cent made contribu-tions of over $500, The bulk of giving comes from a compara-tive handful of corporations, the largest ones; nearly 50 percent of contributions come from fewer than 1,000 companies.

In line with the Commission's examination of means to en-courage greater giving by individuals, the Commission hasstudied proposed tax law changes aimed at stimulating corpo-rate giving as well. Among them:

—A "disappearing floor" that would permit corporations totake a charitable deduction only when corporate contributionsare at or above a given percentage of net income before taxes.Possibilities include a floor of 1 per cent or 2 per cent.

—A 10 per cent tax credit that would permit the corpora-

154

tion, if its contributions exceeded the floor, to take credit for 10per cent of its charitable giving in the computation of its feder-al income tax. This credit would be in addition to the deduc-tion.

—A 10 per cent tax credit in addition to the deduction andwithout a floor. That is, the 10 per cent credit would simply beadded to the current deduction available for'any corporategiving from zero up to the limit of 5 per cent of net incomebefore taxes.

—A 2 per cent "philanthropic needs" tax, which would beadded on to the basic corporate income tax. Any corporationwould have the option of fulfilling this tax obligation either bydispensing the amount of the tax to tax-deductible causes or bypaying it to the government as it would a regular tax.

The Commission's analysis of these alternatives involvedconsideration of the following: •

—The concept of a floor or superimposed "philanthropy tax"offends, in some eyes at least, the principle of voluntarism thatis a cornerstone to philanthropy in the United States.

—The Conference Board survey of chief executive officersindicated that with a 1 per cent floor, 30 per cent of theexecutives would reduce or eliminate charitable giving andonly 12 per cent of them would increase it. With a 2 per centfloor, 43 per cent of the executives said they would reduce oreliminate charitable giving and 17 per cent would increase it.Since 90 per cent of the companies in the survey gave belowthe 2 per cent level, 62 per cent below the I per cent level and25 per cent below the 0.5 per cent level, it appears likely thatthe 2 per cent floor would significantly curtail giving and the 1per cent floor would also result in reduced giving.

—With respect to the credit, half of the executives felt thatcorporate giving would increase if the tax system resulted in alower "after-tax cost" than the present 100 per cent deduction.However, the majority of corporations are already at the 48per cent marginal tax rate; charitable contributions "cost"them only 52 cents on the dollar. Therefore, many Commissionmembers feel that an additional 10 per cent credit for corpo-rate giving would be hard to justify on grounds of equity.

—A further finding from The Conference Board's survey of

155

executives indicated that tax incentives may be a relativelyminor determinant of corporate giving compared to profit lev-els and a company's overall philosophy concerning giving andsocial responsibility.

A sizable minority of Commission members felt that despitethe uncertainties and philosophical ambiguities that surroundtax inducements to greater corporate giving, some such induce-ment should be instituted. But a majority of the Commissionconcluded that none of the tax alternatives studied by theCommission was both clearly effective enough and sufficientlyin tune with the spirit and philosophy of philanthropy so as tomerit the Commission's endorsement.

The Commission feels, however, that corporate giving can besignificantly enlarged and improved by the leadership influ-ence and example of corporations with generous, thoughtfuland innovative programs that have set and hopefully will con-tinue to set the pace for their industries and for the corporateworld as a whole. The Commission commends and encouragessuch leadership. As recommended in the following chapter, theCommission also believes fuller disclosure requirements shouldinclude corporate giving, and that they will be beneficial inimproving the quality of such giving.

Finally, the Commission hopes that its own encouragementof greater corporate giving will have some effect. It is ironic atleast that the business community, which has so often ex-pressed its wariness of Washington and the growing size ofgovernment, should fall so far short of legal limits in helpingselect and support publicly beneficial programs outside of gov-ernment, through nonprofit charitable organizations. FormerPresident Johnson recognized this irony in 1971 when hechided a group of business leaders about not contributing moreto charity. "In spite of the fact that your federal governmenthas seen fit to allow a charitable deduction of 5 per cent ofyour profits," he said, "the record is quite clear that you busi-ness leaders still feel that the federal government can spendthis money more wisely than you can."

156

Recommendation

The record of giving by the corporate world as a whole inthe mid-1970Vis, the Commission feels, still quite clear, and itis ultimately an unimpressive and inadequate one. In the con-viction that corporate giving both can and should be substan-tially increased, the Commission recommends:

That corporations set as a minimum goal, to be reached no laterthan 1980, the giving to charitable purposes of 2 per cent of pre-tax net income. Moreover, the Commission believes that the nation-al commission proposed in this report should consider as a priorityconcern additional measures to stimulate corporate giving,*

•See comments by FRANCES T. FARENTHOLD, page 210, by GRACIELA OLI-VAREZ, page 210, and by WILLIAM M. ROTH, page 211.

157

Sources for Chapter VJ.

R. Palmer Baker Jr. and J . Edward Shillingburg, Corporate Charitable Contributions.*

Michael J . Boskin, Estatt'Taxation and'Charitable Bequests.*.

Michael J . Boskin and Martin S. Feldstein, Effects oft the Charitable Deduction on Contribu-tions by tour Income and Middle Income Households: Evidence from the National Survey ofPhilanthropy* A: •';.. • '-''••"' • ' • ' : ' \ v

Gerard M. Branhon, A Pro-Charity Substitute for the Present Tax Law Treatment of Appreciateed Property Contributed to Charity.* ,

Martin S. Feldstein, Charitable Bequests, Estate Taxation and Intergenerationat Wealth Trans-f e r s * ' ; • : : '•" : • • • • • • „ • '••'•• ••• • •• : ••"•+ •

Martin S. Feldstein, Tax Incentives- and Charitable Contributions in the United States: A1

MicroeconometricAnalysis.*, . t j -

Martin S, Feldstein, Estimating Separate Price .Elasticities by Income Class.*

Martin S. Feldstein and Amy, Taylor, The Income Tax and Charitable Contributions: Esti-mates and Simulations with the Treasury Tax Files.* , , , "

James F. Harris and Anne Klepper, Corporate Philanthropic Public Service Activities.*

C Lowell Harriss, Corporate Giving: Rationale, Issues and Opportunities.*

Theodore A. Kurz and Barbara P. Robinson, Explanation and Analysis of Split InterestGifts to Charity.*

Harry K. Mansfield and Ronald L. Groves, Legal Aspects of Charitable Contributions ofAppreciated Property to Public Charities,*

Paul R, McDaniel, Study of Federal Matching Grants for Charitable Contributions.*

James N. Morgan, Richard F. Dye and Judith H. Hybcls, Results from Two NationalSurveys if Philanthropic Activity.*

Milton Moskowitz, Corporate Charitable Contributions and Corporate Social Responsibility.*

John Holt Myers, Estate Tax Deduction for Charitable Benefits: Proposed Limitations.*

Thomas Vasquez, Corporate Giving Measurements.*

Richard E. Wagner, Death, Taxes and Charitable Bequests: A Survey of Issues and Options.*

David Westfail, Proposed Limitations on the Estate Tax Deduction for Charitable Transfers.*

Aaron Wildavsky and David Good, A Tax by Any Other Name: The Donor Directed Auto*matic Percentage Contribution Bonus, A Budget Alternative for Financing Governmental Support ofCharity*

•Denotes reports and studies undertaken for the Commission,

158

VIIIMPROVING THE

PHILANTHROPIC PROCESS

One of the conventional wisdoms of the 1970's is that virtu-ally all institutions, public and private, have declined in popu-lar esteem and trust, especially those that exercise substantialeconomic or political power. The Presidency and Congresshave consistently been given low ratings in public opinion pollsin recent years. So have corporations, labor unions, the press.

A major source of this skepticism is said to be the wide-spread feeling that our institutions are beyond society's control,that they are operating for their own purposes which are oftenat odds with the public interest.

The third sector has fared better, perhaps, than the othertwo in the public's lowered estimations. In all likelihood, mostAmericans rarely think about philanthropy and nonprofit or-ganizations in general terms but they probably do have atti-tudes about specific, mainly local voluntary groups such as theBoy Scouts or activities such as a church fund-raising drive,and these attitudes are probably positive on the whole. More-over, unease about the giant, impersonal institutions of busi-ness and government may be serving to increase the appeal ofthe generally less giant, less impersonal institutions of the non-profit sector.

AH the same, it is likely that the sector's institutions areincluded to some degree in •Americans' doubts. Indeed, volun-tary sector institutions^ would appear to be particularly suscept-ible to concerns about control, about whether the public inter-est is truly being served. This Is so because, while there areclear, widely acknowledged processes by which governmentand business institutions should be subject to incentives andrestraints that lead them to serve the interests of society, it isnot readily apparent what process, if any, is guiding nonprofitactivity so that it benefits society.

159

Government, in theory at least, is subject to the whole appa-ratus of democracy, including representative legislatures, theelectoral process and the vote. In the case of the businessworld, there is the competitive market place and the principlesof profit-maximization and consumer sovereignty which aresupposed to guide commerce toward a socially optimum pro-duction of goods and services. While some of the current disil-lusionment may reflect a lack of confidence in these processes-including a feeling that the processes can be and are manipu-lated by the very interests they are supposed to control—atleast the processes are generally well understood and subject toexamination for malfunctions, for reforms or replacements.

But in the case of nonprofit institutions and of philanthropy,there has never been a mechanism as simple, as comprehensi-ble, in theory at least, as voting or buying that is supposed tokeep this area in tune with public purposes. Foundations havebeen a particular object of wariness for just this reason, be-cause they are thought to be able to exercise considerable eco-nomic power and political power while at the same time theyappear to be. subject to few built-in economic or political con-straints. To a lesser degree perhaps, other nonprofit institutionsmay also appear to operate with few constraints: they haveneither the market place nor the voting booth to answer to, orat least not so fully or directly as do businesses or government.The very freedom from such inhibitions that makes nonprofitorganizations a valuable pluralistic addition to the commercialand political sectors, in other words, also makes them poten-tially suspect—perhaps, in today's suspicious atmosphere, moreso than ever.*

Whether the public's skepticism and even cynicism about itsinstitutions is well founded or not is, of course, a matter forand of considerable debate—and meantime even the best insti-tutions may suffer along with the worst. Yet if this is a widelyshared skepticism, as social analysts and attitude probers assureus it is, then it is a social reality in its own right and ourinstitutions cannot fail to heed it and must respond to it, bothfor their own survival and for maintaining their usefulness tosociety. Accordingly, because this Commission believes that the*See comment by MAX M. FISHER, page 211.

160

third sector should be encouraged and strengthened in its plural-istic role in American life, a major concern of the Commission ishow to maintain, and if need be build, public trust in the sectorand its institutions.

The proposals that the Commission has considered in thisregard revolve around ideas of openness, of accountability, ofaccessibility—of, in so many words, making the inner workings ofthese institutions more visible, their decisions more public andmore clearly responsive to the public needs and social change.These proposals are not unlike means that have been attemptedor suggested in recent years for building public confidence ingovernmental and commercial institutions. But they may be allthe more important for the world of voluntary organizations andphilanthropy, because they are at the heart of a process that does,after all, exist to guide this world toward filling public needs.

This process is subtle and not as fully explored as are theprocesses of market economics and democratic politics. Still, thereis a give and take, with elements both of economics and politics,that does guide—and ultimately restrain—the third sector. Forthis process to work well, in terms of filling social needs, theremust be as much: openness, as much give and take as functionallypossible. There must be freedom of access for those seeking funds,for instance, to;make known their needs and to attempt topersuade fund providers of the priority of these needs. There mustbe a free flow of informatipn between donor and donee, betweenvoluntary groups and the public at large, including government,between fund-solicitors and the public* There must also be awide range of choice for those who give time and money, as towhere they will give and why. And there must be a genuinewillingness to consider new avenues and new goals.

Yet much of the Commission's research, including meetingswith and reports from representatives of donee organizations,indicates that the process is operating imperfectly at best.*

The need exists, in other words, both to make the philan-thropic system work better and to assure the public that it isworking in the public interest, and is therefore worthy of thepublic's trust. To the extent that many third sector institutions

*See comments by MAX M. FISHER, page 212.

161

serve increasingly as channels for public spending, it is not onlypublic trust they must warrant but public money. As notedearlier in this report, growing government support of nonprofitactivities is in itself a spur to greater openness and publicaccountability than many voluntary organizations have exer-cised, or felt obliged to exercise, in the past.

This growing role of government in relation to nonprofitorganizations and activities also underlies what the Commis-sion believes is an increasingly important function in the phil-anthropic process. This is the role of nonprofit organizations intrying to assist in the development of good public policy byvarious means including trying to influence legislation affectingtheir areas of concern. Yet as noted in Chapter I, organizationsthat devote a "substantial" amount of their resources to legisla-tive activities are not eligible to receive deductible gifts. Thisrestriction, the Commission believes, constitutes a severe andunwarranted limitation on the philanthropic process and on itseffective functioning in our society.

With the foregoing considerations in mind, the Commissionrecommends specific steps toward improving the philanthropicprocess. These recommendations are put forward in this chap-ter within four broad, overlapping categories: accountability ofnonprofit organizations to the public; accessibility by the pub-lic to these organizations; steps to minimize personal or institu-tional self-benefiting; and freedom of nonprofit groups to influ-ence legislation. The proposals in these areas are offered withan eye above all to making, the nonprofit sector function moreeffectively and more responsively in the public interest, bothfor the sake of this effectiveness and responsiveness and toinsure the confidence of Americans in this, we believe, bothworthy and essential array of institutions.

ACCOUNTABILITY1 "There is a growing demand for more accountability on the

part of private nonprofit institutions." This assertion in a re-port to the Commission on higher education is echoed in var-ious forms throughout Commission studies as well as in recent

162

pronouncements at large. The demand for accountability hasbeen heard equally and perhaps even more strongly of late inconnection with public and profit-making institutions,! de-mands that range from stockholder calls for more communica-tion from corporate managers to activists' political and legalbattles to force more openness in thei decision-making of gov-ernment agencies; to legislation requiring greater; disclosure ofpolitical campaign spending practices and sources. The pres-sures for greater accountability, however imprecise that termmay: be, have grown in recent years;in: the nonprofit sector aswelly where,fin addition to reflecting a general concern abouttheiaccountability of institutions they reflect conditions affect-ing the nonprofit ^sector in particular, including::

,i—The loose and even haphazard procedures that some non-profit organizations employ to make themselves accountable tothe public* !

—The increasing use of public funds by nonprofit organiza-t i o n s . . . - ' - • •.•;: .,• • . ;••- .. • • • ' ; • • ;-- , •-' • ,• . ' .

—The perception, on the part of certain segments of! thepopulation, that many private nonprofit organizations are tooprivate, that they answer only to themselves or to each other.This viewpoint was encountered recurrently in Commissionstudies of philanthropy in five American cities and in severalCommission-held meetings of representatives of "social action"groups—the notion of a closeknit philanthropic "establishment"in which a select group of donors and donees tended to beaccountable mainly to each others "The whole thing is like aprivate club," said a fund raiser in Cleveland.*

The pressure for greater accountability was translated intolegislation in 1969 when Congress enacted, along with otherrelated measures, a law requiring that all private foundationsprepare annual reports and that these reports be filed with theIRS and with state authorities and be available to the generalpublic. These annual reports were prescribed as supplements toinformation forms long required of tax-exempt organizations.Other kinds of accountability have been increasingly requiredby local, state and federal agencies as a condition of specific

*Sce comments by MAX M. FISHER, page 212. ,

163

grants to specific nonprofit organizations.Yet the Commission feels that, while many voluntary, organi-

zations have on their own initiative made themselves highlyaccountable in various ways, the overall level of accountabilityin the voluntary sector is inadequate. The 1969 reporting regu-lations for foundations have been honored, the evidence sug-gests, with bare minimal compliance in some cases as far aseasy availability of annual reports goes. Information forms thatcurrent IRS regulations require of tax-exempt organizationsask for only a limited kind of information, have been difficultto get hold of through the government, and, a report to theCommission finds, may be several years old by the time theycan be examined by the public. Accountings required by var-ious governmental grantors on the other hand have beem rela-tively narrowly oriented—as they should be—toward specificuses of such funds rather than the overall operations of thegrantees. And a Commission-initiated study by state attorneysgeneral indicates that other state disclosure requirements areincomplete and uneven at best.

Recommendations

The Commission therefore recommends:L That all larger tax-exempt charitable organizations except

churches and church affiliates be required to prepare and makereadily available detailed • annual reports on their finances, pro~grams and priorities,*

Reporting requirements that now apply only, to privatefoundations should be broadened so that all 501(c)(3) and501(c)(4) organizations with annual budgets of. more than$100,000 are required to file annual reports. This requirementwould not apply to religious organizations, although someCommission members feel that it should apply to nonsacra-mental activities of religious organizations such as hospitalsand schools. But the requirement is meant to include the tax-deductible charitable spending of business corporations; anycorporation whose contributions came to $ 100,000 or more a

•See comment by ELIZABETH J. McCORMACK, page 213.

• • • 1 6 4

year would be required to file annual reports on these contri-butions. ;

Every tax-exempt organization's or corporation's reportwould have to be filed with appropriate state and federal agen-cies and, in addition, be made directly and swiftly available, ator below cost, to any person or organization upon request. Thepermanent commission on the nonprofit sector, recommendedin Chapter VIII, could facilitate this process.

Each report should include at least the following informa-tion:

—Name, address, purpose and founding date of the organiza-tion;

—Names of trustees or directors or other governing persons;—Names and.titles of paid officers;—Description of program and priorities, explanation of the

criteria that are taken into account in accepting or rejectingrequests for funds, products or services and, if the organizationis a foundation, a list of grants made in the previous year, theirrecipients, purposes and amounts;

—Financial information, including:A statement of income, including sources and amounts;A statement of expenditures including adminstrative ex-penditures;A balance sheet;A list of investments held;An opinion bf independent auditors.

Uniform Accounting Measures

As an important element in better, more communicative fi-nancial accountability, the Commission urges that uniform ac-counting measures be adopted by comparable nonprofit orga-nizations. One obstacle in the path of accountability is thetangle of accounting definitions and principles that are in ef-fect among nonprofit organizations, which makes examinationof any particular organization's basic finances often difficult ifnot impossible, especially for nonexperts, and compounds theproblems of comparing one organization with another.

Because of the wide range of activities and kinds of organiza-

. , ' ' ' ' 1 6 5 - ' ' • . ; ' •. '

tions involved in the nonprofit sector, the Commission recog-nizes that it may not be possible to apply uniform accountingpractices throughout the nonprofit sector. However, greateruniformity, at least among comparable types of| organizations^is clearly possible and desirable. The Commission recognizesthat some:important steps in this direction^ have been taken inrecent years but feels that considerable further progress re-mains to be made.* A Commission advisory committee! on ac-counting practices has developed a model accounting form fornonprofit organizations. Consideration of this form, which is inthe compendium of Commission research, and b£the principlesbehind it, is recommended to nonprofit organizations.

The Commission applauds the many exempt organizationsthat on their own initiative and from their own sense of ac-countability regularly disclose significantly more about theiroperations, their revenues and expenditures4than^is required bylaw, and it urges all tax-exempt organizations to heed theseexamples. j

2. That larger grant-making organizations be required to holdannual^ public meetings to discuss their programs, priorities andcontributions. !

The Commission believes that individual organizations andthe nonprofit sector as a whole would benefit from direct expo-sure of grant-making organizations to their immediate constitu-ency and to the public at large. As in the Commission's recom-mendation on reporting above, this requirement would excludereligious organizations and include corporate givers that makeannual grants or contributions of $100,000 or more. Also in-cluded would be federated fund-raising organizations—such asUnited Ways. Meetings would be held in the city in which theprincipal office of the organization is located. Adequate noticewould be provided in a publication of general circulation.

3. That the present 4 per cent "audit" tax on private founda-tions be repealed and replaced by a fee on all, private foundationsbased on the total actual costs of auditing them.**

The present tax on foundations, imposed by the 1969 Tax

•See comment by MAX M. FISHER, page 213,••See dissent by ALAN PIFER, page 214.

166

Reform Act, should be changed for two reasons, the Commis-sion believes. First, the tax produces receipts which far exceedthe expenditures of IRS in auditing tax-exempt organizations.From 1971 through 1973, the tax raised SI57 million whereasIRS costs for auditing tax-exempt organizations for these threeyears amounted to only $55 million. Second, the tax constitutesa levy not on foundations but on the entire donee population,and on all its beneficiaries, because money that is taxed fromfoundations is unavailable for grants to donees.

Therefore, the Commission proposes instead an audit feebased on the actual costs of auditing private foundations alone.The fee, set as a percentage of income, would be adjustedperiodically according to estimates of such costs over a futurespan, say of five years. The fee would not apply to other tax-exempt organizations, and the costs of their audits would beborne by general government revenues.

4. That the Internal Revenue Service continue to be the princi-pal agency responsible for the oversight of tax-exempt organiza-tions,*

The Commission has considered numerous proposals to sub-stitute another agency for the Internal Revenue Service inoverseeing the affairs of exempt organizations. Among the rea-sons given for an alternate agency was the greater assurance ofinsulation of the nonprofit sector from political or executivebranch interference. The Commission was not persuaded that aviable alternate to the Internal Revenue Service exists and was,in fact, satisfied that, except in several isolated instances, theService has demonstrated its capacity for independent, impar-tial oversight of tax-exempt organizations including determina-tion of exempt, status.

. ; ACCESSIBILITY

A corollary to greater accountability by nonprofit organiza-tions is the aim of making voluntary organizations more open,more accessible, to a wide range oif viewpoints*. This goal is

•Sec dissents by GRACIELA OUVAREZ, page 214, arid by FRANCES *F. FAR.ENTHOLD, page 214. • . . • • • ••< • - -,.-•...•

167

barely separable from that of accountability. Disclosure re-quirements recommended here in the name of accountabilitywould also serve the cause of accessibility, by providing guid-ance to those who attempt to influence or to seek assistancefrom nonprofit organizations. Public meetings would serve asforums not only for communication outward from an,organiza-tion's leadership but, inevitably, for challenging and attemptedpersuasion by those seeking access inward to the organization'sattention and resources.

Greater accessibility has frequently been espoused as a goalin the nonprofit world, yet the evidence suggests that it is oftenhonored more in preachments than in practice, particularly inregard to unconventional groups and viewpoints. In the courseof the Commission's examinations, a number of meetings wereheld around the country that brought representatives of suchgroups, who generally depend on outside sources of support,together with donor representatives, a form of donee-donor en-counter that the Commission hopes will be continued andbroadened in the future. The complaint was repeatedly heardat these meetings that philanthropic institutions—foundationsand federated fund-raising organizations in particular*—tendedto erect barriers to easy access by those bringing unfamiliarpleas for unconventional or controversial causes. The "pioneer-ing" role of the voluntary sector, it was charged, is frustratedby closed doors and closed minds.**

Such complaints have been sounded in particular by "socialaction*' or "public interest" groups and by women's activistorganizations who say their causes are going underfunded, inpart because of what they claim is the inaccessibility of manyphilanthropic institutions. This inaccessibility tends to result,they charge, in the following of established patterns of givingto established donee areas and institutions. The result: "Webelieve that instead of being the venture capital for socialchange,'* states a "Donee Group" report to the Commission,"philanthropy has, for the most part, patterned itself after itscorporate and governmental counterparts. It has become bu-reaucratic, safe and more conservative and less willing to take•See comment by FRANCES T. FARENTHOLD, page 216.•*Sce comment by MAX M. FISHER, page 217, ;

168

risks than the relatively inflexible government to which it is soclosely related." . . :

The Commission is concerned that the philanthropic processmay not be fluid enough to respond to new needs as theyemerge and are perceived. And we take note that charges ofinsufficient accessibility to both the ears and treasuries of insti-tutionalized philanthropic sources are made not only by newgroups with new causes to promote but are also ackhowlegedby longer established organizations within the philanthropicworld.

The Commission feels further that greater accessibility tofunding organizations by all segments of society, with theirdiffering perceptions of needs, can only enrich the philanthrop-ic process and ensure that in aggregate it is tending to publicneeds that best are served by the voluntary sector's particularcapabilities. The Commission believes that private givingshould be constantly aware of and sympathetic to emergingneeds, particularly of groups and causes in society that areleast able to meet their own needs. This is one of the tradition-al missions of "philanthropy" and of "charity" and it continuestoday with different thrusts and perspectives- Therefore privatedonors, whether individuals, corporations, or foundations,should fully inform themselves of such needs and examine theirpresent funding priorities in the light of these needs, and theyshould do so with a sense of obligation, both to themselves andto the changing society in which they live.

Recommendations

With the aim of encouraging and facilitating wider access toand greater venturesomeness by institutional philanthropy, theCommission recommends:

1. That the duplication of legal responsibility for proper expen-diture of foundation grants, now imposed on both foundations andrecipients, be eliminated and that recipient organizations be madeprimarily responsible for their expenditures.

Under the 1969 tax reform measures, foundations and theirofficers became legally accountable, through "expenditure re-

169

sponsibility" and reporting provisions, for the actions of groupsthey aided. This, the Commission believes, serves as an unde-sirable and unnecessary restraint on the openness and venture-someness of foundations. "Expenditure responsibility" also im-poses heavy legal and administrative burdens, particularly onsmaller and newer organizations.

The Commission believes that the "expenditure responsibil-ity" requirement as now imposed on foundations not only du-plicates responsibility by placing requirements on both thegrantor and the grantee, but unduly enhances the power offoundations over grantees. It puts foundations in a policingand surveillance role and thus undermines the autonomy ofgrantee organizations. This responsbility should rest on thegrantees. The Commission believes that abuses that gave rise tothe "expenditure responsibility" requirement are adequatelycontained under the Commission's recommendations for great-er accountability by all nonprofit organizations,. by other pro-visions of the 1969 Act, and by legal remedies outside the act.

2. That tax-exempt organizations, particularly funding organi-zations, recognize an obligation to be responsive to changing view-points and emerging needs and that they take steps such as broad-ening their boards and staffs toiinsure that they are responsive.*

Charitable nonprofit organizations exist and enjoy specialtax status to serve public purposes, one of which, as this reportearlier recognizes, is to act as pioneers of social change. There-fore, the Commission believes that such organizations, especial-ly those that serve to channel funds to other nonprofit groups,Have a public obligation, which transcends their private pre-rogatives, to fee aware of and responsive to new attitudes andneeds of all segments of society.

One means of attempting to meet this obligation, a meansthat the Commission feels exempt organizations should periodi-cally employ, is to deliberately examine and if need be broadentheir boards and staffs so that a wide range of viewpoints isreflected in each organization's very gbvernande and manage-*Sec comments by FRANCES T, FARENTHOLD,' page 217, by GRACIELA OLI-VAREZ, page 219, by WILLIAM M. ROTH, page 219, by MAX M, FISHER, page 220.

170

ment. Exempt organizations, like other institutions in our soci-ety, should be especially; aware of the importance of havingparticipation—more than token i participation—of minoritygroups and women in their governance and management.

IThe Commission has considered and rejected the principlethat all voluntary; organization boards be "representative" ofthe public at large or of any particular community. A principalvirtue of the nonprofit sector is that it reflects different priori-ties, differently arrived at, than does representative govern-ment. To impose representativeness on the control ofi voluntaryorganizations would," the Commission believes, I undermine animportant distinction between the voluntary sector and govern-ment.; : :; :':-• . , :; ' •'.:: • : • - , " ' , • , • ; • .

However, unless repeated steps are taken by charitable orga-nizations to diversify board memberships,,the possibility, mustbe envisaged of{"public members" being imposed on; theboards rof these organizations. In any case, as government fundsincreasingly flow; into or through voluntary organizations, theymay have to give more consideration themselves to inviting"public members" on their boards as an element of publicaccess and control. Methods of naming such members and theimplications for;the governance of. nonprofit organizations aresubjects that should be studied by the permanent commissionon the nonprofit sector recommended in Chapter VIII.

Not only does the Commission urge and encourage thebroadening of viewpoints in the staffing and directing of exist-ing nonprofit organizations, but it urges the establishment ofnew organizations and new organizational structures thatbroaden the spectrum of institutional philanthropy in general.

Within the last several years, for instance, a number ofj newfoundations with strikingly unconventional funding prioritieshave sprung up. A "People's Trust," which would raise fundsin modest monthly pledges for projects in Atlanta's poorerneighborhoods is currently being explored. The Commissionapplauds such developments and feels that the philanthropicworld should be receptive to more of them.

The Commission also suggests the wide use of intermediaryorganizations that provide centralized professional services tonascent groups in their dealings with foundations, groups that

171

are unaccustomed to the process of seeking and managingfoundation grants. Further, iii the name of wider geographicalas well as social accessibility, the Commission believes that thelargest foundations, most of which are situated in major east-ern cities, should consider means for making themselves moreaware of, and accessible to, groups in other parts of the country.

i t . *

3. That a new category of "independent" foundation be estab-lished by law. Such organizations would enjoy the tax benefits ofpublic charities in return for diminished influence on the founda-tion's board by the ffoundation's benefactor or by Ms or hen familyor business associates.*

Linked to most Commission research on and discussion ofthe subject of broadening foundation boards has been the issueof "donor control" of private • foundations. Traditionally^ aftera foundation is established, the giver of the foundation's en-dowment plays an active role in its running or if, as is oftenthe case, the foundation grows out of a bequest, the be-queather's family and associates play such a role. The questionhas been raised intermittently in the philanthropic world andby critical observers of this world as to whether there should besome limitation on this control. The question is raised in termsof social equity: In view of the important role of favorable taxlaws in the creation of foundations, should the founder,through offspring, relatives or associates, be allowed an indefi-nite role in the control of a foundation? The question is alsoraised as a matter of access: Is a donor-controlled foundationlikely to reflect a particularly narrow perspective, to be inacces-sible to a range of viewpoints?

The Commission feels that there is no clear-cut answer toeither question, which involves complex value judgments, in-sufficient data and such related imponderables as whetherlimiting donor control would discourage the setting up of new-foundations'.. Any questions about donor control must take ac-count of the fact that some donor-con trolled foundations arewidely regarded as being among the most innovative and effec-tive of philanthropic organizations. Therefore, the Commissiondoes not recommend any specific limitation of donor control,*Sce comment by WILLIAM M. ROTH, page 220.

172

but urges considerable further examination of the issue, whileespousing the general view that openness and accessibility, areas important for donor-controlled foundations as for other phil-anthropic, nonprofit organizations. If, in any particular organi-zation, relinquishing a degree of donor control serves to furtherthe cause of greater accessibility, then this course should, wefeel, be positively pursued.

To counterbalance whatever disincentives there may be torelinquishing full donor control and because it sees a positivevalue in broadening the decision-making base of foundations,the Commission recommends the establishment of a new cate-gory of "independent" foundations. Governing boards of suchfoundations would be restricted to at rnost>a minority represen-tation by the | donor, the donor's family and business 'associates.In return, such organizations would not be subject to the limi-tations on giving that now apply to private foundations, in-cluding the ceiling of 20 per cent of a giver's income that canbe deducted from income taxes for gifts to private foundations,the restriction against endowment gifts from income of otherfoundations and the exclusion from full eligibility to receiveappreciated property that is deductible at market price.

INSTITUTIONAL SELF-BENEFITING

Part of the basic definition, written into law, of the tax-exempt organizations that have been the focus ofl:the Commis-sion's examination is that no share of such organizations' netearnings may benefit private shareholders or individuals. Morepopularly put, nonprofit organizations are not in business tomake money for anyone and if they do, they shouldn't beallowed tax exemptions but should be subject to the samelevies as ordinary commercial organizations.

Yet a few situations have been uncovered and have beenhighly publicized in which nonprofit organizations or. specifictransactions within such organizations have clearly servedabove all to benefit managers, benefactors ors others associatedwith the organizations, or simply have led to the enrichment of

173

an organization itself with no increase in the organization'sbenefits to society. Most widely disparaged, perhaps, has beenthe finding that a few organizations, because of extraordinaryinefficiency as well as self-benefiting, have spent more on fundraising and administrative costs than on the purpose for whichthey raised funds and were presumably in existence. In somecases, less than one out of five dollars has remained for anorganization's ostensible operating purposes.

Over the years, other abuses that have offended the spirit ofthe law that gives special tax privileges to nonprofit organiza-tions have come to public attention, including charitable orga-nizations1 established and maintained primarily to purchase theproducts of commercial manufacturers, to be given away in theprocess of soliciting funds; less-than-arms-length dealings be-tween charitable organizations and businesses with which theirofficers or directors are connected, resulting in unconscionablebenefits to the individual involved, or in losses to the organiza-tion because it did not bargain for goods or services in theopen market; and unreasonable compensation to officers andemployees.

As a result of Congress's investigations of foundations in1969, prompted by some dramatic examples of abuse, lawswere passed specifically aimed at eliminating such abuses byprivate foundations. The Commission believes that tax-exemptorganizations other than private foundations may be as opento the possibility of such abuses, however, and therefore itfavors extension to other exempt organizations, at least in partand with appropriate modifications, of several of the 1969 pro-hibitions that now apply only to private foundations. TheCommission also believes that other remedies and restraints arecalled for to insure public confidence that charitable nonprofitorganizations do indeed serve only charitable nonprofit causes.

Recommendations

The Commission therefore recommends:1. That all tax-exempt organizations be required by law to

maintain "arms-length" business relationships with profit-making

• • .174 . '

organizations or activities in which any member of the organiza-tion's staff, any board member or any major contributor has asubstantial financial interest, either directly or through his or herfamily. * ' , ' <

An outright prohibition against business dealings between anonprofit organization and individuals or companies to whichprincipals in the nonprofit organization are linked was consid-ered by the Gommission and rejected as not practical for allvoluntary organizations. Such a prohibition, it was felt, couldput many voluntary organizations at a considerable disadvan-tage, particularly local operating charities that would not beable to do business with a local bank or real estate firm or asupplier, even on specially favorable terms, if the business wereowned or managed by a trustee or officer of the voluntaryorganizations. Yet, in addition to the "arms-length" require-ment, all transactions should be prohibited where they, result infinancial injury to the organization; any improper benefitsshould be recoverable through action by state or federal au-thorities; and appropriate penalties should be provided.

2. That to discourage unnecessary accumulation of income, afiat payout rate of 5 per cent of principal be fixed by Congress forprivate foundations and a lower rate for other, endowed tax-exemptorganizations. *

Present law requires that private foundations make annualdisbursements for their exempt purposes of a percentage of theorganization's endowment. The percentage, is fixed by the Sec-retary of the Treasury and varies with interest rates and invest-ment yields throughout the economy. Because of circumstancesin the financial market place, the payout rate (now set at 6 percent) is higher, by a significant degree, than the yield that canbe anticipated from a balanced investment portfolio. The effectof this payout requirement has been to cause foundations toinvade capital beyond any reasonable expectations of long-term capital appreciation that might cover such invasions.

The Commission strongly supports the principle of the re-quired "payout," not only for private foundations, but also forall exempt organizations with endowment resources. But the•See dissent by WILLIAM M, ROTH, page 22Q,

" • ' ' 1 7 5 . •. •

payout rate should not be so high as to cause erosion of endow-ment funds. Nor does the Commission view the short-termfluctuations in the rate, now occurring under present law, to bedesirable. A flat payout rate of 5 per cent would assure theadequacy of continuing charitable payments, yet would permitwell-planned management'of ^he organization's endowmentfunds. Because financial circumstances may change over, time,the 5 per cent rate could be set for a fixed period, such as fiveyears, arid reviewed by the Congress at the end of that period,if Public charities are not currently subject to any payout re-quirement, and at least one well publicized instance,has cometo light in which a charitable organization has amassed largefinancial holdings while doing little to expand its charitableactivities. So the Commission believes that a payout rule isdesirable for other endowed charities as well as for foundations.For organizations other than private foundations, however, thepayout rate should be set at a smaller percentage and it shouldbe satisfied by the use of funds' for the direct conduct of theorganization's activities, including the acquisition, constructionor repair of buildings or other facilities, the acquisition of artobjects by museums and so forth. Accumulations, in fact,should be liberally allowed for purposes that clearly further theorganization's tax-exempt functions and services. s

The provisions of the present law that prevent a privatefoundation from making speculative or other investmentswhich "jeopardize its exempt purposes" should also be applied,with appropriate modifications, to all exempt organizations.

3. That a system of federal regulation be established for inter-state charitable solicitations and that intrastatesolicitations bemore effectively regulated by state governments.*

In the Commission's sample survey of taxpayers/ 30 per centof those questioned said they did not like the way their contri-butions were used and one out of seven respondents specificallycomplained of excessive fund-raising or administrative costs.This wariness undoubtedly has been heightened in manyminds by recent cases, including those uncovered in congres-sional investigations, where some costs of charitable fund rais-*See dissent by RAYMOND J. GALLAGHER, page 220.

ing absorbed most of the funds raised, leaving the impressionthat some charitable solicitations are more for the benefit ofthe solicitors than for the charitable causes involved. In someother instances, contributions have been recurrently solicitedand raised that are far in excess of the organization's operatingoutlays.

The Commission believes that the vast majority of charitablesolicitations are conscientiously and economically undertaken.Nonetheless, cases of unduly costly or needless fund raisingpoint to the absence of any focused mechanism for overseeingsuch activity and, if need be, applying sanctions. One Commis-sion study finds, in fact, that only; one half of the 50 statesregulated the solicitation of funds and that "the coverage andscope of" those that do regulate "vary widely." State regula-tion of intrastate solicitations, the Commission believes, shouldbe strengthened, but because many solicitations spread overmany states at once, state regulation is inevitably limited in itseffectiveness. Clearly, the federal government and federal lawmust play the major role in assuring the integrity of charitablesolicitations, a role that they just as clearly do not play today.

The Commission recommends specifically that all charitableorganizations should be requiredi by law to disclose all solicita-tion costs to the Internal Revenue Service, in accordance withaccepted accounting principles; that all solicitation literatureshould be required to carry a notice to the effect that fullfinancial data can be obtained from the soliciting organizationon request; that any such requests be required to be rapidlyanswered; and that a special office be established in the Inter-nal Revenue Service or in some other federal agency or regula-tory body, such as the Federal Trade Commission, to overseecharity solicitation and take action against improper, mislead-ing or excessively costly fund raisings. This special office mightbe supplemented by and guided by an accrediting organiza-tion, which would review the finances of and certify all exemptorganizations whose solicitation practices are found to meritapproval.

The Commission considered but rejected proposals that so-licitation costs be legally limited to a fixed percentage of re-ceipts because, unless such a ceiling were so high as to be an

ineffective restraint on most fund raising, it would risk beingtoo low to account for the often justifiably high costs of solici-tation for new or unpopular causes. On the other hand, stateas well as federal agencies concerned with regulating solicita-tions should be required to establish clear qualitative criteria asto what constitutes "excessively, costly" fund raising^ (or im-proper or misleading solicitation, as well). Such criteria shouldbe widely publicized so that both soliciting organizations andthe contributing public would clearly understand the limitswitliin which fund raisers operate.

4. That as a federal enforcement tool against abuses by tax-exempt organizations, and^ to protect these organizations them,'selves, sanctions appropriate to the abuses should be enacted aswell as forms of administrative or judicial review of the principalexisting {sanction—revocation of an organization's exempt status.

Removal of tax exemption, which for many nonprofit orga-nizations would mean closing their doqrSj is much too blunt aweapon against charitable abuses, and for this reason is highlyineffective; the government hesitates to use it. On the otherhand, when it is used, judicial challenges are slow and costly,and because an organizaton may not be able to survive in themeantime without exempt status, revoking an exemption canbe, in effect, an unappealable penalty.

Therefore the Commission believes that more moderate sanc-tions need be devised as well as swift appeal processes. Amongthe sanctions envisioned are those that the government couldapply to organizations whose activities go beyond their, exemptpurposes or to organizations whose activities would be penal-ized under the Commission's recommendation ion arms-lengthdealing. Among the appeal processes, there should be; bothadministrative and judicial means of appeal; Of the latter, theCommission advocates procedures whereby an exempt organi-zation may ask a federal court for a declaratory judgment onits tax-exempt status or its eligibility to receive tax-deductiblegifts. During litigation or appeal involving either sanctions ordetermination of tax status, an exempt organization shouldgenerally be allowed to continue its charitable operations. Pres-ent laws prevent an appeal when the IRS denies or fails to act

178

on an application for exempt status. So appeal proceduresshould apply to initial determination of tax-exempt status aswell as to revocation of this status.

INFLUENCING LEGISLATION

The relationship between the nonprofit sector and govern-ment is? both complementary, and competitive.. On the onehand, the two sectors often perform related functions in variousareas of society, at times and places relying on each other'sassistance and co-existing in relative harmony.

On the other hand, as Chapter I has noted, a degree oftension and conflict, not necessarily unhealthy or socially un-beneficial, has marked relations between government and volfuntary organizations and associations throughout history.

The'ambivalence of this relationship is perhaps most clearlyreflected today in the fact that for nearly six decades govern-ment has, through the charitable deduction, encouraged a widerange of activity and influence by nonprofit organizations, andyet, for two thirds of that time, since 1&34, it has specificallyprohibited tax deducibility for any organization, a "substan-tial part of the activities of which" goes to "attempting toinfluence legislation." Government, in other words, encouragesthe nonprofit sector to do a great deal but specifically discour-ages it from trying to influence government itself.

Two principal rationales have been offered for this discour-agement. The image has been evoked at various times of thecorridors of Capitol Hill swarming with lobbyists operatingwith huge "slush funds" from nonprofit organizations.* Theidea that tax immunity is a form of government subsidy is partof another argument: in this view government should not, butwould, be in a position of subsidizing efforts to influence itselfif it allowed tax-deductible organizations to lobby freely.

In recent years, however, there has been growing pressure toremove or relax the restrictions on attempting to influencelegislation. This pressure has developed because of a number offactors:•See comment by MAX M. FISHER, page 221.

179

—In 1962, Internal Revenue Code provisions covering busi-ness taxes were amended to allow a business to deduct the costsof influencing legislation affecting the direct interests of thatbusiness. Deduction of dues to trade associations that lobby onbehalf of a business's industry-wide interests has been permit-ted under the amendment. Thus an inconsistency exists where-in businesses and trade associations are able to lobby for theirinterests and to benefit from tax deductions for the costs ofsuch lobbying, but nonprofit organizations and associations areallowed considerably less freedom to lobby, or otherwise at-tempt to influence legislation without endangering their tax-deductibility status.

—Considerable uncertainty surrounds just what constitutes a"substantial part" of an organization's activities or "attemptingto influence legislation." After forty years of the tax-law provi-sion, this uncertainty remains unclarified by either the courtsor the Internal Revenue Service. One result is that some largernonprofit groups are able to lobby amply, within the law, be-cause in relation to their size their legislative; activities make upno substantial part of overall activities. Smaller groups, howev-er, lobby at the risk of treading over some ill-defined line andthereby losing their special tax status; as a result, they mayhesitate to engage in lobbying activities to any significant de-gree at all. !;..'"

—Less directly but perhaps most profoundly affecting atti-tudes toward such restrictions on nonprofit organizations is thechange in the relative sizes of government and the nonprofitsector in recent: decades. As government has expanded in rela-tion to the nonprofit sector, the influencing of government hastended to become an ever more important role of nonprofitorganizations. As nonprofit organizations provide smallershares of health, education and welfare services, for instance,the ability to influence the larger provider—government—be-comes more important.

—"Public interest" and "social action" groups have beengrowing in numbers in the nonprofit sector; they may wellrepresent a major new direction of the sector; and one of theirforemost roles has been precisely to influence legislation. Somegroups such as Common Cause arid the League of Women

180

Voters have deliberately, if unhappily, adopted non-deductiblestatus so as to be able to lobby without restraint. They feelthat, while they are still able to enjoy tax-exempt status, thelaw should allow them to lobby and still to receive tax-deduct-ible contributions.

—The Constitutional question has been raised as to whetherthis inhibition against influencing legislation is an infringementof free speech and of the right to petition government.

Pressures to change the anti-lobbying restriction have result-ed in a number of proposals and congressional bills in recentyears. The American Bar Assocation in 1969 passed a resolu-tion that advocated amending the Internal Revenue Code toallow a nonprofit organization to lobby with respect to legisla-tion that was of direct interest to the organization. This resolu-tion became the basis for a Senate bill two years later andsince then various bills have been drafted in Congress withwide differences but the similar goal of easing or more clearlydefining, but not totally removing, the restrictions on nonprofitorganizations against lobbying and other means of influencinglegislation.

Recommendation

Against this background of a long-standing barrier betweenvoluntary organizations and government, the Commission rec-ommends:

That nonprofit organizations, other than foundations, be al-lowed the same freedoms to attempt to influence legislation as arebusiness corporations and trade associations, that toward this endCongress remove the current limitation on^suchSactivity by charita-ble groups eligible to receive tax-deductible gifts.

The only major restrictions in this area that the Commissionbelieves can be fully justified are:

Those that would prevent a person or group from being ableto set up an organization to campaign for a particular piece oflegislation and then deduct from income taxes the expenses ofrunning such an operation. Therefore, the Commission recom-mends that organizations receiving tax-deductible gifts must be

• • ' • ' • • • • ' I 8 i • • • . • • : • ' • • .

required to have broader charitable aims and functions apartfrom any immediate legislative activities,:: Prohibitions against a nonprofit organization's supporting oropposing a candidate for public office.

Maintaining the current total prohibition against lobbyingby private foundations.

Otherwise, the Commission believes that there should be norestrictions, linked to tax deducibility, on what the Commis-sion feels has become an increasingly important role of thenonprofit sector and a major part of the philanthropic process.

182

Sources for Chapter VJ1:

Accounting Advisory Committee, A Study of the Inadequacies of Present Financial Reportingby Philanthropic Organizations.*

Thomas R. Asher, Public Needs, Public Policy wtdfPkHmtkropyS

Msgr. Geno Baroni, Arthur Naparstek, Karen KolIIas, P&Jtems ofCkss end Ethnic Dis-crimination by Private Philanthropy.*

Sarah C. Carey, Philanthropy and the Powerless,*

Council on Foundations, Inc., Private foundations and the, 1969 Tax Reform Act.*

David Ginsburg, Lee R. Marks, Ronald P. Wertheim, Federal Oversight of Private Phi-lanthropy*

Arthur Jack Grimes, The Fund~RaUing Percent as a Quantitative Standard for Regulation ofPublic Charities with Particular Emphasis on Voluntary Health'and Welfare Organizations,*

John B. Huffaker, Legislative Activities of Charitable Organizations Other than Prheie Founda*lions** ' ••

Reynold Levy and Waldemar A. Nielsen, An Agenda fir the Future.*

Peter G^ Meek? Self-Regulation in Private Philanthropy*

Phillip W. Moore, Foundation Gtmts to Corporate Activist Groups: The Dome Perspective.*

Ohio Attorney General's Office, Charitable Foundations Section, 7%e Status of StateRegulations of Charitable Trusts, Foundations and Solicitations,*

Peter J . Petkas, The New Fedemlism, Government Accountability and Philanthropy.*

David Morton Smith, Values, Voluntary Action and Philanthropy: The Appropriate Relationshipof Private Philanthropy to Public Needs*

Lawrence M. Stone, The Charitable Foundation: Its Governance.*!

Mary Jean Tully, Who's Funding the Women** Movement?*

United States Human Resources Corporation, Foundations' Responsiveness to Concerns ofMinority Groups, San Francisco, 1975.

•Denotes reports and studies undertaken for the Commission.

183

VIIIA PERMANENT COMMISSION

The Commission on Private Philanthropy and Public Needshas addressed itself to many of the issues, challenges, changesand simple uncertainties that face' the third sector and its phil-anthropic underpinnings in the mid-1970's. The Commission'sstudies, we feel, have significantly advanced the state of knowl-edge in this area. Yet for every subject examined, it has be-come evident that many other subjects remain barely explored.For every conclusion, recommendation or finding involvingany particular issue or set of issues, there has not been enoughinformation to come to definitive conclusions about other im-portant or pressing issues. Such is the immensity and diversityof this area of American life, and such has been the scarcity ofinformation that has faced the Commission that we inevitablyhave had to leave depths unfathomed.

Why do people give? And, of equal importance, why dosome not give even though their economic circumstances wouldmake it feasible for them to do so? We still do not know in anyeasily analyzable or quantifiable sense.

What are the dimensions of "charitable" activity and of giv-ing, and what are the characteristics and problems of the ma-jor categories of nonprofit institutions? "The lack of informa-tion is striking," notes a Commission report covering theseareas. We have made estimates and extrapolations, but it isclear that they are only that; and as regards the economiccondition of the third sector, in addition to suffering long-termeconomic strains, it has unquestionably been severely struck bythe recent recession and inflation, but precise informationabout what can best be done to alleviate the crisis of someinstitutions is still lacking.

What are the purposes, the public needs, to which nonprofitorganizations and philanthropic resources are best oriented? Asthis report observes in earlier parts, virtually the whole breadthof our social and cultural consciousness and activity is encom-

185

passed by philanthropy and nonprofit activity, from relief ofhunger to support of the fine arts, from studies in biosociologyto public television. There is no single set of priorities thatapplies across this whole immense range, no easy arranging orrearranging of the optimum distribution of philanthropic re-sources between various claimants within this range. ThisCommission itself has been divided, in fact, as any; reasonablyrepresentative group might well be in the mid-1970's, on whatis a socially optimum allocation of philanthropic resources, andon whether change in the present allocation is; necessary ordesirable.

Perhaps wisely, we have tended to limit our discussions tomeans rather than ends, to processes by which it is hoped thatnonprofit activity and philanthropy can be both strengthenedand guided toward addressing needs that society's third sectoris best designed to fulfill. Yet, the Commission also recognizesthat if private giving should continue to shrink in relation tothe rest of the economy, and if nonprofit activity should con-tinue to grow smaller in comparison with governmental paral*lels, the determination of the best uses of these voluntary re-sources may become a paramount and recurrent issue facingthe nonprofit sector and American society as a whole.

As noted elsewhere in this report, the monitoring and influ-encing of government may be emerging as one of the mosteffective and socially beneficial roles of the voluntary sector,and perhaps philanthropic resources and the processes that en-courage and direct these resources should in the future be morespecifically oriented toward this role. Or perhaps it will be-come evident that the oversight of corporations should be giv-en priority in the use of such resources, as corporations them-selves loom ever larger not only in the economic but in thesocial life of America. Then, too, there are those who are al-ready saying that giving in the voluntary sector should berefocused on a role that is as old as philanthropy and charitythemselves—helping the helpless, or, as viewed in contemporarysocio-political terms, empowering the powerless. What, then, ofphilanthropy's current major recipients and beneficiaries?

"One of the difficulties in assessing the functions of privatephilanthropy in America," as Robert J. Blendon, vice president

186

ofi the Robert \^ood Johnson Foundation, writes in a Commis-sion study, "is that, in a changing society, past experience maynot be a I reliable guide for interpreting^ correctly Currents o |future need."' Accordingly, philanthropic priorities should be-come a matter! of examination on a continuous basis. . . ;

Many otherji aspects of philanthropy; need to be studied aswell. Many questions remain to be I answered, and many to beasked. Moreover, even the answers the Commission confidentlyoffers today in areas to which it has given particular, attention^Such as the relationship of taxes to giving, are subject tochange, perhaps with very little notice. For, above all, it isclear that the region we have explored is itself changing swift-ly, perhaps profoundly.

Part of a Larger Process

iSo the Commission regards its efforts, its examinations anddeliberations as but a modest beginning of what must becomea larger and longer process if the voluntary sector and philan-thropy are to become as well understood, as well mapped, asthe government and business worlds. And they'must be betterunderstood, we feel, on a continuous and up-to-date basis, ifthey are to play their most productive role and to be intelli-gently guided in this role.

The scope and duration of the need is such that there shouldbe established, in the view of the Commission, anew organiza-tion of recognized national stature and authority that willwork steadily and on a long-term basis to strengthen the non-profit sector and the practice of private giving for public pur-poses. Many areas within the sector have created associationsto champion their causes and interests; But the sector as awhole, in part because of its very scale and diversity, has nosingle entity to give the kind of serious thought and attentionto its overall and fundamental problems as traditionally havebeen given to the profit-making sector and to the structure andfunctioning of government.

Yet in a time when the sector is subject to both economicstrains and political and philosophical questioning, when pro-

187

found changes are taking place in its role and in its relation-ship to government, and when philanthropy has failed to keeppace with society, in economic and financial terms at least, theCommission believes that such an entity is necessary for thegrowth, perhaps even the survival, of the sector as an ='effectiveinstrument of individual initiative and social progress.

Among the major purposes of any such organization, in ad-dition to attempting to find answers to the questions above,would be to study in depth the funding problems of nonprofitgroups and the means of increasing the flow of private fundsinto these institutions. Alongside philanthropic: giving, whichhas been the major financial area of concern of this Commis-sion, operating revenues are the other principal source of pri-vate funds for nonprofit organizations, and study and develop-ment is needed of ways of increasing such revenues includingways of removing legal barriers to nonprofit organizations'earning operating revenues. Present IRS regulations, for in-stance, severely limit the capacity of public-interest law firmsto earn legal fees for their services, fees that would go a longway toward making these kinds of nonprofit groups self-sup-porting/

In addition to private funding, any future body on the non-profit sector will also inevitably have to concern itself with thegrowing role—and growing challenge—of government funding.A major task ahead is to study further and develop guidelinesand insulating institutional channels for government fundingthat will accommodate government's right to be assured thatpublic money is properly spent but will protect recipients offunds from stifling bureaucratic or political intrusion.

Indeed, the whole area of working relationships betweengovernment and the private nonprofit sector needs further at-tention and study—relationships that are increasingly complex,fluid, undefined and hazardous as government programs andbudgets grow in areas of nonprofit activity. The terms of gov-ernment contracts and grants, and the accountability and re-porting requirements included can, and sometimes do, imposenot only costs and burdens upon private agencies but evendangers to their constitutional rights. Government decisions tosubsidize hospital construction or to make sudden slashes in

188

the level of support For research programs can have unintendedbut nonetheless huge and damaging side-effects on private in-stitutions that lie in the path of such new directions of publicpolicy or that are dependent on government support for someof their programs.

The point has been reached. where such impacts are notoccasional or incidental but continuous and numerous as aresult of legislative and executive branch decisions on budget-ary, program and procedural matters at all levels, federal, stateand local. And yet these impacts, which increasingly define therole and determine the viability of large categories of the thirdsector, are neither anticipated nor systematically identified andevaluated in the processes of legislative and administrativepolicy makings

There is need therefore for the invention and establishmentof a new kind of entity to fill this great and dangerous void. Itmust be a permanent and not temporary agency; it must have"critical mass" in the scale of its financing; it must have bothgreat stature and independence, to exercise significant influ-ence at the same time upon the private nonprofit sector, uponpublic attitudes and understanding, and upon both the legisla-tive and executive branches of government. It must be simulta-neously a center for the study and analysis of problems, for theformulation of constructive proposals for their solution by bothprivate and public elements, for criticism of the private sectorwhere called for and for advocacy of the private sector and thestrengthening of this vital element in our national tradition ofpluralism. This is, quite obviously, not an easy prescription tofulfill.

The British Model

The notion of establishing some new body to aid, or perhapsoversee, the third sector is not newv Indeed, a number of pro-posals in this regard have been advanced in recent years. Theyhave ranged from relatively modest ones—the creation of whatwould be essentially an information clearinghouse—to recom-mendations for establishing new regulatory agencies with wide-

189

ranging authority and judicial powers. The latter generallytake their inspiration, at least in part, from the Charity Com-mission in Britain, which traces its origins back to 1601 andwhich now has a staff of 360 with broad powers to oversee thatcountry's 115,000 "charitable" organizations.

By contrast, whatever governmental authority is exercised inthis area in the United States is widely dispersed. It resides forthe most part in the courts, in state attorneys general and inthe Internal Revenue Service. The last is the nation's singlemost influential overseer of!the philanthropic world, because ofits power to determine,: within broad limits of the law, whatorganizations are eligible for charitable status and thereforecan receive tax-deductible gifts. Yet the IRS's oversight is inci-dental to its revenue-collecting rele.

After considering various existing and proposed alternatives,the Commission feels that a regulatory agency with full gov-ernmental status and wide authority, modeled on the BritishCharity Commission, is not transplantable into the Americancontext and that the present pattern of. enforcement and over-sight of nonprofit organizations should, with the changes pro-posed in the previous chapter* be maintained.

Quasi-Governmental Status

Yet the Commission does feel that there is indeed a need foran organization with analysis and advancement of the non-profit sector as a central purpose. And while rejecting proposalsthat such an organization be a governmental agency, like theCharity Commission, we do see considerable merit in quasi-governmental status for any national oganization on the non-profit sector.

Gbvernment and the nonprofit sector are obviously and un-deniably related in tneir public purposes, they are linkedthrough the tax system arid there is a wide intermix 6f publicand private support for public and private organizations. Wehope and believe that a commission with governmental inputwould act as a catalyst to bring together the two sectors inmore deliberate ways so that they will work more fruitfully

190

together, and more harmoniously than they have at times. Therelative virtues ofj one sector in comparison with the other arebest exercised, we believe, not in competition but in co-align-ment. As a glance at the social agenda, the catalogue of un-filled public needs, of this country indicates, there is more thanenough for both sectors to do. The expectation that they willshare the burdens more productively; underlies our proposal fora commisson that will embody among its underlying rationales,a conscious, structural linking of the two sectors on the basis ofa clearer definition of their respective roles, responsibilities, ca-pabilities and limitations.

Recommendation

To give concreteness to this concept as a basis for publicdiscussion, the Commission accordingly, in terminating its ownwork, puts forward as one of its major recommendations:

That a permanent national commission on the nonprofit sectorbe established by Congress.*

This permanent commission should work closely and con-tinuously with both the legislative and executive branches ofgovernment, as well as with the private sector, but'it shouldremain one degree removed from both purely private and fullyofficial status.

The following is an outline of the proposed purposes andstructure of such a commission on the private nonprofit sector:

PURPOSES

1. To construct and disseminate for public enlightenmentand use as complete a data base as possible on the presentsources and uses of the resources of the private nonprofit sector/In this connection the commission might establish a registry ofprivate voluntary organizations.

2. To observe trends and periodically update existing data,so that the new commission can stand ready to speak authori-tatively on the existing state and the future needs of the pri-

*See dissents by GEORGE ROMNEY, page 221, and by RAYMOND J. GALLAGHER^page 222.

191

vate sector. To aid in this role, it is envisioned that the com-mission would have full access to pertinent IRS data withinlimits set by the rights of privacy.

1 3. To explore and suggest ways of strengthening the role ofprivate philanthropy and the entire private nonprofit sector inour society, not only in terms of increased financial supportand volunteered services but also of enhanced public knowl-edge and appreciation of that role.

4. To provide a forum for public discussion of issues affect-ing the nonprofit sector and for commentary, critical or other-wise, directed toward the sector. • ; '•

5. To study in depth the existing relationships between gov-ernment and the nonprofit sector; to seek ways of encouragingand improving existing relationships in a spirit of cooperationwhile preserving the effectiveness and independence of the sec-tor and the private initiative which gives it life; and to serveactively in close consultation with government as an ombuds-man in the protection of the interests of the private nonprofitsector.

FORMATION

By Act of Congress.

MEMBERS

Broad public membership is essential, and so a total commis-sion membership of 20 to 25 individuals is proposed. Ex-officioand other special representation memberships should be avoid-ed in favor of selection on the basis of experience and genuineinterest and concern for the areas of the commission's work.*

The initial membership might be chosen as follows, assum-ing a total of 25 members: ••'•:;. :••-/..'. •.=:.'•;., - - ; - v

1. The President selects the commission's chairman.2. The President (presumably working with the chairman)

names 12 other members. : ;3. All Presidential appointees are subject to senatorial confir-

mation; >:••....•• " . '.' : , ., ,••• ..;•• - • . • • : ' , - .••••:;.•4. The 13 members so named then select the remaining 12

members.•See comment by MAX M. FISHER, page222.

192

The term of membership in the commission should be threeto five years. No member should be able to serve for more thantwo successive terms.

FUNDING

The commission's budget should be met from governmentappropriations and from private sources, ideally one half fromeach. A ceiling should be placed on individual private contri-butions, so that private funding comes from many sources. Amodest charge on all charitable organizations should be consid-ered, or possibly the new audit fee that the Commission pro-poses for foundations could be enlarged to provide funds spe-cifically earmarked for the new commission.

TERM OF EXISTENCE

The commission should be granted permanent status, subjectof course to periodic review and, ultimately, the commission'sown demonstration of its benefit to the society.

193

Sources for Chapter VIII

Arthur Andersen & Co., Overview of Governmental Support and Financial Regulation ofPkilan*thropic Organizations in Selected Nations.*

Thomas R. Ashcr, Public Needs, Public Policy and Philanthropy * f

Robert J . Blcndon, The Changing. Role of Private Philanthropy) in Health Affairs.*

Gerard M. Brannon and James Strnad, Alternative Approaches to Encouraging PhilanthropicActivities* •-; , ..•

Robert H. Bremner, Private Philanthropy and Public Needs: An Historical Perspective.*

John J . Carson and Harry V. Hodson, eds., Philanthropy in the. '70's:, An(Anglo-AmericanDiscussion, Council on Foundations, Inc., NewYork,; 1973. ';.'

David Ginsburg, Lee R. Marks and Ronald P. Wertheim, Federal Oversight of Private

Philanthropy.* :

Eric Larrabee, The Public Funding Agency.* '

Reynold Levy and Waldemar A. Nielsen, An Agenda for the Future.* , *

Peter G. Meek, Self-Regulation in Private Philanthropy *Donald R. Spuehler, The System for Regulation and Assistance, of Charity in England andWales with Recommendations as to Establishment of a National Commission on Philanthropy in theUnited States * : i

Adam YarmoUnsky and Marion R. Fremont-Smith, Preserving the Private Voluntary SectorA Proposal for a Public Advisory Commission on Philanthropy.*

•Denotes reports and studies undertaken for the Commission.

194

COMMENTS

DISSENTS

COMMENTS AND DISSENTSPage 33, by GRACIELA GLIVAREZ

The Commission on Private Philanthropy and Public Needswas charged over two years ago with an important nationalmission: to review the direction and status of charitable givingin this country and to assess its ability to meet public needs.Perhaps the great weakness in the Commission's report is thatno definition of public need was ever offered. Granted, publicneed is open to competing definitions. But the fact that theCommission chose to defer this fundamental responsibility isindicative of the general tenor of its conclusions and recom-mendations, which avoid issues that are controversial and com-plex and in essence support maintenance of the status quo. Ibelieve that ample modifications in the present system of chari-table giving are essential if philanthropy is to be a viable alter-native to government and is to meet real public need. Yet thenet result of the Commission's two years of study, aside from anecessary and relatively strong statement of support for thevoluntary sector's legal freedom to attempt to influence legisla-tion, has been to give little more than verbal tokenism to theneed for change in the current philanthropic structure.

Page 69, by FRANCES T. FARENTHOLD, GRACIELAOLIVAREZ and ALTHEA T. L. SIMMONS

The Commission on Private Philanthropy and Public Needsis itself a prime example of institutional philanthropy's neglectof women and women's interests. While women constitute 53per cent of the American population, only four out of 28 Com-mission members have been women and only eight out of theCommission's 118 advisors have been women. No study wasprepared on women—on either the role of women in nonprofitorganizations and philanthropy or the role of nonprofit organi-zations and philanthropy in furthering—or failing to further—the aspirations, needs and rights of women. Other than at thisparticular part of its report, the Commission's findings andrecommendations hardly mention women or the women'smovement.

197

This disregard of women is symptomatic of a larger short-coming of the Commission: its refusal to recognize that philan-thropy as presently constituted has by and large failed to meetthe needs of important new, or newly striving, groups in thesociety. An even larger shortcoming that underlies the Com-mission's neglect of women has been the Commission's failureto reexamine philanthropy and the use of philanthropic jre-sources in light of the immense social changes that have\takenplace in the last decade.

Women and the needs of women do not constitute the onlysuch area of social change that the Commission's examinationof philanthropy has failed to take into account; the Commis-sion has virtually failed to heed any such changes in what hasbeen an obvious;, predisposition to defend the status quo bothin the institutions that encourage or dispense philanthropicgiving in the United States and in the institutions that benefitfrom such giving.

Yet the meager representation of women on or around theCommission and the Commission's virtual silence on women inits research, its deliberations, its findings and its recommenda-tions all provide some of the more glaring evidences of theCommission's narrow range of vision. That this narrowness hasseverely limited the usefulness of the Commission*^ examina-tion of philanthropy and the nonprofit sector is amply illustrat-ed by what the Commission did not find out about women inrelation to these areas.

The Commission failed to recognize that the concerns of women are anintegral part of the solution to every major social problem.

• The problems of population growth cannot be addressedwithout reference to the economic and social status ofwomen and the myths they are forced to live out.

• The problems of ecology and natural resources cannot beaddressed without consideration of the role of women asconsumers and mothers.

• The problems of poverty cannot be addressed without rec-ognition of the fact that being poor is directly correlatedwith being female.

• The problem? of the delivery of health care andrpreventioncannot be addressed without reference to women as con-

198

sumers and providers of health services.• The problems of mental health cannot be addressed with-

out consideration of the destructive impact of sex discrimi-nation on the personalities of women and men.

The Commission failed to recognize ways in which traditional recipi-ents of philanthropy {contribute to the discrimination against women. Inhigher education, to [take a major recipient area:

• Women are discriminated against on faculties, as evi-denced by wide salary gaps between men and women, andby the fact that in 1974, 57 per cent of male faculty mem-bers were granted tenure, while only 26.7 per cent of wom-en faculty members were granted tenure.

• The unemployment rates among professionals are two tothree times higher for women than for men.

• The percentage of women graduate and undergraduatestudents is lower than in 1930.

• Many women are part-time students, which makes themineligible for almost every form of fellowship and grant aidavailable. Many who postpone their education during aperiod of childrearing are also eliminated by age restrictions.

• The median education level of black women has risen onlytwo thirds as much as that for black men between 1966

y - i a n d 1 9 7 2 . : : / • '->• ; '• • ..• Illogical clumping of women in only a few areas of .study

'••• ' • < • o c c u r s . * • ' , - j - : ' - • ; • ' . ' • ; •;• • • •;•'••••; • • • • ' . : • •

• Though women complete bachelor's degrees faster andwith substantially higher grades than men, women are lesslikely to go on to graduate school.

An analysis of other nonprofit organizations and institutionswould have documented further a generally shameful recordthroughout the nonprofit sector in connection with the statusof women. To cite only two elements in this record:

• "Women rarely appear, in more than token numbers, onprofessional staffs or the boards of foundations and

^ c h u r c h e s . .- • - ; : - •• \ : "' ' '• •- ' • " :;; ' • • • • •

• The United Way gives boys* organizations four dollars toevery one dollar "that goes to girls* organizations.

The Commission failsd to identify women as a major section of thepowerless.

199

A paper prepared for the Commission* entitled "Philanthro-py and the Powerless," omitted women entirely. That womenmust be identified among the powerless is unquestionable con-sidering the economic disadvantages of women, the systemicbarriers to political participation by women, the culturalhandicaps imposed upon women, anch the over-repression in-flicted upon certain portions of the female population;

• Wfcmen hold only 4 to 7 per cent of: all public offices in; this nation. : .•• • ; • • • ; • • r - r f , • . \ - : .-•••• • • • : i . • , : • • • - , : • • •

• Between 1960 and 1967 the number of forcible rapes uponwomen increased by 61 per cent. But the proportion fol-lowed by arrest decreased annually. The FBI shows that 86per cent; of|;aggravated assault cases were solved^ as com-pared to only 5 per; cent of rape cases. ; ;

- Another important area in which the Commission has failedto look at women and women's relationship to philanthropyand nonprofit activity—and thereby further evidences its fail-ure to take account of social change-^is in the area of volun-teerism. Significantly more women than men serve as volun-teers—one out of; four women do some volunteer, work whileonly one out of five men do. Yet it is clear that the womenvolunteer force that serves as a basic resource for many non-profit groups and agencies can no longer be taken; for grantedin the economics of philanthropy. One: reason, probably themain reason, that more women than men have traditionallyserved as volunteers is that fewer women have held regularjobs. Yet, as women are joining the labor force in ever increas-ing proportions, it is almost certain that women in general willbe contributing fewer hours of volunteer work. The implica-tions of this change must be profound for philanthropy, butthe Commission has not considered this area of change at all.

Again, while we speak as women with particular concernabout the Commission's failure to examine—let alone proposeremedies for—the nonprofit sector's severe shortcomings indealing with the aspirations and needs of women, we empha-size that we see this failure as part of a broader failure. This isthe Commission's unwillingness to examine in any profoundand penetrating way the existing role of philanthropy arid non-profit activity and to propose new roles, with new structures

200

and new incentives, that are appropriate to the rapidly chang-ing world of the mid-1970's.

At its best, private philanthropy can play a significant rolein alleviating the maldistribution of power and wealth inAmerican society. It has the freedom and flexibility to supportthose endeavors which truly are on the cutting edge of-socialchange. But this is true only if it is willing to listen to theadvocates of social change, that is those who are articulatingpublic needs as seen from the point of view of those in need.

So long as public needs are defined by the philanthropistsrather than by the recipients, by the "haves" rather than the"have nots," philanthropy will simply serve the interests of theformer to the neglect of the latter. The Commission has com-pletely failed to appreciate this fact. It has by-passed the ques-tion of defining public needs as being too difficult, and comedown on the side of preserving the status quo in philanthropy:support for health facilities, private higher education and thearts. The Commission has failed to understand that this in andof itself amounts to a de facto definition of public needs. Tothose groups in American society which are clamoring for theirfair share of the resources and power in the richest and mostdemocratic nation the world has ever known, such a definitionis totally unacceptable.

Page 123, by MAX M, FISHER, with which LESTER CROWN,RAYMOND J. GALLAGHER, PHILIP M. KLUTZNICK andRALPH LAZARUS have asked to be associated

The writing of the text of the report does not do justice tothe substance of the Commission's discussions, nor to its con-clusions. This point was made in the Commission's own discus-sions of preliminary drafts.

The report is excessively a defensive response to a series ofalleged criticisms of philanthropy. A number of the sectionsbegin with negative attacks or criticisms of current elements ofphilanthropy, and. then respond to them. This format does adisservice to philanthropy and to the Commission's own pos-ture, and to the impact of its recommendations.

The significance of the Commission's work should not bemeasured by the extent to which its findings may or may not

201

differ from current provisions. The test rather should be wheth-er the Commission has followed a careful searching process inwhich all alternatives were examined as a pre-condition fordetermining whether current provisions should be retained ornew provisions should be recommended. That test has beenmet in large measure.

Another defect in the report is the distortion of the conceptsof **equity" and "democracy" applied to philanthropic givingby the wealthy- The fact that 'the wealthy make the largestgifts, and have.the freedom to decide the objects of their gifts,is referred to as inequitable and undemocratic. Yet it is theessence of equity and democracy for people who have the larg-est means to make the largest philanthropic contributions. It isalso the essence of democracy and pluralism, and the strengthof voluntary I philanthropy, that givers should be able to desig-nate the purposes and the objects of their gifts.

The comments refer specifically to the fact that there is a 70per cent deduction for gifts of persons who are in the 70 percent bracket of tax payments. Since the two provisions aredirectly linked, that must be recognized as a balancing factor,and not an inequity.

Charitable gifts do not benefit the wealthy. They benefit thehuman needs financed by the gifts. The wealthy would benefitif they did not make the gifts; the gift is a 100 per cent tax,and the contributor retains none of it; if he chose not to give,and were in the 70 per cent bracket, he would retain 30 percent for his own use.

Page 127, by MAX M. FISHER, with which LESTERCROWN, RAYMOND J. GALLAGHER, PHILIP M.KLUTZNICK AND RALPH LAZARUS have asked to beassociated

Reference is made to guidance of gifts to particular pur-poses. It is essential in voluntary philanthropy, as in Americagenerally, that recognition be given to the indispensability ofmany values held by many different people. Who is to saywhich value is "right" and which value is "wrong"? Who is tosay which value is more important than others? Who is to denythat relative values with relative importance change over pe-

202

riods of time? There should be no imposition or attemptedimposition of monolithic values. r

Page 133, by MAX M FISHER, with which LESTERGROWN, BAYARD EWING, RAYMOND J. GALLAGHER,PHILIP M. KLUTZNICK and RALPH LAZARUS haveasked to be associated

Reference is made to the preferences of upper-income giversin the selection of the objects of donations. This distorts theelement of choice, which is exercised by all givers. Other sec-tions of tHe Commission's report point out that the personswith middle-level income provide the greatest combined totalof philanthropy; their selection of donees is proportionatelygreat. ^

There is the added reality, omitted by the Commission'sreport, that patterns of support reflect what donees seek, as wellas what donors select. Churches do not seek large individualgifts as a pattern, especially for their operating purposes. Uni-versities do seek very \ large individual gifts, not only for currentoperations, but for capital and endowment purposes. Doneeinfluence likewise affects bequests. It is too simplistic to attri-bute the patterns of!objects of gifts only to the wishes of thedonors. ;

Page 135, by ELIZABETH J. McCORMACK, with whichEDWIN D. ETHERINGTON, FRANCES T. FARENTH-OLD, EARL G. GRAVES, WILLIAM M. ROTH and LEONH. SULLIVAN have asked to be associated

While we agree unequivocally that greater tax incentives forgiving should be instituted for low- and middle-income taxpay-ers to build a broad democratic base for the nonprofit sector,we disagree that the "double deduction" is the best means totjiis end for two reasons:- 1. Within the range of its application, a 200 per cent "dou-

ble deduction" for giving, or any similar variation of theregular charitable deduction, intensifies the very short-coming it is supposed to remedy. The principal reason formoving beyond the charitable deduction as an incentivefor giving is, to correct a perceived inequity or imbalance

203

in the deduction itself—the fact that because of its rela-tionship to the progressive income tax the deduction pro-vides a greater tax savings for giving the higher the giver'sincome level.;

A "double deduction" for taxpayers with incomes un-der $15,000, and a deduction of 150 per cent for thosewith incomes between $15,000 and $30,000, would notonly, fail to correct this imbalance, it would exaggerate itthroughout an income range within which most taypayersfall. Taxpayers at the minimum 14 per cent marginal taxrate level would save 28 cents for each dollar given; whiletaxpayers at the 32 per cent marginal rate would save-48cents. It is hard to see how equity would be served ratherthan further offended by such a formula.

The only way to remedy the amplified inequity of anamplified deduction would be to structure the deductionso that it went up in steps as the income of the deductorwent down. But any such gradation would be extremelycomplicated for the taxpayer to understand and use andwould ultimately amount to a very convoluted way ofarriving at the same,end served by a tax credit, that is,providing the same proportionate level of tax savings toall contributors regardless of their income. |

2. The simplicity of the tax law is essential to the taxpayer'sunderstandings of what is justly due him. The "doublededuction", we maintain, is too complex to be easily un-derstood by the average individual without ready accessto an attorney or accountant. Without such assistance,the taxpayer is unlikely to know the real cost of giving.What is not understood, we believe, will not be used.

Page 135, by GRACIELA OLIVAREZThe Commission recommends that greater equity in giving

be achieved by permitting individuals who use the standarddeduction to deduct charitable giving as well. I feel this kind ofmeasure will create little to no incentive to give for people inmiddle to low income brackets because of the essentially regres-sive nature of the deduction. Indeed, even the Commissiongave tacit recognition to this conclusion when it considered a

204

proposal that persons earning $30,000 or less be given a ten percent tax credit for charitable giving. Unfortunately, this pro-posal for a credit was overturned in favor of supporting main-tenance of, the present regressive system of giving incentives,thus denying to a large sector of society the opportunity to takeadvantage of an equitable and realistic tax incentive. The in-equity of the charitable deduction is also acknowledged impli-citly by the Commission's additional recommendation for de-ductions of 200 or 150 per cent of giving. But this proposalappears to have little virtue other than;keeping faith with thededuction. It still leaves the middle and low income giver witha much lower incentive to give than the wealthy giver. In fact,among those it would apply to, it actually: widens the disparityof incentives. As usual, philanthropy is .treated as if it wereprincipally the domain of the wealthy and near wealthy, andlittle effort has been made to truly broaden the base of philan-thropy.

Page 135, by ALAN PIFER, with which LESTER CROWN,BAYARD EWING, PHILIP M. KLUTZNICK and JOHN M.MUSSER have asked to be associated

Since $15,000 is now only slightly above the median familyincome for the nation, there would;be a rough sort of equityinvolved in allowing a double deduction for gifts to charity forfamilies with incomes below, that amount. I therefore supportthis part of the recommendation. The Commission's proposal,however, for a 150 per cent deduction for gifts by families inthe S15,0O0-S3O,O00 range, despite its probable efficiency instimulating substantial new giving, has the serious fault of sim-ply increasing the inequitable aspects of the present deductionsystem. I, therefore, dissociate myself from this part of therecommendation. .

by ELIZABETH J. McCORMACK, with whichEDWIN D. ETHERINGTON, FRANCES T. FARENTH-OLD, WILLIAM M. ROTH and LEON H. SULLIVAN haveasked to be associated

Two objectives of the Commission have been to achievegreater equity and to broaden the base of philanthropy.

• • • • • . - . : • 2 0 5 • . . , •• '

We believe that a forceful step is needed to redress the in-equity that results from the incentive for charitable givingbased on the progressive income tax. In effect, it costs the high-income taxpayer far less to give a dollar to charity than it doesthe poor man. We believe further that it is of the highestimportance to encourage in all individuals a sense of responsi-bility for general welfare through the practice of philanthropicgiving. In the long runthe vitality of the nonprofit sector willdepend on this broadly based support.

We therefore recommend a simple tax credit of $50 to $100 for allindividuals with incomes of up to $10,000.

The tax credit allows a giver to subtract the amount of thecredit, dollar for dollar, from taxes owed. The relationship be-tween giving and taxes is clear and direct and would thereforeappear to be a more effective incentive to giving. Only exper-ience will give a firm answer to the question of the "efficiency"of the tax credit, but in our opinion more new giving will bestimulated, than is predicted.

We believe that money made available to the individualthrough this tax credit should be viewed not as money with-held from government but rather as funds that the governmentrequires be earmarked for causes and organizations in the pub-lic interest and of the individual's own choosing. This processcan be looked upon as a continuous referendum in which thevoting is done not through the electoral mechanism butthrough tax-creditable giving.

In other words, the broader view is advocated here that taxobligations are not obligations to support the costs of govern-ment per se but to support public purposes, the large propor-tion of which are selected and financed through governmentalprograms. But under a charitable credit a significant portionwould be selected by individuals. Individual allocation of ashare of tax money to public purposes should, we propose,become;established as an important right of citizenship arfePanunderpinning of our pluralistic society, We should not be timidor apprehensive about accepting a charitable tax credit in" thispositive light.

206

Page 140, by MAX M. FISHER, with which LESTER GROWN,RAYMOND J. GALLAGHER, PHILIP M. KLUTZNICKandRALPH LAZARUS have asked to be associated

Tax credits are regarded as based on an erroneous premisethat charitable gifts are government funds; rather, they are thedonations of private funds by citizens. Furthermore, tax creditsraise constitutional questions if provided for church purposes.And by endangering the size of the largest gifts, the leadershipdonations which also attract other gifts, the effect of tax creditscould be a harmful reduction in contributions.

Page 143, by ELIZABETH J. McCORMAGK, with whichEDWIN D. HETHERINGTON, BAYARD EWING, FRAN-CES T. FARENTHOLD, EARL G. GRAVES"; IWAUTER A.HAAS, JR., GRAGIELA OLIMAREZ, ALAN PIFER, MtfL-LIAM M. R O p i and LEON H. SULLIVAN have asked tobe associated ;

We unequivocally recommend a minimum income tax. Webelieve that income devoted to charitable giving should bemade subject to any minimum income tax law. All who arefinancially able: have;an obligation to support the costs of gov-ernment. As worthy as nonprofit causes may be, it should notbe possible forj any ^individual to have, in effect, the option offinancially supporting such causes instead of paying any taxes.Yet such an option remains if charitable giving is not includedin determining what income > a minimum tax is to- be basedU p o n . ••

:. ••; • • ' ••. .

:. •••:•• ' • . \ . " • - • • . '" • • -

: : •. , • - : ' '

:

We see the inclusion of charitable giving in a minimumincome tax as not only reflecting a basic obligation of citizen-ship but as an important safeguard and benefit to the nonprof-it sector itself. The major argument for the exclusion of chari-table contributions from the minimum tax is that such achange would greatly discourage giving. Yet indications arethat the amount of possible loss to the t nonprofit sector wouldin fact be relatively small: The weighing of minimum tax ef-fects in such terms seems to us to be dangerously shortsighted;it overlooks the potentially far more serious cost to charity, ofundermining the legitimacy oft the income tax system itself.

The charitable deduction and the giving it stimulates clearly

207

depend on the effective functioning! of the income tax system,which depends in turn on a high degree of public confidencethat the system works equitably. Yet the possibility, that somecan avoid paying taxes, when tax-deductible giving is coupledwith other deductions, must bring the tax system profoundlyinto question in the eyes of the great majority who neitherhave nor presumably would exercise such ah option. We be-lieve, therefore, that nonprofit organizations have more to gainfrom the elimination of such a possibility than from its con-tinuation.

Page 143, by MAX M. FISHER, with which LESTER CROWN,RAYMOND J. GALLAGHER, PHILIP M. KLUTZNICK andRALPH LAZARUS have asked/to be associated

The section on gifts of appreciated property does not dojustice to the Commission's convictions and conclusions on thevital importance of such gifts. This difference between the neg-ative approach of the text of the report and the Commission'srecommendations was discussed by the Commission, in react-ing to the first draft, but the changes in the writing which werecalled for have not been made. Thus, the setting for the treat-ment of this subject in pages 143-145, opening the consider-ation with a series of attacks, sets the discussion in a negativeframework which is neither objective nor factual. The anti-large giver bias is particularly striking.

Donors of appreciated property do not benefit financiallyfrom their gifts. The 1969 tax laws made such a possiblityextremely rare. The beneficiaries are the people and needs re-ceiving the gifts.

"The appreciated property tax allowances provide added in-ducements to give that are not related to the value of the giftto the charitable recipient." No basis is given for. that state-ment. The contrary is true: charities generally record the mar-ket value of the gift on the day it is received.

The point is made ". . . people with the same income andgiving are treated differently, depending upon whether onegives cash and the other property." This implies favoritism tothe donor of property. It ignores that there is a 50 per centlimit applying to cash gifts, whereas there is a 30 per cent limit

208

applying to gifts of appreciated property.The statement is made " . . . the size of the tax inducement

does not correspond to the size of the benefit obtained by thecharitable recipient or society as a whole." That statement isincomprehensible. No explanation is given, nor any facts tosubstantiate it. (

It should be clear that criticisms of deductions of appreciat-ed property are not synonymous with tax reform, and that notall tax reform' advocates by any means share the criticisms ofthe deduction of appreciated property.

The statement is made ". . „ many Commission membersagree that the appreciated property provision in the charitablededuction, when looked at by itself, challenges standards ofboth tax principle and social equity . . ."! This does not itshould be emphasized, represent the mew of the full Commis-sion.: Its discussions revealed strong contrary Views.? Social equi-ty must take into account the benefits to society from thesegifts, the losses there would be to the beneficiariesfi^ such giftswere not made, and that the beneficiaries are not the wealthy.

Page 146, by BAYARD EWINGA specific example of the effect of eliminating the appreciat-

ed property allowance can be seen in the tax provision limitingpracticing artists to a deduction equal to the cost of materialscontained in works of their own manufacture when such worksare donated to museums. This provision has resulted in a com--plete drying up of such gifts with no counter-balancing in-crease in gifts of cash.

Page 147, by GRACIELA OLIVAREZThe issue of appreciated property is highly controversial, as

debate among commissioners has shown. The recommendationoffered by the Commission is only partially satisfactory. It doespermit maximization of the charitable dollar, and proposes tobar personal financial gain through tax-deductible charitablegiving. This would be acceptable only as long as donors ofappreciated property are bound to pay a minimal income tax.

209

Page 151, by GRACIELA OLIVAREZI do not completely agree with the majority recommenda-

tion that the charitable bequest deduction be retained in itscurrent form. The bequest deduction cannot be viewed in iso-lation. It is inextricably linked to more profound principles oftaxation and should be studied in such context. Furthermore, Ifeel strongly that a minimal tax be applied to the bequest—inthe spirit of principle which underlies my firm support of mini-mum income and appreciated property taxation.

Page 157, by FRANCES T. FARENTHOLD, with which BA-YARD EWING has asked to be associated

Employing exhortation to increase corporate gifts to charityis a futile exercise. Most of the corporate members of the Com-mission acknowledged in our meetings that mere talk had notand would not increase corporate contributions.

We therefore support a proposal which would impose a 2 percent needs tax on corporate income. The tax could be offseteither partially or completely by cash gifts to charity.

This proposal would guarantee an increase in corporate giv-ing. It would have the further advantage that public utilities(some of whom are not permitted by regulators to make contri-butions) and corporations under negative pressure from stock-holders would relieve themselves from all objections to contri-buting by this measure.

Page 157, by GRACIELA OLIVAREZCorporate giving was perhaps the one area which revealed

the least amount of consent among the commissioners. Thisappears evident from the inconclusive recommendation thatfurther study be given the issue. But the Commission has hadtwo years to assess corporate giving. I believe that corporationsshould be subject to a surtax not to exceed 2 per cent ofincome. Any difference between the 2 per cent and the propor-tion of income contributed to charity would be added to tax-able income. This proviso would be applied to companies accu-mulating incomes of $500,000 or more.

210

Page 1579 by WILLIAM M. RO^H, with which LESTERCROWN, ELIZABETH J. McCORMAGK and WALTER A,HAAS, JR. have asked to be associated

It is obvious from the record that exhortation has notworked['.to; increase •' corporate giving^ and there is no., evidencethat exhortation will work any better between now and 1980than it has in the past. Accordingly, it is necessary to resort toother measures if there is to be any real hope that corporategiving will rise above the current average of about 1 per cento f p r e - t a x n e t i n c o m e , ; m o s t o f w h i c h i s g i v e n b y a f e w c o r p o r a -t i o n s . •;;;•• ,: .. :.-' • • '• •;:• . •-.• :• : .. . •• .:, •• \ u.. , <: :.

We would favor; the adoption of a 1 per cent or 2 per cent"vanishing floor?* for corporate giving, requiring corporationsto give at least 1 per cent or 2 per cent of annual pre-tax netincome in orders to qualify for the charitable deduction. If thefloor were met, all giving would be deductible up to the.5 percent limit set by law; if not, none of the giving would bedeductible.

Because of expressed concerns that the "vanishing floor"might retard giving rather than enhance it, the provisionshould be adopted on a trial basis for three to five years* Ifgiving did not increase, other measures, such as the "philan-thropic tax" mentioned in the report, should then be consid-ered.. . . _ "..'• •• . ' . • ' ; - ' . • : •

Page 160, by MAX M. FISHER, with which LESTERGROWN, BAYARD EWING, RAYMOND J. GALLAGHER,PHILIP ,M. KLUTZNIGK and RALPH LAZARUS haveasked to be associated ?

,: The statements on these pages are erroneous. The nonprofitagencies am in the.market place of competition fors philan-thropic dollars. Givers have a number of choices for their con-tributions. Middle-income and wealthy givers are solicited formany contributions each year. They have many choices tomake in giving or withholding contributions.

The fact is that nonprofit agencies not only must attractgifts in competition with others, but they must justify the con-tinuation of support, year after year.

Reference is made to the public "skepticism" and "cyni-

211

cism," without supporting, solid facts that this characterizationis accurate regarding philanthropy. The support of philanthro-py indicates the opposite.

Page 161, by MAX M. FISHER, with which LESTER CROWN,RAYMOND J. GALLAGHER, PHILIP M. KLUTZNICK andRALPH LAZARUS have asked to be associated

In presenting the need for the free flow of information be-tween voluntary groups and the public-at-large, recognitionmust be given to the fact that many nonprofit agencies aresingle purpose organizations and appeal to persons committedto that purpose. The treatment of this whole section shouldtake due account of that fact, rather than expecting all organi-zations to deal with the entire public.

Page 161, by MAX M. FISHER; with which LESTER GROWN,RAYMOND J. GALLAGHER, PHILIP M. KLUTZNICK andRALPH LAZARUS have asked to be associated

The reference to meetings and reports of donee organizationsas "operating imperfectly at best" fails to take account of thefact that many of the organizations, and especially the largestones spending; the greatest funds, do issue commendable re-ports.

Page 163, by MAX M. FISHER, with which LESTER CROWN,RAYMOND J. GALLAGHER, PHILIP M. KLUTZNICK andRALPH LAZARUS have asked to be associated

The report refers to the "loose and even haphazard proce-dures that some nonprofit organizations employ to make them-selves accountable to the public." That is entirely too sweepinga statement. It ignores current reporting requirements of feder-al and state governments and the existence of contributor in-formation services in many localities.

Page 163, by MAX M, FISHER, with which LESTERCROWN, BAYARD EWING, RAYMOND J. GALLAGHER,PHILIP M. KLUTZNICK and RALPH LAZARUS haveasked to be associated

No facts are cited in the report to substantiate the individ-

212

uaPs opinion, referring to nonprofit agencies as a "privateclub." It is extremely; destructive., Without a body of facts tounderpin any such criticism, it is far too sweeping for theCommission to quote with any implication of credibility.

Page 164, by ELIZABETH J. McCORMACK, with whichEDWIN D. ETHERINGTON, BAYARD EWING, FRANCEST. FARENTHOLD, EARL G. GRAVES, WALTER A. HAAS,JR., JOHN M. MUSSER, ALAN PIFER, WILLIAM M.ROTH and LEON H. SULLIVAN have asked to be associated

Except for their purely sacramental activities, religious orga-nizations should not be excluded from the disclosure require-ments that the Commission has recommended for other tax-exempt charitable organizations. In many cases, religious affili-ates are barely distinguishable from secular organizations inthe functions they perform, for example, in the fields of educa-tion and health. It is therefore entirely appropriate, we hold,that these organizations carrying out nonsacramental activitiesbe held to the same standards of public accountability as othertax-exempt institutions.

Page 166, by MAX M. FISHER, with which LESTERCROWN, BAYARD EWING, RAYMOND J. GALLAGHER,PHILIP M. KLUTZNICK and RALPH LAZARUS haveasked to be associated

The point is properly made that there should be more uni-formity in accounting and reporting by comparable, organiza-tions. That is already more of a fact than the report indicates.For example, it is true among hospitals and among 'Universitieswhich spend very substantial philanthropic funds, and amongother types ©fi philanthropic organizations. The United Wayhas issued guides for uniform accounting and reporting?jbywelfare organizations. The Assembly of National VoluntaryHealth and Social Welfare Organizations several years ago de*veloped uniform standards—and there are.other examples. Fur-ther progress is dependent on the readiness of the AIC PA andthe FASB to move ahead—not alone on the agencies whichhave heretofore taken the initiative.

213

Page 166, by ALAN PIFER, with which LESTER CROWN,EDWIN D. ETHERINGTON and JOHN ML MUSSER haveasked to be associated

Replacement of the tax on foundations by a smaller auditfee would, of course, be preferable to retention of the tax in itspresent form and at its current 4 per cent leveL Nonetheless,this recommendation, if adopted, would not remove the under-lying j objection to any special levy'on foundations whatsoever.These objections are: • !

1. That such a levy deprives charitable recipients of re-sources at a time when such resources are needed as never

• • ' ' b e f o r e ; '; • • ; ' ' . ' . ' ' • • • • ' ' '• / ' ,••• •: • ' ; - : ^ ' - :

2. That a tax on charity is contradictory in principle, in thatpublic authority, whose responsibility it is to promote thegeneral welfare, is thereby denyingfunds to entities whichexist for no other purpose; and

3. That, since auditing is a normal function of government,there is no logical reason why any particulars class ofiOrga-nizatibns should have to pay for the privilege of beingaudited.

In short, any levy on foundations, whatever its level andwhatever it is called, is philosophically wrong and basicallydiscriminatory. ,

Page 167, by GRACIELA OLIVAREZI maintain that the regulatory functions of the IRS should

be transferred to another agency, specifically the proposedcommission on the nonprofit sector. Recent questionable activi-ties of the the IRS alone make that agency suspect. Apart fromthat, however, placing charitable activities under the scrutinyof IRS seems to be a tradition rooted in the wisdom that anysector accorded special tax status automatically be regulatedby the central tax authority. Philanthropy, I maintain, is a farbroader concept and practice than 501(c)(3), and should fallwithin the regulatory purview of a special entity created forand sensitive to that purpose.Page 167, by FRANCES T. FARENTHOLD

The Commission's report has no greater blind spot than itsrefusal to acknowledge the recent revelations of past and con-

214

tinuing perversions of government agencies for political pur-poses. The unprecedented abuses of power still being exposedin the wake of the Watergate phenomenon make it clear thatthe Internal Revenue Service should not: be the agency regulat-ing exempt organizations.

These revelations have shown that the IRS has systematical-ly established procedures, under the last five presidents at least,to subject politically unfavored exempt organizations to denialof exemption, excessive delay in rulings on exempt status andaudit procedures extraordinary in both frequency and intensi-ty. Contrary to the Commission's assertion that "except in sev-eral isolated instances;, the Service has demonstrated its capac-ity for independent, impartial oversight of tax exempt organi-zations," the IRS:

1. During the McCarthy era, under both Truman and Ei-senhower administrations, denied and revoked exemptionsof "subversive" organizations.

2. During the Kennedy and Johnson administrations estab-lished an "ideological organization project" which dis-rupted the activities of those exempt groups that wereviewed as threats from the right or left.

3. During the Nixon administration established a "SpecialService Staff' to harrass left-wing tax-exempt organiza-tions.

Even without their continuing history of politicization of theregulation of exempt organizations, most observers agree withAlan Pifer. He said that present regulation is "quite ineffective,it is characterized by a negative rather than a positive attitudetoward charity and it is located in the wrong place within thegovernment."

The Commission's own study in this area says that the offi-cials who are responsible for regulating exempt organizationsare "handicapped by (a) cumbersome procedures which were4esigned generally to meet the needs of the tax- collectingbranches of the Service; (b) inadequate authority in relation toother officials near the top of the Service's hierarchy; (c) theunderstandable emphasis of the Service on its role as tax col-lector rather than as overseer of a non-revenue producing ac-tivity; and (d) the generally weaker qualifications and training

215

of the Service's field staff as compared to the National OfficeStaff?' } '•-. ••••-.: " : V - : •;.;..;, ;-. '•:./• f C ' n r l \ . : . ^ . ^ :

AH of this leads to conclude that all ruling and audit func-tions regarding exempt organizations should be removed fromIRS and placed in a new independent regulatory commission.

This new, commission would also have greater credibility andmore potential for performing the research; and, advocacy func-tion envisioned by the Commission report for trie proposedpermanent national commission on philanthropy. ,

Page 168, byFILANGEST. FARENTHOLD !The Commission has not addressed the problems of one of

the most important developments in the past 25 years, the riseand proliferation of federated fund-raising campai gns. Thephenomenon of the United Way arose from the desire of cor-porate management to control the solicitation and disburse-ment of charitable funds and through that process to controlthe operation of social service agencies in their communities.

Because United Ways were created to meet the needs ofdonors rather than either the needs of the organizational re-cipients or of the public, many problems of fund-raising ethics,governance, accessibility, allocation and accountability havearisen.

Gne of the most important issues is the system of payrolldeduction which in many instances, as one observer put sit,"approaches taxation in its mechanical and, not always subtle,coercive technique of raising and allocating funds." This sys-tem enables the businessmen who control the United Wayboards; to increase the disparity between classes in giving as apercentage of income. The corporations and their officers con-sistently give a smaller percentage of income than do low-income workers.

The corporations not only exert pressure on their workers togive to the United Ways and substitute for their own; givingbut they allow the United Ways a complete monopoly of thepayroll deduction process. This, combined with the dominationof United Way boards by the businessmen, denies the workereffective control over whether he gives, to whom he gives and!to what use his "gift" is put.

216

This domination of the United Way allocation committeesby: corporate officers and their favorite charities insures thatthe allocation patterns of: the past remain the same. Access ofnew agencies representing changing needs is consistently de-nied. For, instance, one recent study; shows an average; changeof only 0.56 per cent in |United Way allocations nationally. •

lEveri with all of these faults, the) United Way, could functionas a valuable tool for social change on the local: level. A sourceof funds for such a purpose is so sorely needed; now, that largeamounts of funds and power are shifting from the federal goy--ernment to i states and cities without any accompanying reform66 local government.

liThis Commission has denied sufficient space to suggest spe-cific remedies to these many problems but I felt it imperativeto at least insert this note for the public's attention.

Page ? 168, by MAX M. FISHER, with which LESTERGROWN, BAYARD EWING, RAYMOND J. GALLAGHER,PHILIP M. KLUTZNIGK and RALPH LAZARUS haveasked to be associated

The report distorts the situation by attributing to publiccharities situations that involve some foundations.

Especially singled out by the report among the public chari-ties are federated fund-raising organizations. Yet they are themost public of the public charities and often the most accessi-ble, involving ithe broadest cross sections of all major elementsof communities, including racial and ethnic minorities.

No facts are cited to support the allegations of "closed doorsa n d c l o s e d m i n d s . " I t i s a l t o g e t h e r t o o s w e e p i n g a n d i n a c c u -r a t e . ' . . ' •• . •'. i ; •'' . •••' • • • • ' •'••' ' .-•.' •

Page 170, by FRANCES T. FARENTHOLDThe Commission's exhortation to nonprofit organizations to

broaden the composition and viewpoints of their boards andstaffs won't have great impact on that large group of grant-making organizations which have no staff. The lack of staff is,in some instances, as great an impediment to accessibility asthe insularity of governing boards. There can be no real con-sideration of proposals, much less affirmative outreach, unless

217

there is adequate staff.The Commission has not even gone as far as the Peterson

Commission did in 1970. They urged foundations to hire staffthemselves or "to consider merging into existing communityfoundations" or "to pool their resources to share the services ofa professional administrator" or to "form associations ofj foun-*dations interested in a similar program area and jointly hire anexpert."

The report of the Council on Foundations to this Commis-sion indicates that there are indeed more foundation staff nowthan before the 1969 Tax Reform Act and the Peterson report-But the survey also demonstrates that, for the most part, staffwere hired to deal with the administrative complexities of thatact rather than to enhance the foundations' program functions.

By all accounts, the vast majority of foundations: have noprofessional staff and of all reported staff, 23 per cent work foreither the Ford or Rockefeller Foundations. Clearly, exhorta-tion has not been successful in increasing foundation profes-sionalism. '

The survey of The Conference Board done for the Commis-sion also indicated a similar need for staff in corporate giving.They said that "although professional staff analysis is the mostwidely used evaluative technique, the fact is that there is aminimum of professional staff employed specifically for thecontributions and foundation functions. More than four out often companies have no professional or clerical staff. Only oneout of four companies has one full time professional working inthis area.

"It has been previously noted that a number of corporateleaders (23 per cent) indicated they would increase contribu-tions if they had more confidence that their contributions pro-grams were successful. Perhaps part of the problem lies in thisarea of professionalization and evaluation. If 41 per cent of thecompanies lack professional staff, how can they assess the needfor new grants, the effectiveness of on-going grants, the perfor-mance of donor agencies?"

I therefore recommend that there be a requirement that anyorganization making grants in excess of $100,000 per year em-ploy at least one full-time professional (i,e.> not a bookkeeper,

218

accountant or donor's secretary) or, in the alternative, join in acooperative venture with other organizations sharing commonstaff.

Page 170, by GRACIELA OLIVAREZThe recommendation of the majority of the Commission

that tax-exempt organizations should broaden boards andstaffs to encourage greater responsiveness to a true communityof needs is much too weak an endorsement of a vital nationalconcern. If there exists true interest in accountability and ac-cessibility it will have to be manifested in more than just wordsin order to be convincing. This is a thorny; area which theCommission appears to have bypassed deliberately. Ratherthan deal with the principles and mechanics involved, it sim-ply relied once again: upon exhortation, a practice which forinnovation and liberalization of philanthropic giving has failedrepeatedly. On the other hand, I recommend that tax-exemptorganizations with assets of more than $500,000 and/or gifts ofmore than $250,000 be required by law to include on theirboards of directors members who are representative of the con-stituency to be served. That is, nonprofit organizations whichfocus on real issues, for example, should be required to includeon their boards an accurate cross-section of the geographicsection. Similarly, tax-exempt organizations which support aparticular interest, such as music, should include on boardmembership a spectrum of constituents, and not simply thoserepresenting one part of the constituency.

Page 170, by WILLIAM M. ROTH, with which EDWIN D.ETHERINGTON and ELIZABETH J, McCORMACK haveasked to be associated

This is an important recommendation, but it should be ex-panded by adding a more specific reference to the need for fargreater participation by women and ethnic minorities and bythe recipients of foundation grants on the staffs and boards offoundations. Nonprofit institutions must assume a leadershiprole in the establishment of effective, affirmative action pro-grams.

219

Page 170, by MAX M. FISHER, with which LESTER GROWN,RAYMOND J. GALLAGHER, PHILIP M. KLUTZNICKandRALPH LAZARUS have asked to be associated

The recommendation for organizations to broaden theirboards must be qualified for. special purpose and special con-stituency organizations. Religious organizations are not expect-ed to become rionsectarian. Special purpose organizations can-not be expected to include people not committed to their pur-poses. This recommendation applies to broadly based generalpurpose organizations.

Page 172, by WILLIAM M. ROTH, with which EDWIN D.ETHERINGTON has asked to be associated

The concept of an "independent" foundation is an interest-ing one, but I believe donor representation should be eliminat-ed entirely before this status is granted.

Page 175, by WILLIAM M. ROTH, with which WALTER A.HAAS, JR. has asked to be associated

Although a 6 per cent payout is larger, than, the currentincome of most portfolios and the prospective increase in theircapital value may not keep abreast of future inflation, never-theless I would stay with the present level of payout, althougha less ambiguous formula might be devised. The slow; dispersalof the corpus of a foundation is not necessarily a bad thing ifnew ones are being continually created. This, of course, wouldrequire a climate in which new growth would take place.

Page 176, by RAYMOND J. GALLAGHER, with which LES-TER CROWN has asked to be associated

State governments already adequately police the solicitationsof charitable contributions. There is no hard data in the mate-rial collected by this Commission that warrants a recommenda-tion that the federal government assume a new policy role inthis area. The Commission indicates that it believes that thevast majority of charitable solicitations are conscientiously andeconomically undertaken. The Commission, however, is con-

220

cerned about the impression of many taxpayers that charitysolicitations cost more than they should. I do not believe thatthe effective remedy for this impression is the creation of a newfederal bureaucracy or the expansion of an existing one. Poten-tial donors who have doubts about the efficiency, of charitablesolicitations can inquire directly of the organizations they areconcerned about; and if they are not satisfied with the answersthey are given, they have the most effective remedy of all: notmaking the contribution.

Page 179, by MAX M. FISHER, with which LESTER CROWN,RAYMOND J. GALLAGHER, PHILIP M. KLUTZNICK andRALPH LAZARUS have asked to be associated

This is overstated. Only the smallest fraction of philanthrop-ic agencies ihave any lobbyists in Washington; at any time.Page 191, by GEORGE ROMNE^, with which^LESTERCROWN, RAYMOND J. G A L I I A G H E R , PHILIP M.KLUTZNICK and JOHN M. MUSSER have asked to beassociated

The priority need for strengthening the nonprofit sector, isnot an expansion of the role of government, as proposed in thisreport, but a strengthening of the nonprofit sector's capacity toinitiate and implement joint action. This Commission is itselfevidence of that need.

The intense competition among the separate nonprofit orga-nizations for funds, volunteers, recognition and survival hasthus far prevented the degree of cooperation required to enablethem to do jointly what they cannot do as well, or at all,separately. Many of the functions proposed in this report to beperformed by a "permanent national commission for the non-profit sector" could be better executed by a recognized andsupported private instrument. Indeed the creation of this "na-tional commisson" by Congress Is likely to lead to governmen-tal intervention in the private nonprofit-sector that will weakenit rather than strengthen it. The likelihood of this outcome isincreased as long as the nonprofit sector lacks any organizedmeans of asserting and protecting its common interests.

221

Page 191, by RAYMOND J, GALLAGHER, with which LES-TER GRQVVN has asked to be associated

I respectfully dissent from the recommendation o|the Com-mission that a permanent national commission on the nonprof-it sector be established by Congress. Neither our national ex-perience in the nonprofit area nor the datai collected by thisCommission warrants the establishment of a permanent na-tional commission on the nonprofit sector by an Act of Con-gress with authority in the commission to require annual finan-cial reports by exempt organizations and to propose varioustypes1 of standards of nonprofit behavior. All such a nationalcommission would do is increase the administratrive costs ofnonprofit organizations, thus reducing'funds available for theirbeneficiaries. Far from aiding these institutions, the nationalcommission will be another financial drain and another admin-istrative burden. In addition, the commission would providedirect federal regulation and supervision of churches and otherreligious organizations. There is no way to avoid the fact thatthis recommendation would create a "watchdog" bureaucracyarmed with the force of legal compulsion to supervise the prac-tice of religious freedom in the United States.

Page 192, by MAX M. FISHER, with which RALPH LAZA-RUS has asked to be associated

No reference is made in the recommendation on the selec-tion of the members of the proposed permanent commission tothe essential element of the Commission sub-committee's reportproviding for an advisory body representing a cross-section ofthe philanthropic fields themselves, and that the twelve mem-bers were to be drawn from those fields on the recommenda-tion of the advisory body. The membership of the commissionis crucial. As the report now stands, it does not include thecritically essential requirement regarding the membership ofthe commission, with that expertness of philanthropic exper-ience. It was this provision which persuaded at least somemembers of the Commission to support the recommendationfor a permanent commission.

222

APPENDIX I

COMMISSION STUDIES

The following are the titles and authors of all studies, reportsand analyses undertaken for or by the Commission, arrangedaccording to subject matter. The works themselves are pub-lished separately in the Compendium of Commission research,

/. COMMISSION RECOMMENDATIONSAnalysis of the Recommendations of the Commission on Private Philanthropy andPublic Needs, Including Means of Implementation '- : '.

• • Commission Staff - - , \ - . . .

//. HISTORY, TRENDS AND CURRENT MAGNITUDESPrivate Philanthropy and Public Needs: An Historical Perspective

Prof. Robert H, Bremner, Department of History, Ohio State University

Private Giving in the American Economy: 1960-1972Prof. Ralph L. Nelson, Department of Economics, Queens College of the City ofNew York

Scope of the Private Voluntary Charitable Sector, 1974Gabriel G. Rudney, Assistant Director, Office of Tax Analysis, U.S. Departmentof the Treasury

Results from Two National Surveys of Philanthropic ActivityProf. James N. Morgan, Richard F.: Dye, Judith H. Hybels, Institute for SocialResearch, University of Michigan

Employment and Earnings in the Nonprofit Charitable SectorProf. T. Nicolaus Tideraan, Department of Economics, Virginia Polytechnic Insti-tute and State University, Blacksburg, Va.

The Size of the Voluntary Nonprofit Sector: Concepts and MeasuresProf. Burton A. Weisbrod, Department of Economics, University of Wisconsin,Stephen H. Long, Department of Economics, Franklin Marshall College, Lancas-ter, Pa.,

A Study of Religious Receipts and Expenditures in the United StatesInterfaith Research Committee of the Commission on Private Philanthropy andPublic Needs, Stuart M» Lewis, Project Coordinator "'••

223

Ill PHILANTHROPIC FIELDS OF INTERESTA. Education • : -.: • • ' " • • . - ' " " - . . • • ' : :

Private Philanthropy and Higher Education: History, Current Impact and Public

Policy Considerations iProf. Earl F. Cheit, School of Business Administration, University of California,Berkeley, Theodore E. Lobman III, Post Doctoral Fellow, Carnegie Council onPolicy Studies in Higher Education, Berkeley, Calif.

Philanthropy in Higher Education: A Study of the Impact of Voluntary Support onCollege and University Income j

Dr, Hans H. Jenny,.-Vice President for Finance and Business, College of Wooster,Woosters Ohio, Mary Ann Allan, Research Assistant, Dundee, New York

Philanthropy, Public Needs and Nonpublic SchoolsProf. Donald A. Erickson, Faculty of Education, Simon Fraser University, Bur-naby, B.C., Canada

The Nonpublic School and Private PhilanthropyDr. Robert L. Lamborn, Executive Director, Council for American Private Educa-tion, Washington, D.C.; Cary Potter, President, National Association of Indepen-dent.Schools, Boston; Dr. Ai H. Scnske,; Secretary of Elementary and SecondarySchools, Board of Parish Education, Lutheran Church-Missouri Synod, St. Louis

B. Science

The Role of Private Philanthropy and Public Support of Science in the UnitedStates

Dr. Caryl P. Haskins, Former President, Carnegie Institution of Washington, D.C.

C. Health ,

The Changing Role of Private Philanthropy in Health AffairsDr. Robert J. Blendon, Vice President, The Robert Wood Johnson Foundation,Princeton, N.J.

D. Welfare

Some Aspects of Evolving Social Policy in Relation to Private PhilanthropyWilbur J. Cohen, Dean, School of Education, University of Michigan

Some Aspects of Private Philanthropy in Relation to Social WelfareDr. Ellen Winston Author on social welfare issues, Raleigh, N.C.

The Voluntary Social Agency Experiments, Innovates, Demonstrates and InfluencesPublic Social Policy: The Community Service Society of New York 1930-1970

Dr. Joseph L. Vigilante, Dean, and Dr. Ruth Kant row, School of Social Work,Adelphi University, Garden City, N.Y.

Social WelfareAlvin L. Schorr, General Director, Community Service Society of New York, Dr.Rose Dobrof, School of Social Work, Hunter College, New Yqrk

E. Arts and Culture

A Report on the ArtsCaroline Hightower, Editor and writer, New York

F. Environment j

The Role of Private Philanthropy in Relation to Environment-PollutionBlair T. Bower, Consultant, Resources for the Future, Washington, D.C.

224!

The Role of Philanthropy in the Environmental Field:. Preservation of NaturalLands and Historic Properties

Janet Koch, Writer, New York, Thomas W. Richards, President, Hartzog, Laderand Richards, Environmental Consultants

G. Voluntarism and Community Action

A Report on Voluntary Activities and Leadership OpinionNational Center for Voluntary Action: Thomas D. Queisser, Deputy ExecutiveDirector; George E. Chalmers, Report Project Director

A Study of the Quantity of Volunteer Activity of United Way and its MemberAgencies

United Way of America

A Philanthropic Profile of Five Cities: Atlanta, Cleveland, Des Moines, Hartford,San Francisco

Victor Weingarten, President, Institute of Public Affairs, Inc.

The Anatomy of Giving: Five American CitiesBice Clemow, Editor, West Hartford, Conn."Private Philanthropy in Des Moines"

-Calvin Kentfield"Passing the Buck: Philanthropy in San Francisco"

—Jack Shepherd"Cleveland: Faint Halo Around a Solid Tradition of Giving"

—Robert S. Merriman"Money Above, Action Below: Philanthropy in Hartford"

—Vivian Gornick"Search for the Bridge: The Stand-off Between City Hall and 'Five Points* inAtlanta"

—Bice Clemow

H. Social Action

An Agenda For the FutureReynold Levy and Waldemar A. Nielsen,Aspen Institute for Humanistic Studies

Philanthrophy and the PowerlessSarah C. Carey, Cladouhas and Brashares,Washington, D.C,

Who's Funding the Women's Movement?Mary Jean Tully, President, NOW Legal Defense and Education Fund

The New Federalism, Government Accountability and PhilanthropyPeter J. Petkas, Director, Southern Governmental Monitoring Project, SouthernRegional Council, Inc.

Patterns of Class and Ethnic Discrimination by Private PhilanthropyMsgr. Geno Baroni, Founder and President, Arthur Naparstek, Director of PublicPolicy and Program Development, Karen Kollias, Policy Analyst, The NationalCenter for Urban Ethnic Affairs

Values, Voluntary Action and Philanthropy: The Appropriate Relationship of Pri-vate Philanthropy to Public Needs

David Horton Smith, Associate Professor, Department of Sociology, Boston Col«lege

225

The Role of Foundations in Broadcasting and Cable Communications Policy Devel-opment

Albert H. Kramer, National Citizens Committee for Broadcasting, Washington,D C . . , • • - • • • • - ' • : • - •

v • • • ; - •

:" • ' ; - • £ • • • • • -

The Role of the United Way in Philanthropy |D a v i d H o r t o n S m i t h , A s s o c i a t e Profes sor , D e p a r t m e n t o f S o c i o l o g y , B o s t o n C o l -

l e g e i . : • : • • • , ' . , • : . • . • • • • • • • ' • • ••''••' •

Foundation Grants to Corporate Activist Groups: The Donee PerspectivePhillip W. Moore, Easton, Md.

Public Needs, Public Policy and PhilanthropyThomas R. Asher, Executive Director, Study of Political Influence, Washington,D.C.

I. Public Affairs tmd International Activities

Philanthropic Activity in International AffairsProf. Adam Yarmolinsky, Ralph Waldo EmersonUniversity Professor, University of Massachusetts

The Role of Private Philanthropy in Public AffairsPaul N. Ylvisaker, Dean, Graduate School of Education, Harvard University, andJane H. Mavity, New York

IV. SPECIAL BEHAVIORAL STUDIESA. Income Tax_

Tax Incentives and Charitable Contributions in the United States: A Microecono-metric Analysis

Prof. Martin S. Feldstein, Department of Economics, Harvard University

Estimating Separate Price Elasticities by Income ClassProf. Martin S, Feldstein, Department of Economics, Harvard University^

The Income Tax and Charitable Contributions: Estimates and Simulations with theTreasury Tax Files

Prof Martin S; Feldstein and Dr. Amy Taylor, Department of Economics, Har-vard University

Effects of the Charitable Deduction on Contributions by Low Income and MiddleIncome Households; Evidence from the National Survey of Philanthropy

Prof. Michael J. Boskin, Department of Economics, Stanford University, and Prof.Martin S. Feldstein, Department of Economics, Harvard University

B. Estate Tax

Estate Taxation and Charitable BequestsProf. Michael J. Boskin, Department of Economics, Stanford University, andNational Bureau of Economic Research v '••'".

Charitable Bequests, Estate Taxation and Intergenerational Wealth TransfersProf. Martin S. Feldstein, Department of Economics, Harvard University

C. Non-Economic Motivations

Non-Economic Motivational Factors in Philanthropic BehaviorDr. Fred R. Crawford,, Director, Center for Research in Social Change, EmoryUniversity, Atlanta

226

F. GOVERNMENT FUNDING OF VOLUNTARY ORGANI-ZATIONS , . ; ; • ; :::i.-. .... •,, ..';... ••/:-'•

The Public Funding Agency , •,Eric Larrabee, Former Executive Director* : . .New York State Council on the Arts

VI. TAXES AND REGULATIONA . F o u n d a t i o n s . - . , • . . • • . ' • • • . ' < . . • - • • • • • - . .'•'••'-. '•* • • • • ' • • -. •

Private Foundations and the 1969 Tax Reform Act ;Chairman and Staff, Council on Foundations, Inc. :

Foundations and the Federal Government; A Look at Spending PatternsNational Planning Association, Center for Health Policy Studies: Michael S, Ko-leda, Director; Daniel P. Bourque, Associate Director, Community Hospitals Pro-gram^ Randall C, Sraithr Research Associate

Community FoundationsNorman A. Sugarman, Baker, Hostetler & Patterson, Cleveland, Ohio

The Charitable Foundation; Its Governance

Prof. Lawrence M. Stone, Law School, University of California, Berkeley ,

B* Corporate Giving

Corporate Philanthropic Public Service Activities v iJames F. Harris, Director, Social Responsibility Research, and Anne KtepperfResearch Associate, The Conference Board

Corporate Charitable Contributions and Corporate Social ResponsibilityMilton Moskowitz, Senior Editor, Business and Society Review, New York

Corporate Giving? Rationale, Issues and OpportunitiesProf. C. Lowell Harriss, Department of Economics, Columbia University, andEconomic Consultant,. Tax Foundation, Inc.

Corporate Giving MeasurementsThomas Vasquez, Financial Economist, Department of the Treasury

Corporate Charitable ContributionsR» Palmer Baker, Jr,, J» Edward SMllingburg, Lord, Day & Lord, New York

C. Income Tax Incentives . •

Charitable Contributions Under the Federal Individual Income Tax: AlternativePolicy Options

Prof. George F.. Break, Department of Economics, University of California, Berke-l e y • • . , . . . . . ,• . . • • . - • " •: , •

The Income Tax Deduction for Charitable Contributions by IndividualsJohn A. Wallace, Robert W» Fisher, King & Spaldtng, Atlanta

A Pro-Charity Substitute for the Present Tax Law Treatment of Appreciated Prop-erty Contributed to Charity

Pro£ Gerard M. Brannon, Department of Economics, Georgetown University

Explanation and Analysis of Split-Interest Gifts to CharityTheodore A. Kurz, Barbara P. Robinson, Debevoise, Plimpton, Lyon& &N e w Y o r k • . ' • . • • • ' • :

227

Legal Aspects of Charitable .Contributions .of> Appreciated Property to Public Chari-• t i e s " '.r • . . • • " ' • ' • • ' . • • - ; . - • ; • ' • • • • ' • •

J- ' .• ; : • - . • ' , , • • • . . ; ,

Harry K. Mansfield, Ronald L,Groves, Ropes & Gray, Boston

Treatment of Volunteer Services and Related Expenses Under the Internal RevenueC o d e . ' :

:; . . . • ' • ' - ' • . - - • •

; • ' < • ' • ' '•••' • • ' - , • ' • • ' • ' • • • • . •

? : • • • • ' ; :

;- ; .

Edmund C Bennett, Tillingbast, Collins & Graham, Providence, RX

D. Estate Tax Incentives

Estate Tax,Deduction for Charitable Benefits: Proposed LimitationsJohn Holt Myers, Williams, Myers and Quiggle, Washington, D.C.

Dimensions of Charitable Giving Reported on Federal Estate, Gift and FiduciaryTax-Returns/' . \ \ ' • • •-< :-.•••'• • - :' '-• , • • . - . . . . / -.,:••• . .

Emil M. Sunley, Jr , s T h e Brookings Institution, Washington, D.C.

Death, Taxes and Charitable Bequests: A Survey ofi'Issues and OptionsProf. Richard E, Wagner, Department of Economics, Virginia Polytechnic Insti-tute and State University, Blacksburg, Va. '•

Proposed Limitations on the Estate T a x Deduction for Charitable TransfersProf. David Westfall, Harvard University Law School

& Property Tax Incentives . • ;- • :

T h e Exemption of Religious, Educational and Charitable Institutions from PropertyTaxation

Dr. J o h n F. Shannon, Assistant Director, Dr. L, Richard Gabler, Senior Analyst,Advisory Commission on Intergovernmental Relations

F. Nm-Tax Incentives - • •_ . • v-- . '

Alternative Approaches t o Encouraging Philanthropic ActivitiesProf. Gerard M. Brannon, Department of Economics, Georgetown University, andJames Strnad, Tax Analysts and Advocates, Washington, D.C.

A Tax by Any Other Name: T h e Donor Directed Automatic Percentage Contribu-tion Bonus, A Budget Alternative for Financing Governmental Support of Charity

Aaron Wildavsky, Dean, Graduate School of Public Policy, and Prof. DavidGood, Department of Economics, University of California, Berkeley

Study of Federal Matching Grants for Charitable ContributionsProf. Pau l R. McDanlel, Law School, Boston College

G. Ova-sight and Regulation

Federal Oversight of Private PhilanthropyDavid Ginsburg, Lee R., Marks, Ronald P. Wertheim, Ginsburg, Feldman andBress, Washington, D.C.

Criteria for Exemption Under Section 5O3(c)(3)John P . Persons, John J . Osborn, J r . , Charles F. Feldman, Patterson, Belknap &Webb, New York

An Analysis of the Federal Tax Distinctions Between Public and Private CharitableOrganizations

Laurens Williams, Sutherland, Asbill & Brennan, Washington, D.C., and DonaldV. Moorchead, Chief Minority Counsel, Committee on Finance, U.S. Senate (for-merly Sutherland, Asbill & Brennan)

Legislative Activities of Charitable Organizations Other Than Private Foundationswith Addendum on Legislative Activities of Private Foundations

John B. Huffaker, Pepper, Hamilton & Scheetz, Philadelphia

228

The Status of State Regulation of Charitable Trusts, Foundations and SolicitationsOhio Attorney General's Office: William J. Brown, Attorney General, J. JohnStevenson, Chief, Charitable Foundations Section, Joseph M. Paul;, AssistantChief, Donald A. Antrim, Assistant Attorney General

A Study of the Inadequacies of Present Financial Reporting by Philanthropic Orga-nizations !

Accounting Advisory Committee of the Commission on Private Philanthropy andPublic Needs: Malvern J. Gross, Jr., CPA, Chairman, Price, Waterhouse & Co,,Kirk R. Batzer, CPA, Coopers & Lybrand, Delford W. Edens, CPA, Haskins andSells, Timothy J. Racek, CPA, Arthur Andersen & C o /

The Fund-Raising Percent as a Quantitative Standard for Regulation of PublicCharities with Particular Emphasi&_on Voluntary Health and Welfare Organizations

Arthur Jack Grimes, Director, Department of Public Responsibility, AmericanInstitute of Biological Sciences, Arlington, Va.

Self-Regulation in Private PhilanthropyPeter G. Meek, Ridgewood, NJ.

Tax Policy Relating to Environmental Activities and Public Interest LitigationA.M. Wiggins, Jr., Bert W. Hunt, Reed, Smith, Shaw & McClay, Pittsburgh

Preserving the Private Voluntary Sector: A Proposal for a Public Advisory Commis-sion on Philanthropy

Adam Yarmolinsky and Marion R. Fremont-Smith

H. Foreign Practices

Overview of Governmental Support and Financial Regulation of Philanthropic Organizations in Selected Nations

Arthur Andersen & Co.

Taxation and Philanthropy in CanadaProf. R.M. Bird, Prof. M.W. Bucovetsky, Institute for Policy Analysis, Universityof Toronto

The System for Regulation and Assistance of Charity in England and Wales withRecommendations as to Establishment of a National Commission on Philanthropyin the United States

Donald R. Spuehler, O'Melveny & Myers, Los Angeles

229

APPENDIX II

MEMBERS OF THE COMMISSION

The following identifications of Commission members in-clude, where appropriate, both a principal occupation and amajor voluntary sector affiliation.

ChairmanJ o h n H . F i l e r • • • ^ • - • - • - • • • < • ; • . - • ; . : - • • • . : : • • -•- -

Chairman, Aetna Life & CasualtyHartford, Conn. ^ , :

Director, Hartford Institute of Criminal and Social Justice

• E x e c u t i v e Director • .••;.• •,,.-•.Leonard L. SilyersteinSilverstein and MullensWashington, D.G. .

Director, National Symphony Orchestra Association

William H.Bowen r-., . \ ,,..President, Commercial National BankLittle Rock, Ark. . . ~ ,

Director, Arkansas Association of Private Colleges

L e s t e r C r o w n . . . , . ; ? . ,.f, . ' L ....••'. : , . . . •President, Material Service CorporationC h i c a g o ' . ••• . ,,. • -. , . •• , ': . ..,-;.• ... . •

Trustee, Northwestern University

C. Douglas Dillon ,Chairman, U. S. & Foreign Securities Corp.N e w , Y o r k : . : • - ^ • • • . ; 4 , : • • ; • : • • ' : ? • : - v : - . - •• . ; • • • • •' :'

President, Metropolitan Museum of Art

231

Edwin D. EtheringtonFormer President, Wesleyan UniversityN e w Y o r k . \ ;- ;• ' •,.., ' •'.'••• .' '• . . • . :

Trustee, Alfred P, Sloan Foundation

Bayard EwingTillinghast, Collins & GrahamProvidence, R.I.

Vice Chairman, United Way of America

Frances Tarlton FarentholdHouston

Past Chairperson, National A^omen's Political Caucus

Max M. FisherChairman, United Brands CompanyBoston

Honorary Chairman, United Foundations

The Most Rev. Raymond J. GallagherBishop of Lafayette-in-IndianaLafayette, Ind,

Earl G. GravesPublisher, Black EnterpriseNew York

Commissioner, Boy Scouts of America

Paul R. HaasPresident and Chairman, Corpus Christi Gil & Gas CompanyCorpus Christi, Tex.

Trustee, Paul and Mary Haas Foundation

Walter A. Haas, Jr.Chairman, Levi Strauss & CompanySan Francisco

Trustee, Ford Foundation

Philip M. KlutznickKlutznick InvestmentsChicago

Chairman, Research and Policy Committee and Trustee,Committee for Economic Development

232

Ralph LazarusChairman, Federated Department Stores, Inc.Cincinnati

Former National Chairman, United Way of AmericaHerbert E, LongeneckerPresident Emeritus, Tulane UniversityNew Orleans : >

Director, United Student Aid FundsElizabeth J. McCormackSpecial Assistant to the PresidentRockefeller Brothers Fund, Inc.New YorkWalter J. McNerneyPresident, Blue Cross AssociationChicagoWilliam H, MortonNew York

Trustee, Dartmouth CollegeJohn M. MusserPresident and Director, General ServiceIFoundationSt. Paul, Minn.Jon O. NewmanJudge, U.S. District CourtHartford, Conn.

Chairman, Hartford Institute of Criminal and Social JusticeGraciela OlivarezState Planning OfficerNew Mexico State Planning OfficeSanta Fe

Director, Council on Foundations, Inc.

Alan PiferPresident, Carnegie Corporation of New YorkN e w - Y o r k * . •• ' - . .. ,,;..' . :• . .

George RomneyChairman, National Center for Voluntary ActionWashington, D.C.

233

William Matson RothRegent, University of CaliforniaSan Francisco

Chairman, San Francisco Museum of. Art

Althea T. L. Simmons vDirector for Education ProgramsNAAGP Special Contribution FundNew York

The Rev. Leon H. SullivanPastor, Zion Baptist ChurchPhiladelphia

David B. TrumanPresident, Mount Holyoke CollegeSouth Hadley, Mass.

234

APPENDIX III

COMMISSION CONSULTANTSAND ADVISORS

Consultants

Howard A. BoltonMilbank, Tweed, Hadley & McGloyNew York

Wade GreeneWriter and EditorEditor and principal writer of the Commission's report

Waldemar A. NielsenDirector of Program on Problems of American PluralismAspen Institute for Humanistic StudiesStanley S. SurreyJeremiah Smith Professor of LawHarvard University Law School

Adam YarmolinskyRalph Waldo Emerson University ProfessorUniversity of Massachusetts

Paul N. YlvisakerDean, Graduate School of EducationHarvard University

235

Special Consultants

James W. AbernathyDirector of ResearchGrantsmanship Center

Martin S. FeldsteinProfessor of EconomicsHarvard University

Theodore J. JacobsFormer Director, Center for Study of Responsive LawPorter McKeeverAssociate, John D. Rockefeller 3rdRalph L. NelsonProfessor of EconomicsQueens College, City University of New York

John J. SchwartzPresidentAmerican Association of Fund-Raising Counsel

Sally J. ShroyerNew York

Carlton E. SpitzerVice President iT. J. Ross & AssociatesWashington, D. C.

ADVISORY COMMITTEEKenneth L. Aibrecht Msgr. Geno BaroniAssistant Vice President, The National Center for

Corporate Affairs Urban Ethnic AffairsEquitable Life Assurance Society Washington, D.C.

of the C.S. , KirkR. BatzerN e w Y o r k Coopers & LybrandWilliam D. Andrews New YorkHarvard University Law School Edmund C. BennettThomas R. Asher Tillinghast, Collins & GrahamExecutive Director Providence, R.I.Study of Political Influence Philip BernsteinWashington, D.C. Executive Vice PresidentR. Palmer Baker, Jr. Council of Jewish FederationsLord, Day & Lord and Welfare Funds, Inc.New York New York

236

Richard M. BirdInstitute of Policy AnalysisUniversity of TorontoBoris I. BittkerYale University Law SchoolRobert J. BtendonVice President for Planning

and DevelopmentRobert Wood Johnson FoundationPrinceton, N.J.Walter J. BlumUniversity of Chicago Law SchoolChicagoHenry M. BoetingerDirector of Corporate PlanningAmerican Telephone & TelegraphNew YorkMichael J. BoskinDepartment of EconomicsStanford UniversityBlair T. BowerNorth Arlington, VirginiaGerard M. BrannonDepartment of EconomicsGeorgetown UniversityGeorge F. BreakDepartment of EconomicsUniversity of California, BerkeleyRobert H. BremnerDepartment of HistoryOhio State UniversityHenry R. BrettCorporate Contributions CounselorStandard Oil Company of CaliforniaSan FranciscoSarah C. CareyCladouhas and BrasharesWashington, D.C.Earl F. CheitAssociate DirectorCarnegie Council on Policy Studies

in Higher EducationBerkeley, Calif.

. C a r l C . C l a r k ' "\ ' ' ' ••_••••Commission for the Advancement of

Public Interest Organizations.Washington, D.C ,Bice GlemowEditorWest Hartford, Conn.

Edwin S. CohenUniversity of Virginia Law SchoolSheldon S. CohenCohen and UretzWashington, D.C. ,

Wilbur J, CohenDeanSchool of EducationUniversity of MichiganAnn ArborMarvin K, CollieVinson, Elkins, Searls, Connally

& SmithHouston, TexasFred R. CrawfordDepartment of HumanitiesEmory UniversityAtlantaCharles W. Davis ; -Hopkins, Sutters Owen, Mulroy

& DavisChicagoDelfordW. Edens , .Haskins & SellsNew York •. , . •/.••;; ,.Donald A. EricksonDepartment of EducationSimon-Fraser University ,•..Burnaby, B.C. .-."Marion R, Fremont-Smith ,Choate, Hall & StewartBoston

F. Daniel FrostGibson, Dunn & CrutcherLos Angeles ' . .,..r..::' ;..- .••.-.•David GinsburgGinsburg, Feldman and BrassWashington, D.C.Robert F. GoheenChairman, Council on Foundations, Inc.New YorkS. Peter GoldbergCouncil of Jewish Federations

and Welfare Funds, Inc.New YorkArthur Jack GrimesAmerican Institute of Biological

SciencesArlington, Va.

237

Malvern J. GrossPrice Waterhouse & Co.Washington, D.G.

Charles ,R. HalpernExecutive DirectorCouncil for Public

Interest law .Washington, D.C.James F* HarrisThe Conference BoardNew YorkC. Lowell HarrissDepartment of EconomicsColumbia UniversityCaryl P. MaskingFormer PresidentCarnegie Institution of WashingtonWashington, D.C.Robert W. HearnAssociation of Black Foundation

ExecutivesNew YorkFritz F. Heimann ;General Electric CompanyNew YorkWilliam G. HerbsterSenior Vice PresidentFirst National City BankNew York

Caroline HightowerEditor and writerNew YorkThomas D. HintonExecutive for .Finance

and AdministrationUnited States Catholic ConferenceWashington, D.C.Harry R. HorrowPillsbury, Madison & SutroSan Francisco

James T* HoseyVice President and Executive DirectorU. S, Steel FoundationPittsburghJohn B. HufiakerPepper, Hamilton & ScheetzPhiladelphia

Hans H. JennyVice President :Wooster CollegeWooster, Ohio '

Douglas W. JohnsonOffice of Research, Evaluation

and PlanningNational Council of ChurchesNew York .Janet KochWriterNew YorkMichael S. KoledaDirectorCenter for Health Policy StudiesNational Planning AssociationWashington, D.C.Albert H. KramerNational Citizens Committee

for BroadcastingWashington, D.C.Theodore A. KurzDebevoise, Plimpton, Lyons & GatesNew YorkRobert L. LambornExecutive DirectorCouncil for American Private EducationWashington, D.C.Eric LarrabeeFormer Executive Director,New York State Council on the ArtsNew YorkHarry K. MansfieldRopes & GrayBostonLee R. MarksGinsburg, Feldman and BressWashington, D.C.Jane H. MavityNew YorkPaul R. McDanielBoston College School of LawPeter G. MeekRidgewood, NJ.

Milton MoscowitzSenior EditorBusiness and Society ReviewNew York

238

Rev. Robert V. MonticelloAssociate General SecretaryUnited States Catholic ConferenceWashington, D.C.

Phillip W. MooreEaston, Md.

James Ny MorganSurvey Research CenterUniversity of Michigan

Robert H, MulreanyDeForest & DuerNew York

John Holt Myers .Williams, Myers and QuiggleWashington, D.C.

Michael K. NewtonPresidentAssociated Council of the ArtsNew York

John S. NolanMiller & ChevalierWashington, D.C.

Joseph M. PaulAssistant ChiefCharitable Foundations SectionOffice of the Attorney GeneralState of OhioColumbus

Joseph A. PechmanThe Brookings InstitutionWashington, D.C.

John P. PersonsPatterson, Belknap & WebbNew York

Peter J. PetkasDirectorSouthern Governmental

Monitoring ProjectSouthern Regional CouncilAtlanta

Timothy J. RacekArthur Andersen & Co.New York

Thomas W, RichardsNational Trust for Historic PreservationWashington, D.C.

Harold RoserManager, Community Development

Programs •Exxon CorporationNew YorkAlvin L. SchorrCommunity Service Society

of New YorkNew York

John F. ShannonAssistant DirectorAdvisory Commission on

Intergovernmental RelationsWashington, D.C.

Ira SilvermanExecutive DirectorInstitute for Jewish Policy Planning

and ResearchWashington, D . C

John G. SimonYale University Law School

David Horton SmithDepartment of SociologyBoston College

Donald R. SpuehlerO'Melveny & MyersLos Angeles .

J. John Stevenson .ChiefCharitable Foundations SectionOffice of the Attorney GeneralState of OhioColumbus

Lawrence M. StoneSchool of LawUniversity of California, Berkeley

Norman A. SugarmanBaker, Hostctler & PattersonCleveland

Emil M. Sunley, Jr.The Brookings InstitutionWashington, D.C.

Wayne E. ThompsonSenior Vice PresidentDayton-Hudson CorporationMinneapolis •

239

T. Nicolaus TtdemanDepartment of EconomicsVirginia Polytechnic Institute

and State UniversityBlacksburg, Va.

Thomas A. TroyerCaplin & DrysdaleWashington, D.C.

Mary Jean TullyPresidentNOW Legal Defense and Education

FundNew York

John H. VandenbergAssistant to Council of the TwelveSalt Lake City

Thomas VasquezFinancial EconomistU.S. Department of the TreasuryWashington, D.C.

Joseph L. VigilanteDeanSchool of Social WorkAdelphi UniversityGarden City, N.Y.

Richard E. WagnerCenter for Study of Public ChoiceVirginia Polytechnic Institute

and State UniversityBlacksburg, Va.

John A. WallaceKing & SpaldingAtlanta

Victor WeingartenPresidentInstitute of Public Affairs, Inc.New York

Burton A. Weisbrod-Department of EconomicsUniversity of WisconsinMadison, Wise

David WestfallHarvard University Law SchoolA,M. Wiggins, Jr.Reed Smith Shaw & McClayPittsburgh

Aaron WildavskyDean, Graduate School of Public PolicyUniversity of California, Berkeley

Laurens Williams (Deceased)Sutherland, Asbill & BrennanWashington, D.C.

Ellen WinstonRaleigh, N-C.

Bernard WolfmanCenter for Advanced Studly in the

Behavioral SciencesStanford, Calif,Raul YzaguirreExecutive DirectorNational Council of La RazaWashington, D,C.

240