In late February 2014, Representative Dave Camp (R-MI) put forth what’s been described as the most serious tax reform proposal (the Camp proposal) since the historic Tax Reform Act of 1986 (the 1986 Act). The Camp proposal represents the result of many months of study and hearings with representatives of many of the United States’ economic sectors and includes provisions drawn from both Democratic and Republican suggestions for tax reform and simplification.
While few observers believe that this proposal will become law in its current form, many think that it may, in fact, serve as a blueprint for future tax reform discussions.
Let’s explore ways in which this proposed legislation would impact charitable tax incentives, as we begin to contemplate its impact on income and estate tax planning.
Jon M. Huntsman Sr. Named Recipient of William E. Simon Prize
Will be Honored at 2014 Annual Meeting of The Philanthropy Roundtable in Salt Lake City
WASHINGTON, D.C.— Jon M. Huntsman Sr. has been named the 2014 recipient of the William E. Simon Prize for Philanthropic Leadership, an annual award administered by The Philanthropy Roundtable that highlights the power of philanthropy to promote positive change and to inspire others to support charities that achieve genuine results. The prize is intended to honor living philanthropists who have shown exemplary leadership through their own charitable giving, either directly or through foundations they have created.
Huntsman—a four-time cancer survivor—notably founded the Huntsman Cancer Institute (HCI), which combines research with out-patient and in-patient care, much of it informed by his own experience with cancer treatment. Huntsman built the state-of-the-art facility at the University of Utah despite being offered a one-to-one matching grant by the University of Southern California and two-to-one matching grants from both Duke and the University of Pennsylvania. Huntsman was undeterred in his decision to build HCI in Salt Lake City and even donated $10 million to seed the project.
“We built here even though we didn’t get anything,” Huntsman said in a 2012 article in Philanthropy magazine. “We made that call for a couple of reasons. First, this is our home. This is where we live and work. We were happy to build the cancer institute in our community. Second, we built here because this region lacked a comprehensive cancer center. Before HCI, the six states of the Intermountain West had neither an NCI [National Cancer Institute]-designated cancer center nor a member of the NCCN [National Comprehensive Cancer Network].”
Huntsman’s commitment to the institute, which now exceeds $450 million, plus over $1 billion he has raised from other sources, has remained steady even while his business was in crisis, doubled down when a key funding partner backed out, and even extended to borrowing against his own house to make sure his humanitarian commitments were met. His hope is that the institute’s top-flight researchers, one of whom recently won the Nobel Prize in Medicine, will ultimately develop genetics-based preventive treatments for the disease.
Huntsman and his wife, Karen, have been committed to charitable giving throughout their 55-year marriage, having contributed generously to causes meeting the criterion of “Relief of Human Suffering.” Their other philanthropic gifts include $53 million to the Wharton School of Business at the University of Pennsylvania, $35 million to the Utah State University Huntsman School of Business, $55 million to rebuild Armenia after the 1988 earthquake, and hundreds of millions to organizations that serve the homeless, the elderly, victims of domestic violence, and more. Their lifetime giving is estimated to exceed $1.4 billion.
The William E. Simon Foundation created the William E. Simon Prize for Philanthropic Leadership to further Bill Simon Sr.’s ideals and principles of personal responsibility, resourcefulness, volunteerism, scholarship, individual freedom, faith in God, and helping people to help themselves. The Simon Prize highlights philanthropy’s unique role in tackling society’s greatest challenges and seeks to inspire others to strive for excellence in their charitable giving. Previous winners have included Philip and Nancy Anschutz, Charles Koch, Bernie Marcus, S. Truett Cathy, Richard and Helen DeVos, Dr. Ben Carson Sr., NBA superstar David Robinson, the late Sir John M. Templeton, and the late John T. Walton.
Huntsman will be honored on Thursday, October 9, at the Grand America Hotel in Salt Lake City during a special lunch at the 2014 Annual Meeting of The Philanthropy Roundtable. The prize includes a $250,000 award, payable to a charity designated by the winner.
Before leaving town last week, the Senate Finance Committee approved an extenders package, a group of annually expiring tax provisions historically renewed each year. This package included the IRA charitable rollover provision, retroactive to January 1, 2013 and prospective to December 31, 2015. Senate Finance Committee Chairman Ron Wyden (D-OR) said action on the Senate’s package may occur soon after the upcoming two-week Easter recess and Senate Majority Leader Harry Reid (D-NV) appears to agree with that timeline. Finance Committee Ranking Member Orrin Hatch (R-UT) said he was pleased with the outcome of the markup process, but would favor cutting some spending in the package through amendments when the bill is debated by the full Senate. At this time, it is unclear whether or not amendments to the package will be allowed.
Meanwhile, House Ways and Means Committee Chairman Dave Camp (R-MI) is taking a more thorough approach toward tax extenders. Last Tuesday, the Committee held what Camp described as the “first in a series of hearings” on the expired tax provisions, focusing on the seven business extenders that Chairman Camp included in his tax reform draft. As of this writing, additional hearings have not been scheduled.
House Budget Committee Chairman Paul Ryan (R-WI) released his fiscal year (FY) 2015 budget last week, and on Thursday the House passed the budget by a vote of 219 to 205. The Ryan budget proposes an overhaul of safety-net programs, enacts major spending cuts to balance the budget in 10 years, and “calls for a full replacement” of the President’s health care law. Of note, the budget does not seek to implement specific provisions of Chairman Camp’s tax reform discussion draft. The budget has little chance of becoming law in the Senate, particularly since Congress already enacted a budget for FY14 and FY15 last December.
On Tuesday, House Budget Ranking Member Chris Van Hollen (D-MD) released the House Democratic budget. The proposal includes an increase for the child tax credit and major expansions to the earned income tax credit. Also of note, Van Hollen’s proposal demonstrates his support for deficit neutral tax reform, but he does not promise a reduction of the top tax rate. This budget has no chance of passage in the Republican-led House.
The main point of these budget bills is for each side to draw fiscal policy distinctions so voters can have a clearer understanding of what each party stands for as they head to the polls in November.
Please join us on April 29 at 3:00 p.m. EST for the second in a series of ACR webinars—this one focusing on the economic impact of the nonprofit sector.
The nonprofit sector generates $1.1 trillion every year in jobs and services, employs 10 percent of the U.S. workforce, and accounts for more than 5 percent of GDP. Employees of nonprofit organizations received roughly $587 billion in wages and benefits—9 percent of all wages paid in the U.S. in 2010. While these strong figures grab the attention of lawmakers, this webinar is designed to help you and your allies in the nonprofit sector deliver this message successfully. Presenters at the webinar will include:
Laurie Norton Moffatt, director/CEO, Norman Rockwell Museum
Rhett Butler, government liaison, the Association of Gospel Rescue Missions and founder of the Faith and Giving Coalition
Michael McHugh, director of federal affairs, The Philanthropic Collaborative
Lesson For April 15: Why Government Can’t Replace Charity
By Howard Husock
Maybe it’s because of the impending tax filing deadline, but we are seeing a sudden spate of muscular defenses of a government safety net against the alleged conservative view that private charity could assist those in need—and replace government.Both Mike Konczal, writing in Journal Democracy and reprinted in The Atlantic, and Michael Hitzik, in the Los Angeles Times, assert that a new wave of conservatism—led by Paul Ryan and Mike Lee, and following in the footsteps of Ronald Reagan—would gut the current federal social insurance system based on a flawed view of history; a view, as Konczal puts it, that “before government took on the role of providing social insurance, individuals and private charity did everything needed to insure people against the hardships of life; given the chance they could do it again.” Hitkik’s title gets to the same point: “Private charity can’t replace government social programs.”
There are two considerable problems with their arguments. First, no serious conservative today is calling for the federal social insurance programs—social security, Medicare, and unemployment insurance—to be repealed. Yes, there are proposals to put them on a sound fiscal footing and, in the case of old age insurance, to encourage personal saving and investment. But the battle over whether there should be a government role in basic income support, protecting against the exigencies of old age and illness, is, in effect, over.
Yet that should not lead us to the conclusion that government can do a better job than private charity. Indeed, Konczal and Hitzik avoid the fact that there is a huge apparatus of government-funded social programs—whether job training, early childhood education, or foster care—which have proven ineffective. In reality, there are all sorts of social services in which the state has shown that it cannot, effectively, replace charity. To understand what’s wrong with the “charity can’t replace government” argument, however, one must first understand what’s right with it.
The sheer provision of income in exigency is something government can do well. Government, in other words, can be very good at sending out checks—whether the program is social security, the earned income tax credit, food stamps or unemployment compensation. Although waste and fraud are serious problems, it does a (basically) good job paying those who provide health care services through Medicare and Medicaid. This is to say that to the extent that we decide, as a polity, to redistribute income for certain purposes, government can do so.
Indeed it is the case that, in the pre-New Deal era, privation during economic and personal crisis was an unfortunate feature of American life—and that government social insurance (safety net programs financed in part through individual contributions) therefore constitutes a logical response. As such, merely “passing the hat” amongst private charities would not, alone, suffice. It is also true that, in the Depression era and before, we were a far poorer country: saving for rainy days was often difficult for people of modest means.
This is not to say that there is no room for reform of such programs. On the contrary, individual savings accounts, say, might be a useful complement for government minimums, while a range of health insurance “products” might well be offered to Medicare participants (who, of course, already contribute to a share of the outlays). This is precisely the sort of thing Paul Ryan is trying to discuss—even as he’s demagogued as someone who wants to gut social insurance programs altogether.
But not all—not even close to all—of what government does in the name of those in need falls in the category of social insurance (defined as programs meant for all and for which all contribute). The Administration for Children and Families, a part of the Department of Health and Human Services, has an annual budget of some $51 billion for roughly 60 social service programs, including Head Start and various foster care and anti-teen gang initiatives. Meanwhile, the federal Department of Labor administers no fewer than 47 job-training programs, at a cost of $18 billion annually.
There is simply far less reason to believe that these sorts of programs—which require working with individuals on specific needs, rather than simply sending out a check—are as effective as social insurance programs. Take Head Start which—notwithstanding the power of its name and early pilot versions promising great hope for disadvantaged children—has consistently been found, in evaluations based on randomized, controlled trials, to provide little or no lasting benefit.
Here, in other words, is where government cannot replace charity—when the need is for committed, idealistic staff (paid or volunteer) to work with individuals on specific problems. (This is a central theme in my short book, Philanthropy Under Fire.) Consider, for example, the difference between job training programs—a key need in our contemporary economy—funded by government and programs supported by private, charitable means.
Of those enrolled in programs supported by the Workforce Investment Act, which provides publicly-funded services to around 7 million annually (typically through government contractors), just slightly over half (56 percent) found jobs—of which another 20 percent lost their (newly acquired) jobs within six months. Contrast this with the entirely private, philanthropically-supported job readiness program, Cincinnati Works. The first of a number of such programs championed by founders Dave and Liane Phillips, the program focuses on instilling the habits and attitudes that lead to success in the workplace. The latter’s placement and job retention rate: 84 percent.
It is true, admittedly, that the reach of government social programs of this sort can be great. Yet reach without grasp is not the same as value. And philanthropically-supported programs can spread, often through imitation in other cities.
Cincinnati Works founder Dave Phillips has actively sought to be a “Johnny Appleseed”, spreading his program’s approach around the country. What’s more, there are growing numbers of examples of program replication without government funding, including: the network of free health clinics supported by the NGO, Volunteers in Medicine; and numerous local programs to help the elderly live independently, inspired by Boston’s Beacon Hill Village (and spread through its Village to Village network).
One wishes proponents of pre-kindergarten education, for instance, would look to local groups around the country to support the best of such efforts, rather than making the same mistake we’ve already made with Head Start (a program which combines generous funding with mediocre performance).
If defenders of social insurance (correctly) expect conservatives to acknowledge the established role of such programs (i.e. the “charity cannot replace government” argument), it is, similarly, high time for liberals to acknowledge the failure of government to (successfully) replace what charitably-funded, non-governmental programs do best: help individuals thrive.
This article originally appeared in Forbes and has been published here with permission of the author.
IRS to Re-Propose Rule Defining Political Activity for Nonprofits
Internal Revenue Service Commissioner John Koskinen said in an interview this week with USA Today’s Susan Page that the IRS will likely rewrite the rule it proposed defining political activity of nonprofit organizations.
“In all likelihood we will re-propose a redefined rule and ask for more public comment,” Koskinen said in the interview with Page.
The IRS received over 150,000 comments before the end-of-February deadline. Adam Meyerson, president of The Philanthropy Roundtable, was among those who weighed in on the proposed rule when he sent a letter to Koskinen on February 25.
“The proposed rules—without question—threaten the essential and permissible work of donors, foundations, and charitable organizations to: 1) educate the general public and our policymakers about a broad range of social issues of critical importance to our nation and its communities; and 2) encourage the civil discourse about those issues that is central to democratic government. Because of the threat which these proposed rules present to philanthropic freedom and effectiveness, we respectfully urge the Internal Revenue Service to reconsider its significantly expanded definition of ‘candidate-related activity,’” Meyerson wrote in the letter.
Koskinen said the re-proposed rule and comment process would likely extend beyond this year.
The Boston Marathon: A History of Charitable Giving
Today marks the one year anniversary of the bombing at the Boston Marathon. Our hearts and prayers go out to all those affected by this tragedy and we celebrate the triumph of those who have overcome catastrophe. Amid the horror, the American spirit of giving was on full display as complete strangers offered up their homes, their blood, their money, and other resources to help those in need. This spirit of giving is befitting of an event whose early history is centered on an act of generosity. The following excerpt from Philanthropy magazine’s Roadtrip Across Philanthropic America offers an insight into that history:
In the early years of the 20th century, Italians were one of the largest immigrant groups in America. So when a tremendous earthquake rocked southern Italy and Sicily in 1908 and killed 100,000 people, Americans leapt to mobilize relief. One of the most significant charitable efforts was centered in Boston, where would-be helpers launched what is now one of the grand philanthropic traditions in our country.
Marathon road races were all the rage in America a century ago, partly due to Johnny Hayes’s gold medal for the U.S. in the 1908 Olympic Games. So when the Boston American went looking for a vehicle to raise money for earthquake relief, the decision was quickly made to organize a charity event around a marathon. The newspaper publicized a January 9, 1909 race managed by the local amateur athletic association, and Boston businesses covered the costs. It was announced that all proceeds from admission to the grounds where the finish could be viewed would be devoted to the victims in Italy.
America’s unyielding charitable tradition is woven into the fabric of the Boston Marathon and continues to shine as an example of the power of philanthropy, the generosity of the American public, and the strength of human will.
ACR Blog: Diversity of Thought: Jefferson’s Influence on Philanthropy
“I deem it the duty of every man to devote a certain portion of his income for charitable purposes; and that it is his further duty to see it so applied and to do the most good for which it is capable.”-Thomas Jefferson
April 13 marks the 271st birthday of one of our nation’s most prominent founding fathers: Thomas Jefferson. While Jefferson clearly advocated for charity during his life, perhaps his most well-known philanthropic-related effort came when he offered his vast personal collection of books to reestablish the Library of Congress.
ACR Blog: Wyden Reaffirms Support for Charitable Deduction, Troubled by Floor Proposal
Last week, Senate Finance Committee Chairman Ron Wyden (D-OR) publicly voiced concern over a proposal of a “giving floor” on the charitable deduction at the annual meeting of the National Council of Nonprofits. He also reiterated his stance that the charitable deduction is a “lifeline, not a loophole.” From the National Council of Nonprofits:
It’s been a busy week for those interested in tax policy with three important legislative developments occurring in a short period of time. But first, it is worth noting Congress passed a bill that would allow contributions for Typhoon Haiyan recovery efforts made before April 15, 2014 to count as charitable deductions for tax year 2013. This type of bill is not unprecedented in the wake of natural disasters, but with so much attention being paid to tax incentives, and charitable giving incentives specifically, it is significant.
After chairing the Ways and Means Committee for six years, Representative Dave Camp (R-MI) announced Monday that he will retire at the end of this Congress. This appears to clear the path for House Budget Committee Chairman Paul Ryan (R-WI) to assume the Ways and Means gavel in the next Congress. Camp, who would have been required to step down as Chairman of the Committee at the end of this year due to term limits, said his departure will not slow his work on the Committee, especially on tax reform. “During the next nine months, I will redouble my efforts to grow our economy and expand opportunity for every American by fixing our broken tax code, permanently solving physician payments for seniors, strengthening the social safety net, and finding new markets for U.S. goods and services,” Camp said in a statement. So does this mean the next Chairman will clean house of all staff and a new team, with new ideas, will take over? Not necessarily. Historically, incoming Chairmen have retained some staff from the previous Chairman for continuity purposes, among other things. For example, when Chairman Ron Wyden (D-OR) took over the Senate Finance Committee he retained a majority of the policy staff.
On the Senate side, the Finance Committee held a markup Thursday morning on a new package of tax extenders, the annually-expiring group of tax incentives historically renewed at the end of each year. This package does not include new revenue to pay for the cost of the extension. Chairman Wyden released the package earlier in the week and he included an extension of the expired IRA charitable rollover without any modifications for two years, retroactive to January 1, 2013. Here is a brief overview of legislative process:
Once the initial bill has been released, Senators can submit amendments to the bill before the markup hearing. After all of these amendments have been submitted, the Chairman will review them and decide which to include in what is called the “modified Chairman’s mark” or “modified mark” – the final bill to be considered during the markup hearing. During that hearing, if a senator’s amendment is not included in the modified mark, and he or she would still like it to be considered, they can ask the Chairman to put their amendment up for a vote. In this case, over 95 amendments were submitted in writing, fewer than 10 were included in the modified mark, and only 8 more received votes during the markup.
Senator Charles Schumer (D-NY) sought to expand the IRA rollover provision to include supporting organizations and donor advised funds through an amendment he submitted on Wednesday afternoon. However, that amendment was not included in the modified mark nor did Senator Schumer ask for a vote on the amendment during the markup. We do not expect Senator Schumer to seek this expansion in other legislation but it remains a possibility in comprehensive tax reform.
While Chairman Camp has not yet released his version of this legislation, on Tuesday he announced that Ways and Means will also hold a hearing on tax extenders on Tuesday, April 8. The hearing will place “a particular emphasis on how permanent tax policy can promote certainty for American businesses and generate additional economic growth.” Unlike the Senate, Chairman Camp wants to decide which provisions should be made permanent and which ones should be eliminated entirely – a process that many House Republicans say could take months. Whether or not revenue raisers will be included to offset the cost of the package is unknown.
As of this writing, we believe that even if both Committees approve their own extenders packages, a full bill that reconciles the House and Senate versions is not likely to become law until after the November elections.
House Budget Committee Chairman Paul Ryan released his fiscal year (FY) 2015 budget this week, proposing an overhaul of safety-net programs, major spending cuts to balance the budget in 10 years, and a repeal of the President’s health care law. Of note, Ryan does not seek to implement specific provisions of Chairman Camp’s draft and calls for a “reformed tax code that is simpler, fairer, and pro-growth.” Since Congress already enacted a budget for FY14 and FY15 last December, we do not expect any bicameral action on the Ryan budget.
The tax types in Washington have been all atwitter following the release of Ways and Means Chairman Camp’s comprehensive tax reform proposal last month. Much agitation has centered around some changes he’s proposed for the non-profit sector and reaction, in some cases, has been to go on red alert.
But we’d like to focus on something he included in his proposal that deserves high praise in our view. He proposed streamlining the private foundation (PF) excise tax to a flat 1 percent, which will go a long way toward getting funds to communities in great need.
Under current law, the private foundation excise tax acts as a disincentive for foundations to give above their budgets in time of great need – like Hurricane Sandy or right after the economic recession. The disincentive is due to the tiered nature of the tax and an imbedded formula. Getting this fixed is a top priority for ACR and Chairman Camp’s proposal delivered. While we don’t love everything in his proposal, we very much admire all of the time and effort that went into it.
We were indeed saddened this week to learn that Chairman Camp will retire at the end of this Congress. He has been a good and thoughtful Chairman who will be sorely missed.
Many have been puzzled by New York Mayor Bill de Blasio’s skepticism toward charter schools, his calls for ending space-sharing and charging them rent, and his $210 million cut of a construction fund important to the schools. Education reformers are also anxious about the failure of President Obama and Education Secretary Arne Duncan to defend charter schools in the face of these prominent reversals of New York City policy. Is this just about teacher-union politics, or are there perhaps legitimate performance reasons for tapping the brakes on charter schools in public education today?
The first thing to remember about charter schools is how recent an invention they are. Born in the 1990s, it wasn’t until 2006 that total enrollment reached a million children—out of 55 million pupils in the country. More than half of the charters in New York City are less than five years old.
With huge waiting lists for every available seat, though, charters are now beginning to mushroom. Well before Mr. de Blasio faces re-election in 2017, charters will educate 10% of New York City’s public-school students, and they already enroll a quarter of all pupils in some of the city’s poorest districts. Nationwide, charter schools will enroll five million by the end of this decade.
But do they get results? Initial assessments were mixed. In the early days, charter authorizing was very loose, nobody knew what worked best, and lots of weak schools were launched. The system has since tightened. In Washington, D.C., for instance, seven out of nine requests to open new charters are now turned down, and 41 charters have been closed for failing to produce good results.
Nationwide, 561 new charter schools opened last year, while 206 laggards were closed. Unlike conventional public schools, the charter system allows poorly performing schools to be squeezed out.
As charter operators have figured out how to succeed with children, they are doubling down on the best models. Successful charter schools have many distinctive features: longer school days and longer years, more flexibility and accountability for teachers and principals, higher expectations for students, more discipline and structure, more curricular innovation, more rigorous testing. Most charter growth today is coming from replication of the best schools. The rate of enrollment increase at high-performing networks is now 10 times what it is at single-campus “mom and pop” academies.
The combination of weak charters closing and strong charters replicating is having powerful effects. The first major assessment of charter schools by Stanford’s Center for Research on Educational Outcomes found their results to be extremely variable, and overall no better than conventional schools as of 2009. Its follow-up study several years later found that steady closures and their replacement by proven models had pushed charters ahead of conventional schools. In New York City, the average charter-school student now absorbs five months of extra learning a year in math, and one extra month in reading, compared with counterparts in conventional schools.
Other reviews show similar results, and performance advantages will accelerate in the near future. Charter schools tend to start small and then add one additional grade each year. Thus many charters in New York and elsewhere are just getting started with many children. As the schools mature, and weak performers continue to be replaced, charters will become even more effective.
But the results top charter schools are achieving are already striking. At KIPP, the largest chain of charters, 86% of all students are low-income, and 95% are African-American or Latino, yet 83% go to college. In New York City, one of the academies Mr. de Blasio has denied additional space to is Harlem’s highest-performing middle school, with its 97% minority fifth-graders ranking No. 1 in the state in math achievement. It and the 21 other schools in its charter network have passing rates on state math and reading tests more than twice the citywide average.
Judged by how far they move students from where they start, New York charter schools like Success Academies, Uncommon Schools, Democracy Prep and Achievement First—and others like them across the country—are now the highest-achieving schools in America. The oft-heard claim that charters perform no better than conventional schools on the whole is out of date and inaccurate.
Remarkably, charters do all this on the cheap. In a city where conventional public schools spend $19,770 per student, the New York City Department of Education funded its public charter schools at only $13,527 per pupil in the latest year. That’s right around the average disparity nationwide, where urban charter schools get 72% of what conventional public schools receive for each child enrolled.
When the next school year starts this fall, there will be nearly 7,000 charter schools in America, with the growth curve pointing sharply upward. Historians who look back at our era may describe charter schools as the most consequential social invention of this generation, with potent effects on economic mobility.
And chartering represents one of the great self-organizing movements of our age. It rose up in the face of strong resistance from the educational establishment. It has been powered by independent social entrepreneurs and local philanthropists. It is a response by men and women who refused to accept heartbreaking educational failures that the responsible government institutions showed no capacity to solve on their own.