COMMENTARY | Rich people giving money to charities and nonprofits has long been a complicated subject. On the one hand, we love to applaud generosity and compassion. On the other, we snark about rich folks who seem to give money primarily for the attention or the chance to hobnob with other elites. Controversies abound about tax-shelter nonprofits and rich celebs and CEOs who cherry-pick which foundations get their donation dollars. We roll our eyes over big money gifts to artsy-fartsy causes while millions of U.S. citizens still struggle with poverty.
Recently, Harvard University got its biggest donation ever: A whopping $150 million gift from CEO alum Kenneth Griffin. Economist Richard Vedder, writing soon afterward, takes issue with these mega-donations to mega-rich private universities. He argues that these gifts unfairly and hypocritically concentrate wealth in elite institutions that supposedly champion egalitarianism and meritocracy. Obviously, since Harvard is a private university there is nothing the government can do to prevent donors from lavishing upon it…but the government can diminish its tax code support for such donations.
Vedder wants to reduce or end tax exemptions and tax deductions for donations to wealthy nonprofits. Harvard University, for instance, has an endowment of almost $2 million per student, rendering further donations unnecessary and financially inefficient. The rich would simply be getting richer. While that is within donors’ rights, Vedder is correct in asserting that it should not be government-supported.
Nonprofits are not equal when it comes to need and helping those in need. The government should adjust the tax code to provide greater encouragement for assisting nonprofits that provide more direct assistance for those in poverty. You can still donate to your Ivy League alma mater…but it won’t be deducted from your taxes. If you are looking for tax deductions, donate instead to soup kitchens, food pantries, or other charities.
I agree with Vedder that donations to Ivy League universities, opera houses, art museums, and the like should not reduce one’s tax burden.
Tax dollars go toward providing for public welfare, unemployment assistance, public education, and protecting citizens’ health, safety, and property. One should not be able to decrease their obligation to financially assist these endeavors by donating instead to institutions that fulfill none of these roles. It is unfair, and in fact harmful to society, for the wealthy to be able to eliminate their tax burden by donating to tailored causes that primarily benefit…the wealthy.
Sure, poor students get to attend Ivy League schools with little or no payment because of donors’ generosity, but the aptitude of these non-wealthy applicants would likely net them a comparable financial deal at a non-Ivy. And allowing rich donors to pay the tab for non-wealthy Ivy League students further advantages the rich by allowing wealthy students to pay less as well. And, of course, there is the caveat that the donations are primarily for student aid…not entirely for student aid. How many Ivy League administrators see a salary boost, or get to hire a buddy, because of these lucrative donations?
The purpose of genuine nonprofits should be to help those in need or provide a worthwhile service to the general public. Helping a small group of non-wealthy while still advantaging the wealthy does not suffice. Unless a nonprofit has a primary mission of helping those in financial need and/or providing a worthwhile service to the general public it should not receive tax advantages. Its donors should not be allowed to reduce their tax obligations through deductions.