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The Undermining of American Charity
- lgleason 10y agoSadly, the not for profit sector has become a mechanism to avoid paying taxes rather than groups dedicated towards actual charity. That's beyond some of the salaries that directors of these organizations are making.
- maxxxxx 10y agoI once visited a friend who lived in nice neighborhood close to DC. A lot of people there had really nice ($100k+) cars and houses so I asked him where they worked. He told me pretty much all of them work at non-profits. I always thought non-profits are for poor do-gooders. This experience definitely gave me a dose of reality.
- th0waway 10y agoIt's a sad truth when a sizeable percentage goes toward employee salaries...
- theklub 10y agoYeah, the whole has thing become a sham. "Not for profit" except for the CEO making 400k a year, while everyone else gets minimum wage or volunteers and asks for donations to make ends meet.
- lintiness 10y agothe same people who gripe about these organizations praise the public and non-profit university / school system --- rife with the same exact compensation abuse.
- drabiega 10y agoYeah, and we don't like it when it happens there either.
- GrinningFool 10y ago> the same people who gripe about these organizations praise the public and non-profit university / school system They do? All of them or just some? I feel like it's more likely that the same people would have issues with the university abuse too.
- wnevets 10y agoIf the organization is large enough why shouldn't the CEO make that much? Just because its a non-profit doesn't mean the large organization is any easier to manage.
- douche 10y agoIs the tail wagging the dog, though? Seeing so many charities, with lofty, worthwhile goals (at least as indicated by their names...) that spend upwards of three-quarters of their donations on overhead, administration, and fundraising, makes you wonder.
- sliverstorm 10y agoThat's really the key that pisses people off I think, nobody will worry much about high six figure executive compensation if the administration overhead is a tiny portion of revenue. Kidney & Urology Foundation of America is a great example: Total Overhead: 91.9% Management & General Expenses: 38.8% Fundraising Expenses: 53.1% CEO Compensation: $132,642 (31.7% of revenue)
- dragonwriter 10y ago> Seeing so many charities, with lofty, worthwhile goals (at least as indicated by their names...) that spend upwards of three-quarters of their donations on overhead, administration, and fundraising, makes you wonder. While some of those extreme cases may be problematic, I think that there is a risk of putting too much weight on administrative cost ratio (with low ratios being "good") as a metric. Its easy to reduce administrative costs by simply not putting effort into making sure that the way funds are spent is effective at achieving the nominal goals of the organization, but I don't think anyone who thinks things through would think that makes a charity "better". You need better metrics to answer questions of charity quality.
- throwaway729 10y agoSpending time on hiring, code quality analyses (code reviews, performance reviews, etc), refactoring, developer training are all examples of administrative overhead. Software shops that don't invest in any of these things end up producing crap. Software shops that over-invest in these things end up navel gazing instead of getting shit done. The line between reasonable and unreasonable will shift from context to context and from organization to organization. There's no silver bullet or magic metric. Ditto for charities. Running a survey that costs more than your actual charity work in order to determine if some strategy is working might be a complete waste of resources. But it might also make a lot of sense. E.g., before dumping 10x the initial investment into that strategy, or before convincing 5 other large charitable organizations to double down on the new strategy. But sometimes it's the tail wagging the dog and/or a failure of leadership. It's impossible to tell from dollar amounts alone.
- exelius 10y agoI spoke with a CEO of a rather large non-profit hospital system who said, basically, that the only difference between a for-profit company and a non-profit company is that the board of directors of a non-profit have much less oversight to ensure they decisions abide by the charter of the organization. The way the companies operate is exactly the same: try to make as much money as possible to donate it back into the charitable trust. But a lot of it goes to perks and bonuses for executives, along with increased marketing expenses to continue the "donation" growth.
- rayiner 10y agoWhy should a non-profit pay its employees less than a for-profit company? The labor market is the labor market; the feel-good of working for a non-profit might be a "perk" that justifies a slightly lower salary (like equity in a startup), but it'll only get you so far. Insisting that non-profits pay people less just means they'll get less qualified/motivated people. (And to the extent that the argument is that you don't need to pay $400k to get a qualified/motivated CEO, then that's true of any company--being non-profit has nothing to do with it.)
- lgleason 10y agoBecause they are being funded by tax payers.
- tomjen3 10y agoIf they pay more than they can get away with, they are wasting money, but if they pay less and get lesser-skilled workers, they are also wasting their money. Underpaying in a non-for profit assumes that they can still get the same quality worker.
- throwaway729 10y ago> Because they are being funded by tax payers Again, this isn't a reasonable argument. The cost of labor does not magically disappear just because the employer is a non-profit instead of a for-profit. Teachers, clerks, and accountants don't magically cost less when they are paid with tax payer dollars. (Incidentally, administrators -- on average -- do cost substantially less in the non-profit sector.)
- bsenftner 10y agoIn addition to being a serious developer, I have an MBA. During my studies we were taught that non-profits are just another for-profit vehicle, just with different white washing, and a requirement for lobbyists on the payroll. That entire semester of "Strategy" sickened me.
- nmeofthestate 10y agoFor contributors to these funds, am I right in thinking that any tax avoided just goes into the charitable fund pot - no contributors are dodging tax that they get to keep by misusing these things? Any money that comes out of the fund has to go to charity. Clearly, the financial industry is making money off these products, but the article makes it sound like people are misusing these things to pocket avoided tax.
- lgleason 10y agoThere are lots of ways to do what the article described. For example you set up a foundation, spend only 5 % of the revenue/assets (the minimum under the law). Then you make a family member the director and allow them to live in a mansion which is an asset of the foundation. There are also loads of loopholes with foundations relating to director salaries where the money goes, "investments" etc. that are either 100% legal or are so poorly enforced that they might as well be legal.
- skybrian 10y agoI don't think so. If you give $1000 to a charity, the tax deduction doesn't affect that. It just means a lower tax bill.
- dragonwriter 10y ago> If you give $1000 to a charity, the tax deduction doesn't affect that. If your marginal rate of taxation on income is, say, 35%, then you give up only $650 in disposable income to donate $1,000 to charity. Without the deduction, someone in that circumstance who could afford to give $1,000 with the deduction could only give $650. Or, looked at a different way, someone with that tax rate who "gives $1,000" to charity is really giving $650, and the government is giving $350.
- skybrian 10y agoWell, my point is that the charity still gets $1000 regardless of tax rate. You could increase how much you give based on your expected tax savings so it costs you $1000 after the tax refund, but it's not automatic.
- rayiner 10y agoThis article is just scaremongering at the idea that dirty "profit seeking" banks would have anything to do with charity, which should be the domain of those of pure heart. But happens when you give money to a charity or endowment? If they don't need it right away, they invest it with a bank!
- wavefunction 10y agoThat doesn't seem to be the subject of the article. Did you happen to read it? From my reading, the subject appears to be the blurring of lines between social controls on what counts as charity and what is just another tax dodge with the added bonus of allowing the donor to maintain control of the "donated funds."
- throwanem 10y agoThis is an enormously reductive and, I think, inaccurate take on the issue. Perhaps you have a substantive objection to the several detailed paragraphs in which the authors describe the reasons why they find DAFs an ineffective method of making charitable donations. If so, perhaps you'll be so good as to elucidate it.
- warfangle 10y agoFair warning: this page will blow up your browser history.
- throwanem 10y agoHow so? It doesn't seem to have done mine any harm; there's the one entry I would expect, and nothing else.
- Retric 10y agoIMO, a great many problems would be avoid by removing the charitable giving tax break. It not only shifts the Tax burden from the wealthy to middle class it also subsides the agenda of anyone that can afford to jump though some hoops. Not to mention all kinds of corruption where charity rents private land or uses another company to _. Or charity A takes X% off the top and hand it to charity B who takes Y% off the top.
- NelsonMinar 10y agoThe Economist had a thoughtful, provocative article arguing against the charitable tax break. It's here: http://www.economist.com/node/21556570 http://www.economist.com/node/21556570
- rubidium 10y agoThere are many, many great charities that would suffer greatly from your simplistic solution. As a middle-classer giving >10% of income to charity, it's helpful to not have that be taxed and enables more to go to the charities. A more reasonable solution would be a cap on the total amount able to be a tax break. This would prevent the mega-rich from creating fancy tax-avoidance schemes, while enabling the charities and regular folks to procede as usual. Also, DAF's are a really bad idea for receiving tax breaks, as the article points out.
- Retric 10y agoRemoving the loophole would lower your tax rate. However, why should I subsidies whatever you want to have happen beyond that point? Sell milk? Why not set up a trade association to promote it. It's just promoting healthy living after all.
- michaelt 10y agowhy should I subsidies whatever you want to have happen beyond that point? The theory is tax breaks for charity make people donate more, and a dollar donated to a charity is a dollar that doesn't have to be paid by the government to do the same thing. For example, if I donate $1000 to a university, higher education is $1000 better funded. Whereas if the government taxes me $330 and gives that to the university, then I spend the rest of the money on hookers and cocaine, higher education is only $330 better funded. If you're a conservative, you might also think the government is inefficient and most of that $330 would be wasted in the bureaucracy; that most donors are basically like you and hold your views because charity is a christian virtue; or that donations allow donors to choose efficient charities in a competitive market, driving down waste. If you're a liberal, you might think most of that $330 will be spent on costly foreign wars and private prisons; that most donors are basically like you and hold your views because charity is about putting the good of that many above yourself; or that donations are key to supporting causes like animal welfare and vegetarianism that are unlikely to get state funding. Needless to say, the above assumes charities are basically moving towards the same public good the government is trying to achieve. If I donate to support schools with extremist religious views or to support the families of Palestinian suicide bombers, that's a different matter. Edit: And complete alignment of charities with the views of government isn't required. If the tax deduction turns $330 into $1000, the charity only needs to be 34% aligned with the government for the outcome to be better; so for example $1000 donated to a religious school that spends $500 on textbooks and $500 on bibles is better than the government giving $330 of textbooks. I agree, if this is the rationale for charity tax deductions, that there should be strict auditing for sham charities and charities that are wildly out of alignment with the public good.