August 05, 2013

How Charities Can Get $35-Billion a Year for Social Needs

Michael Nagle/Getty Images; Meals on Wheels Association of America

The number of nonprofits organizing to preserve the charitable deduction grows every day, but most charities have remained silent about a far more pressing concern: the severe cuts in government funds for domestic needs.

Even more disturbing is that few people in the nonprofit world seem aware of a new legislative proposal that could add $35-billion a year or more to such programs perhaps including their own organizations.

Two Democrats, Sen. Tom Harkin of Iowa and Rep. Peter DeFazio of Oregon, have introduced a financial-transaction tax modeled on one approved by the European Parliament and soon to be adopted by 11 of its members countries. The American measure, called the “Wall Street speculators sales tax,” has drawn the support of over 40 national nonprofit organizations and labor unions but has not caught the imagination of local and regional charities or the major coalitions that represent nonprofit groups. 

If America adopted a plan as generous as the European one or other proposals, it could yield $350-billion a year. But the more modest approach taken by Mr. Harkin and Mr. DeFazio still would make a huge difference and wouldn’t significantly hurt anybody on Wall Street or average citizens who trade stocks.

Under the most ambitious plan, stock sales would be taxed at only $5 on each $1,000 traded. For bonds and other speculative transactions, the tax would be a tiny fraction of even that modest amount, 10 pennies on each $1,000. Even at its much lower rate of less than a third of the European model, the Harkin-DeFazio legislation would yield an average of $35-billion a year.

America’s charities and the people they serve need those dollars.

Federal spending on programs for the poor fell by more than $28-billion from 2011 to 2012; for health care, the drop was $25-billion more.

Since then, $31-billion more in cuts have been made to domestic programs because of the automatic spending cuts known as sequestration, which were imposed because Congress failed to make a budget deal. Many of those dollars are critical to nonprofit organizations and the people they serve.

Those reductions have very real consequences. For instance, Head Start estimates it has lost more than 80,000 slots for needy children, along with 30,000 staff positions. The National Council of Nonprofits’ GiveVoice.org site displays state-by-state examples of the impact of the automatic spending cuts on diverse nonprofit organizations and government agencies, including significant reductions in programs such as Meals on Wheels, child care, housing, services for the elderly and homeless, job training, and student aid.

While the news media and several nonprofit coalitions are chronicling some of the effect of sequestration’s cuts, surprisingly few charity leaders are demanding that the funds be restored.

Nor have many nonprofits even expressed concern about the additional cuts recently proposed by congressional Republicans—including 50-percent reductions in spending for the arts and humanities endowments, plus further cuts in grants for poor students and over a third of the Environmental Protection Agency’s budget, killing programs that would regulate greenhouse gases and hampering other energy efforts. 

But simply to fight against past and proposed cuts, including the charitable deduction, is to let others define the debate.

In place of spending cuts, charities should offer spirited and vigorous leadership in arguing for a revenue-increasing alternative to finance domestic programs. They can do this by supporting the Wall Street Trading and Speculators Tax or even a more ambitious dedicated effort.

The vast majority of money generated from a Wall Street sales tax would be paid by wealthy individual (and institutional) speculators. It is they who have benefited disproportionately from tax breaks and tax cuts, as well as deregulation of the financial industry that started nearly 15 years ago.

The top 1 percent of Americans increased their share of income since the 1970s. In the last decade, it climbed to levels not seen since the Roaring ’20s.

Since the recovery began in 2009, the top 7 percent have seen their wealth increase by almost 30 percent while the other 93 percent have seen a decline of about 5 percent. In fact, stock-market transactions have been a major driver of this grotesque inequality.

Those trends—coupled with the recession that the speculators triggered—has caused the American middle class to shrink to an all-time low while income inequality is growing faster than it has in over the last 20 years. It is astounding that in a nation that prides itself on upward mobility, inequality is now much greater in the U.S. than in any of the world’s 26 other “advanced economies.”

So, faced by the outsized and increasing wealth of market speculators, the resulting and alarming growth of inequality, and proposals for still more damaging cuts in domestic programs and nonprofit support, it makes sense for nonprofits to support a financial-transaction tax.

The institutions and people who have speculated on finances have done so well at the expense of the rest of us that they should appropriately bear an increased share of the costs necessary to meet public needs.

Why not issue such a call? 

Some charities may fear conservatives who cast nonprofits as a greedy arm of government. To these critics, a homeless shelter that decries cuts in support for food kitchens and shelter beds is simply reflecting its own interests and promoting big government; so, too, an arts organization defending the national endowment; a disabilities group fighting to preserve money for the homebound; a women’s health group advocating continued financing for cancer screenings; a university wanting to maintain student-aid levels; an environmental group trying to protect investment to reduce greenhouse gases; and so forth.

Such accusations are absurd.

When nonprofits run by hardworking and usually underpaid staff and overextended volunteers fight for a cause, it’s because they care about people, communities, society, and the environment. They understand that there must be shared public and private responsibility to tackle profound problems, that philanthropy, no matter how generous the wealthiest of Americans, will never be adequate to the scale of need we face.

To suggest that these groups and people operate in self-interest reflects cynicism rather than compassionate-conservatism.

Charities should take pride and strength from the higher moral ground in advocating more money for the common good.

Charities must change today’s deficit-cutting debate. The nonprofit organizations and unions that support a financial-transaction tax should be given the philanthropic support they need to organize and fuel a national campaign to inform local groups and persuade them to demand this source of new revenue. Those groups should demand that their congressional representatives and senators enact a significant Wall Street sales tax, one that even goes beyond the bill from Mr. DeFazio and Mr. Harkin.

Wall Streeters got us into this mess. They should welcome the chance to use some of their profits to help clean it up.


Mark Rosenman is an emeritus professor at Union Institute & University.