More on Anti-Poverty Programs and Distinguishing Among Charities

A program called “Circles” takes an unconventional approach to relieving poverty. Circles works through personal support – people helping people – not direct financial aid. As profiled by NPR, in Circles, volunteers help families in poverty with advice and community assistance. Volunteers, called “allies,” provide moral support, technical know-how on things like how to manage finances and bureaucracy, and help with day-to-day struggles, like picking up a child from day care. The program is operative in 23 states.

Unlike the anti-poverty program discussed in yesterday’s post, the story on Circles does not contain the lament that donors often prefer supporting their alma mater instead of anti-poverty programs. Perhaps this is because Circles appears to have dedicated sponsors. Nevertheless, yesterdays’ blog post suggested that it is worth exploring as part of tax reform ways to shift existing tax incentives to provide greater rewards for some charitable ends like poverty relief. But is something like this a good idea?

A key objection to preferring some charities over others on functional grounds is that it would undermine the pluralism of the charitable deduction, which (apart from preferring public charities to private foundations) remains facially neutral as to donor preferences. Taking this objection to its logical end, however, would lead either to a credit or a nonitemizer charitable deduction. This is because the current deduction fosters pluralism only with respect to those who actually take the charitable deduction, generally the wealthiest third of taxpayers. Thus converting the charitable deduction to a credit available to all taxpayers would advance pluralism generally by rewarding the charitable choices of all taxpayers, not just those who itemize.

But should a credit then be stratified to provide greater benefits for some charities? Now the pluralistic objection has more weight. One of the beauties of the charitable deduction is that it represents private choices regarding the relative worthiness of charities. The government takes a fairly light hand, making the barriers to entry into the charitable sector low. Donors can then decide which organizations to fund without tax policy nudges (unless the choice is a private foundation). If we had a system where some public charities are preferred, then the government would have to put a thumb on the scales and choose. This could be very difficult legally (to craft workable standards) and politically (as groups in favor could change with the political tides). This was the topic of a conference held at NYU’s Center on Philanthropy and the Law back in 2009. The general conclusion of many at the conference was that the government should not be in the business of choosing one charity over another. These are important objections.

Personally, I do not think the obstacles are insurmountable, and some scholars argue that the charitable deduction should be refashioned to better serve those in need. Regardless, if more distinctions are made among charities, they need not be drawn based solely on purpose (i.e., relieving the poor), but could be drawn based on other criteria, such as the operation of charitable programs versus grantmaking, or whether the charity accumulates assets. This is not to say drawing lines would be easy. Some lines might be unworkable. And making new distinctions among charities would be a departure from longstanding policy. Thus developing some consensus on who should be favored and why would be important to success.

Roger Colinvaux