As stories about Donald Trump’s attitudes and behavior toward women have dragged American politics to new depths of depravity, other issues have flashed and dimmed on the public radar. One of them came up in the first presidential debate, then again briefly when the VP candidates duked it out, and arose as a short distraction from things like the national debt and ISIS during the final encounter: the fight over the candidates’ connections to charitable foundations. Secretary Clinton was hammered by her opponent for allegedly having friends in high places who contributed to the Clinton Foundation while she was Secretary of State; and Trump is alleged to have broken laws governing tax-exempt philanthropies – he is being investigated by the NY attorney general -- which could be clarified if only he released his tax returns.
Why all the fuss? Some context may help voters understand better why these things matter. America is unique in its reliance on private charity to complement public funding of science, the arts, emergency relief, education, and much more. According to the World Giving Index, the US ranks first in the world (tied with Myanmar) on a metric that includes helping strangers, donating to charities, and volunteering time. We are a generous people, who give away about $360 billion a year to charity. In 2012 American-based foundations disbursed about $55 billion. There is no evidence that the foundation sector on the whole hews to any particular ideology; both the number and size of foundations have exploded in the last three decades, they compete in subtle ways, and they vary significantly in their goals and investment strategies. In this crowded ecology of altruism are the gigantic Bill and Melinda Gates Foundation (assets of about $44 billion), organizations such as the Ford Foundation and the William and Flora Hewlett Foundation (assets of about $12 billion and $9 billion, respectively), and thousands of smaller organizations whose names would not be familiar except to those who benefit directly (or to those who read the back pages of theater and museum brochures where donors are listed).
Although it has become fashionable to disparage the biggest foundations because of anxieties about concentrated wealth and its influence, the reality is more complicated. Yes, the Walton Family Foundation tends to favor charter schools and “choice” experiments in education; but their investments are balanced by gifts from dozens of other foundations that support innovative courseware, teacher professional development, school facilities, literacy programs, and the like. The Gates Foundation, often criticized for its role in the high stakes education reform movement, spends most of its money to eradicate diseases like malaria, e-bola, and polio in the developing world.
What all these organizations do have in common is their special legal status. Based on their application to proper governmental authorities—a step Mr. Trump seems to have overlooked—they are exempt from most taxes. This can be significant: if the Ford Foundation doesn’t donate roughly five percent of its asset base, it risks losing the exemption on the substantial tax that would otherwise be due. So a deal has been struck: the US treasury forgoes revenue in exchange for the anticipated private support that will flow to organizations and causes that meet certain criteria, chief among them the prohibition on political lobbying.
As I discuss in my new book, it’s a remarkable arrangement, designed to encourage the private sector to invest in public goods that in most other countries are handled almost entirely by government. Stanford political scientist Rob Reich chalks it up to our “contestatory” style: public-minded people and organizations are freed from constraints of accountability and encouraged to reinforce – or to push back against – government, and for this they are rewarded by tax breaks! Indeed, organizations operating under the charitable deduction rules are pretty much free to give out their money as they see fit; in most cases they follow the ideals laid out by their founders, which vary widely. Joel Fleishman, a distinguished scholar (and practitioner) of philanthropy argues eloquently that this system is essential to the American concept of “civic society.”
Like so much else in our political culture, though, this compact is fraught with tension. Since the charitable deduction was enacted in 1917, critics (even conservatives who typically distrust government) have occasionally argued that government would do a better job with the money and have lobbied to reduce or eliminate the charitable deduction. This argument becomes more feverish when people dislike specific foundation initiatives—consider Richard Nixon’s animosity toward the Ford Foundation for its role in the civil rights movement, or critiques of various foundations for their support of certain kinds of education reform.
Back to the campaign controversy. The Clinton Foundation generally gets high marks for its commitment to improving living conditions in the poorest parts of the world. Its funds don’t come from one extravagantly rich individual or family, but from hundreds of successful people wishing to share some of their wealth. According to David Callahan, editor of Inside Philanthropy, a highly reputable source, Bono, Nobel Peace Prize winner Muhammad Yunis, and other donors have met with the Clintons. But as Callahan points out, if this is a problem in our system it is not unique to Hillary Clinton: “Public officials in Washington meet all the time with donors, from the president on downward.” I would add that it’s a relatively minor defect compared to the big problems of influence from outside money.
Trump’s transgression, his exploitative maneuvering around relatively unburdensome reporting requirements, is more serious because it breaks the law and violates a bedrock principle of US philanthropy. When foundations fail to comply with charitable deduction rules, there is no obvious way to preserve the social contract that ensures private engagement with the general public good. Compared to his abhorrent treatment of women, it’s easy to see why Trump’s willful neglect of business law makes for headlines that are, well, less sexy. But it’s one more in a shamefully long list of reasons not to vote for him.