By Rick Cohen

September 15, 2005

No one wants to be pigeon-holed as a charitable scold, especially when the charitable incentives to be criticized are wrapped in the cloak of response to the devastation of Hurricane Katrina, arguably the nation’s worst natural disaster.

Consequently, there’s no great advantage to be gained in nitpicking the proposed tax relief package announced by Senators Grassley and Baucus on behalf of the Senate Finance Committee, described as tax relief “for individuals affected by Hurricane Katrina”. But there are provisions that, with the hindsight of 9/11 and the current firestorm over the embarrassing FEMA and related governmental agencies actions pre- and post Katrina, there are some broad issues worthy of comment and concern.

The charitable giving incentives Grassley and Baucus have proposed, in an announcement released on Monday, September 12^th, include provisions that have been lurking in various forms of the CARE Act over the past few years, including a version of the IRA charitable rollover,^[i] an increase in the proportion of a corporation’s taxable income that can be devoted to charity,^[ii] an increase in the permitted cash contribution level for individuals from 50 to 60 percent of adjusted gross income, incentives for corporate donations of food and books to charities, and increased mileage rates for calculating charitable contribution mileage.

The package includes other tax relief issues that unlike the charitable incentives are specifically targeted to and truly help the victims of Hurricane Katrina, such as permitting early withdrawals from retirement plans, extension of Work Opportunity Tax Credits (WOTC) for employing people survivors of the Hurricane, providing income tax deductions for people who take in for a minimum of 60 days people displaced by the disaster, and relaxing tax-exempt mortgage revenue bond requirements for home purchases for three years in the Katrina impact area.

What is not to applaud about the charitable incentives?

First and foremost, they place the emphasis of the response to Katrina on charity and charitable giving instead of where the focus should really be, which is the funding and the capacity of government. It is crystal clear to all but the most jaundiced critics that the problems preceding and following the Hurricane can be tracked to the defunding of government, the undermining of government, the effort by ideologues of the right to “starve” government of resources—and in the Bush Administration’s management of Homeland Security and FEMA—to shrink it to the size, in the words of Grover Norquist, “where I can drag it into the bathroom and drown it in the bathtub."

The charitable generosity of the American public to the devastation of the September 11^th terrorist attacks four years ago and to last year’s tsunami disaster in Southeast Asia is well documented and extraordinary. Ordinary Americans, even in times of economic downturns such as the stagnating economy that followed September 11^th, simply give and give more, and will do so in response to Hurricane Katrina as well.

But charitable giving isn’t the issue now. It’s the role of government, the incredible shrinking government that performed so abysmally in the wake of the Hurricane, resulting in some measure of foreseeable and preventable death and destruction. Even the response now isn’t simply a charitable issue. The challenge is to reinvest in and rebuild neighborhoods, communities, cities, regions, which as the experience in Lower Manhattan demonstrates, is not a charitable giving function, but a decision about the generation, allocation, and deployment of public resources toward public or collective needs. The nation—and the nonprofit sector—cannot be seduced by watching Michael Brown, a former nonprofit organization executive director, by the way, take a well-deserved fall for his maladministration of FEMA, and then shifting the focus onto how the nation’s extraordinarily generous charitable donors and the nation’s front-line disaster response charities like the Red Cross respond.

Charitable giving hasn’t shown one scintilla of slowing or stopping in response to Katrina. Katrina was an unmitigated public sector debacle. Recapitalizing and reinvigorating government to do what government is supposed to do should be the priority.

A second area of concern is that the Grassley/Baucus package is not totally targeted to individual tax relief, unless one falls prey to the legalistic concept of a corporate entity as the equivalent of an individual. The corporate tax incentives embedded in the Grassley/Baucus package have been on corporate lobbying agendas for years and in one form or another have been in versions of Senator Santorum’s CARE Act grabbag of charitable giving incentives that constitute the bulk of Santorum’s so-called “Republican Senate Anti-Poverty Agenda”.

Raising the corporate charitable giving deduction to 15 percent? Most corporations hover well below 2 percent, usually around 1 percent or even less of pre-tax income dedicated to charity. Since corporate charitable is increasingly in the form of donated goods and services as opposed to what charities really need—cash—one might suppose that there are some highly self-interested corporate lobbyists involved with corporations that have some prodigious loads of product to dump and are looking for some extra benefits for their corporate sponsors. Should that surprise anyone? Already, in the wake of Hurricane Katrina, corporations big and small, including the ubiquitous Halliburton, have their contractors scouring government agencies for no-bid contracts for Katrina relief and rebuilding work.^[iii]

Unlike the specific assistance on mortgages and other issues targeted to Katrina victims, the charitable incentives for corporations and in some cases for individuals (e.g., the IRA charitable rollovers, etc.) are not similarly targeted. Actually, they have been plucked from the long-languishing CARE Act and loaded into the Grassley/Baucus package, using Katrina as camouflage to enact these CARE Act provisions, and maybe others such as the nonitemizer charitable tax deduction that might be added in Committee or on the floor by someone like Santorum. According to the Katrina tax relief package, they are time limited, most of them sunsetting by the end of 2006, but like many such tax provisions, once enacted, they seem easier to maintain and extend than permit to expire.

Our third concern is that while responding to the Hurricane is vitally necessary, using Katrina as a smokescreen for enacting the charitable giving provisions of the Republican Senate Anti-Poverty Agenda is dubious public policy.

A fourth and final, for the moment, critique is the offsetting provisions of the Grassley/Baucus package on accountability. On one side, the senators know all too well the likelihood that some for-profit and nonprofit scam artists will try to take advantage of the Hurricane relief effort and line their own pockets. It happens enough in day-to-day charitable work, as the Senate Finance Committee’s accountability hearings have shown, it certainly happened in the wake of September 11^th, and the FBI and state attorney generals are already encountering evidence of fraudulent charitable schemes disguised as Hurricane Katrina relief efforts. The Katrina package allows for information sharing between IRS and state charity officials so that Katrina victims don’t get further victimized by the charlatans and swindlers willing and able to misuse charity and philanthropy.

At the same time, however, the proposal calls on IRS to expedite the reviews from organizations seeking tax-exempt status to respond to Hurricane Katrina the way IRS expedited 501(c)(3) reviews for charities after September 11^th. The review process is the first and most important step, one would hope, for IRS to identify and weed out some of the frauds and cheats and swindles before they get their chances to rip-off charitable donors. To give the green light to IRS for potential charities because they put “Katrina” in their name is simply to repeat the problems already encountered in some of the September 11^th scams that undermined public confidence in the thousands of charities, 99.9 percent of them already in existence, that mobilized to help the people affected by the attacks on the Twin Towers and the Pentagon.

There is no doubt that the nonprofit sector and the legions of charitable donors in the U.S. will mobilize their human and financial capital to help the people of the Gulf Coast who suffered the devastation of Hurricane Katrina. But to misplace the emphasis of the response to Katrina on nonprofits and charitable giving misses the all too obvious lesson of the past two weeks: This was a natural disaster aided and abetted by a calamitous governmental performance. We need to get serious about holding government responsible to living up to its crucial function in our society, and not play around the edges with charitable giving incentives that miss the point or deflect from what should be our society’s—and the nonprofit sector’s—core priorities in the wake of the experience of Hurricane Katrina.

[i] Excluding from gross income otherwise taxable IRA withdrawals for qualified charitable organizations for taxpayers who are 70½ or older and permitting tax-free rollovers to charitable remainder trusts for taxpayers 59½ or older.
[ii] Current law limits deductions to no more than 10 percent of a corporation’s taxable income, but the Grassley-Baucus bill would increase the limit to 15 percent.
[iii] This has been well reported, but was most recently highlighted in Neal Peirce’s latest syndicated column, “Post-Katrina Super-Manager: Great Idea, Time is Wasting” (Washington Post Writers Group, September 18, 2005).