If you missed Obama’s comments last night regarding charitable deductions, I’ve included them here.  For the past few weeks, the non-profit sector has been a flutter with commentary on the lowering of charitable deductions for wealthy donors.  In summary, instead of deducting 39%, wealthy American will be able to deduct 28% of their charitable giving.  While I realize that we are in a recession, charitable donations should not be driven by the deduction you receive on your taxes.  As a sector, our stories should compel folks to give.  As a people, we should not simply expect to get something when we give.

The debate has gone around and around in the sector, but Obama is right: 

When I give $100, I’d get the same amount of deduction as when some, a bus driver who’s making $50,000 a year, or $40,000 a year, gives that same $100. Right now, he gets 28 percent, he gets to write off 28 percent. I get to write off 39 percent. I don’t think that’s fair.

If we believe the work we are doing is valuable, donors will as well.  A higher tax deduction shouldn’t make or break our case.

Transcript:

Mike Allen, Politico? Hi, Mike.

Q: Mr. President, are you — thank you. Thank you, Mr. President. Are you reconsidering your plan to cut the interest rate deduction for mortgages and for charities? And do you regret having proposed that in the first place?

OBAMA: No, I think it’s — I think it’s the right thing to do, where we’ve got to make some difficult choices. Here’s what we did with respect to tax policy.

What we said was that, over the last decade, the average worker, the average family have seen their wages and incomes flat. Even in times where supposedly we were in the middle of an economic boom, as a practical matter, their incomes didn’t go up. And so, well, we said, Let’s give them a tax cut. Let’s give them some relief, some help, 95 percent of American families.

Now, for the top 5 percent, they’re the ones who typically saw huge gains in their income. I, I fall in that category. And what we’ve said is, for those folks, let’s not renew the Bush tax cuts, so let’s go back to the rates that existed back in, during the Clinton era, when wealthy people were still wealthy and doing just fine, and let’s look at the, the level at which people can itemize their deductions.

And what we’ve said is: Let’s go back to the rate that existed under Ronald Reagan. People are still going to be able to make charitable contributions. It just means, if you give $100 and you’re in this tax bracket, at a certain point, instead of being able to write off 36 percent or 39 percent, you’re writing off 28 percent.

Now, if it’s really a charitable contribution, I’m assuming that that shouldn’t be the determining factor as to whether you’re giving that $100 to the homeless shelter down the street.

And so this provision would affect about 1 percent of the American people. They would still get deductions. It’s just that they wouldn’t be able to write off 39 percent.

In that sense, what it would do is it would equalize. When I give $100, I’d get the same amount of deduction as when some, a bus driver who’s making $50,000 a year, or $40,000 a year, gives that same $100. Right now, he gets 28 percent, he gets to write off 28 percent. I get to write off 39 percent. I don’t think that’s fair.

So I think this was a good idea. I think it is a realistic way for us to raise some revenue from people who’ve benefited enormously over the last several years.

It’s not going to cripple them. They’ll still be well-to-do. And, you know, ultimately, if we’re going to tackle the serious problems that we’ve got, then, in some cases, those who are more fortunate are going to have to pay a little bit more.

 

With both Canada and the U.S. passing new federal stimulus packages, it has been interesting to hear from the respective non-profit sectors on how pleased they are with the outcomes.  The Chronicle of Philanthropy reports that a congressional compromise will include funding for arts, social service, and volunteerism - including $50 million for capacity building grants for non-profit organizations.

This contrasts with a view from Charity Village, a Canadian sector non-profit advocate, that reported a tepid response to the Federal Stimulus package.  From the numbers, $15 billion of $29 billion will impact folks in the non-profit sector.  However, depending on where you are in the sector - you may or may not be as pleased.

Details of stimulus packages are not necessary my forte, but it is interesting to observe what is expected of each country, by each country - and how their packages resonate with their people and in each sector.  Kind of amazing how many ways you can slice the pie.

I’ve enjoyed the philanthropy chatter of the past two weeks, the year-end reviews and the predictions for 2009.  While nodding along with the jargon we’d like to see banished, contemplating pitfalls of new philanthropists, and musing on how Madoff worked out his whole scheme - I found myself focusing intently on two topics, scale and support. 

What follows is neither a review or a prediction, but rather two topics that I hope we keep talking about this year.

“Going to Scale” - Can we readjust our eagerness for BIG?

For-profit franchises standardize their programs and operations so they can expand to new markets - just like Starbucks, McDonalds, and every box store in a suburb near you. 

Non-profit programs have also been embracing this notion of “going to scale” by seeing what elements of their programs (and their operations) can be standardized and replicated.  Habitat for Humanity and CityYear both expanded from their original demographics with success. 

And because some organizations have reached beyond their original boundaries, donors have learned to view the replication of programs as evidence of a successful investment.  But rarely is replication simply the end, even if donors see it as the goal.  Even in business, replication and scaling up is not always successful - in the last year, we watched as Starbucks tried to undo its scale and get back in line with its original intent. 

Similarly, not every non-profit program should be pushing for a bigger scale - whether that be in domestic or international contexts.  If we continue to allow donors to define ”achieving scale” as a successful programmatic investment, organizations will continue to find themselves pushing to expand programs that aren't ready or don't need it.

Instead, what if we toned down our obsession with bigness and achieving scale - and focused on an organization's potential to do well right where it is, as it is?  Rather than focusing on the BIG, we emphasis the local, the small, the immediate - and pay attention to the resources needed to strengthen the whole.  (Sounds very climate change debate-ish, right?) 

Support - Look beyond the program?

In the past few months, it has been uplifting to listen to the many voices advocating for the maintenance (and increase) of operating support for non-profit organizations.  While donors have traditionally shunned administrative costs in their philanthropic giving, often equating lower costs with greater success, many are now learning that the strength of an organization is just as, if not more, important than the programs it runs. 

Support - for staff, for development, for electricity, for culture, for paper, for salaries, for health care and on and on - is rarely questioned in the business world.  Yet, we ask our non-profit counterparts to rely on “their passion” as an excuse to undercut all of these necessary elements of support.

A strong organization is more than its star program and is more than its bright leader - and now, we have this opportunity, this economic downturn, to examine how we have been treating scale and support within the non-profit sector.  Perhaps we will find that small is not bad and that strong organizations are good. 

2009 is the right time to reflect on the philanthropic excitement of the past few years to ensure that we are still enjoying what we have created - and to improve the arguments we have been making, no matter how big or small. 

Having read Michael Edward's “Just Another Emperor? The Myths and Realities of Philanthrocapitalism” earlier this year, I thought I would balance the perspective with a read of Matthew Bishop/Michael Green's “Philanthrocapitalism: How the Rich Can Save the World”.  If you’re looking for a book club discussion, this is definitely a good pair.

Two chapters into Philanthrocapitalism, we are greeted by the notion we are now enjoying the Fifth Golden Age of philanthropy - great amounts of wealth being put to use against global inequities by business folks who know how to achieve results.  What was remarkable to notice, on page 28 of 298, was that the financial and political situations have changed/are changing in such way that this “new” Golden Age may already be on its way out. 

Bishop writes, “Each of the past philanthropic golden ages ended with the state ratcheting up its role in society, crowding out some the philanthropists.  In part, it is the recent attempt in many countries to roll back the borders of the state through privatization, deregulation, tax cutting, and attrition that has made space for the philanthrocapitalists of the fifth golden age.”  If these actions helped to create a new Golden Age, what are we to make of the recent financial bailouts, government buying stock in banks, moves to re-nationalize public service and upcoming tax increases for the wealthy?  If Golden Ages are relatively short and fleeting moments in time - is the newest on its way out?  And then what?

Recent market conditions and political actions show how quickly the world can change.  The Chronicle of Philanthropy published this article by Jeff Trexler musing on the same topic.  With so much hype over the past few years regarding philanthrocapitalism and its cousins, have we just been perpetuating a short-lived fad or will we take some useful nuggets away from this Golden Age?

A couple of weeks ago, I thought I was writing on the worst the economy had to offer.  Fast forward to now - the world is involved and my local newspaper is reporting on the expected dip in non-profit donations.  The economy, coupled with the newly released Matthew Bishop/Michael Green book on Philanthrocapitalism, has me wondering - how do you cultivate new gifts and sustainable giving?

In an ideal world, every child would be using their “Spend, Save, Share” banks from an early age and “giving back” would be an engrained social norm.  The positive evidence that this may be the trend is coming from the Millennials values of social change, an increase in organizations addressing financial education for youth, and the increase of access to giving tools on social networking sites and through Web 2.0 technologies.

However, while these trends might indicate that the next generation will be more likely to give their time and money, how does a non-profit reach all demographics right now?  Is it more sustainable to look for 99% of donations in 1% of wealth or to attempt to change behavior for those who are not engaged in philanthropy?  Does the location matter and if so, how does a city become more philanthropic?  At a country level, how does government's social funding (for health care, education, etc) affect the public's opinion on supplementing this funding with their own money? 

A city's typical givers might be in their 60's, 70's, and 80's - yet, much wealth is accumulating among people in their 30's, 40's, and 50's.  If these folks (and companies run by these folks) are not already pre-disposed to giving a portion of their wealth to charity, how do you reach them?  How do you reach cities with sprawl, where young professional families do not live in a central downtown core?  How do you reach inside the mighty corporations, with windfall profits, who do not subscribe to the belief of giving away 1% of their pre-tax profits?

These are not new questions, per se, but the time is right to be asking them again. In many places, creative solutions are being offered - professional organizations and networking encourage the discussion, giving circles are established among friends, and web-based applications making giving possible from your own home.  However, the audience to be reached is not those already informed, but those who need to be.  It's a creative challenge - and one that will take “local variations on a theme” to be successful.

Yesterday's Give and Take blog brought up questions similar to those of my post on Frannie and Freddie Mac.  (There are some interesting responses coming in from the public today.) 

With the Lehman Brothers and Merrill Lynch shake-up, the instability of AIG, the falling prices of oil, and the huge shocks to the market - what does this financial instability mean for philanthropy?

As with all of the commentaries today - the full effects are not yet known.  In philanthropy, we’re likely to hear more of the same regarding this year's economic slowdown -individual giving has been affected, corporate giving will be affected. 

The challenge for non-profits and charities will be in finely focusing their strategic goals for the year and ensuring their efforts are forwarding their missions.  Still, there is a lot of creativity in the sector - in fundraising, entrepreneurship, and web 2.0.  The financial instability will likely mean non-profits will need to get more focused and more creative at the same time.