A Failure of Philanthropy: American Charity, Education, and Public Policy

There’s a great article in the Stanford Social Innovation Review titled "A Failure of Philanthropy: American charity shortchanges the poor, and public policy is partly to blame."

This is required reading for anyone interested in philanthropy, and in particular education. Professor Reich writes with awesome clarity and brevity.

He starts by discussing public school foundations. In rich neighborhoods like Ross, CA or Woodside, CA the parents set up a local education foundation which donates money to the school district for new programs in music, arts, PE, etc. Thus, the public schools in these areas are very good, while schools in poorer neighboring cities stink. "Who could fault wealthy parents for wanting to do best for their children?"

The gap between these children and children growing up in disadvantage widens, of course. "What is surprising is that public policies governing philanthropy encourage and reward this gap-widening."

How? Not all 501(c)(3)’s are the same, yet they all confer identical tax benefits to donors. A rich Woodside parent who’s in the top tax bracket only "pays" $650 of her $1,000 donation. Between ’98 and ’03 the federal government has paid $3.5 M of roughly $10 M of donations to the Woodside school foundation in lost tax revenue. Moreover, because of this tax system, your $1k donation to baldness research is worth the same as my $1k to Darfur relief. 501(c)(3)’s do not differentiate on the worth of the philanthropy.

Reich continues by wondering whether philanthropy and private foundations do a good job at redstributing wealth, at serving those most in need. If someone didn’t donate to charity, and thus were taxed on that income, would the government do a better job at distributing the money?

"The public policies designed to support the philanthropic and nonprofit sector represent a wide-scale, costly government intervention."

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