Is Charity in the Eye of the Beholder?

A friend who works for a charitable foundation sent me an interesting article a couple of weeks ago, describing an upcoming, invitation-only conference to debate whether the rules that currently govern such enterprises are actually promoting the common good.

Some of the questions to be discussed were intriguing, to say the least. They ranged from “should donors get a bigger tax benefit if the charity to which they contribute helps vulnerable people?” to whether foundations should be required to spend more than 5% of their assets, as they are currently required to do, to a re-examination of the different legal treatment of private foundations and public charities.

These are all important issues in philanthropy, but if I had to choose the most significant item on the conference agenda, it would be “Does the law adequately delineate what makes an organization ‘charitable,’ given that some nonprofits (like hospitals) operate in a way that is indistinguishable from their for-profit counterparts?”

Actually, what sorts of activities are appropriately labeled “charity” is less obvious than we might think. Feeding the hungry? Sure. Building a wing on the church? Maybe. A Lexus for the nonprofit’s CEO? Probably not. And there are plenty of nonprofit, tax-exempt entities that are not “charitable” in the usual sense–arts organizations, professional associations and the like fall into a different category.

Any lawyer who helps new organizations incorporate can attest to the blurred boundaries between far too many for-profit and non-profit enterprises. Take the hospital example cited in the article: CEOs and upper managers at purportedly “nonprofit” hospitals take home salaries that are the envy of many for-profit businesspeople; meanwhile, the hospitals pay no taxes–including property taxes to local governments– and enjoy other benefits of a tax-exempt entity. The amount of “charity” they engage in is an open question.

Hospitals are hardly the only entities taking advantage of the opportunity to do well by purporting to do good. A corporation with a mission that is arguably philanthropic can forego “profit” by the simple expedient of paying money that would otherwise be considered profits as salaries.

Americans as a whole are a charitable lot. We give a lot of money to causes we care about, with the expectation that we are thereby making our communities and our world a bit better. If antiquated rules and dubious behaviors make us cynical, and less charitable, we’ll all suffer.

A good hard look at these issues is in order, and I’m pleased to see that it’s occurring.


  1. Churches, being tax free, should not be allowed additional assistance to improve their buildings. They are already provided with free access to tax paid infrastructure. Goldsmith pushed a propsal for $250,000 to renovate the inside parking facility of a downtown church because he believed they “might” sell the city some of their property. They changed their minds once the renovation was done. How many of you remember who Herb Baumeister is? He owned two money-making thrift stores, amassed enough money to live in a mansion outside of Indianapolis in a beautiful wooded acreage. His businesses were tax free because he gave 10% of his profits to the Children’s Bureau. At the same time he was kidnapping and murdering young gay men and tossing their bodies into his back yard. His background and arrest history apparently were not researched before qualifying him for tax exempt status. Granted, he is a severe exception to the rule but, much needs to be taken into consideration before declaring what is and what is not charity.

  2. Some very interesting questions here. Is there a better set of rules that are harder for those who want to do well, instead of doing good, to circumvent? Probably.

    Here’s another perspective on charity.

    Capitalism is designed to distribute relatively greater wealth to a relatively few of us. Otherwise, its proponents claim, it won’t work. Its the motivation, they say, for taking risks and working hard and being innovative. The downside of it is that it knows no limits. And, wealth is power. So, its extreme is a few who can use their power to get all of the wealth.

    To mitigate this risk there are various schema to counter it with ways to redistribute wealth down. Progressive taxation and philanthropy are among them.

    Countries can impose progressive taxation as a rule. Trickier is how to encourage philanthropy. What do you give wealthy powerful people in return for sharing their good fortune?

    For some the answer is social respect. Celebrity. A way for them to feel better about lives lived taking. Of course taxation that allows them to appear to give more than it actually costs them appeals to their business sense too.

    So capitalism and charity go hand in hand. Each requires the other for the long term. However it’s an uncomfortable alliance. And today’s culture seems to be even more uncomfortable with it. Many wealthy say the poor aren’t poor enough. Many poor say the wealthy are beyond the pale with their ostentatious displays.

    Bill Gates and Warren Buffet and Nick Hanauer are among the wealthy who have stepped up to the plate to elevate extreme wealth to doing extreme good. What a wonderful way to demonstrate the greatness of capitalism.

  3. I can’t remember which super wealthy American made this statement about having wealth; “A bed can only be so comfortable and a steak can only taste so good.” This must have been said by someone who understands sharing their wealth rather than continuing to do nothing but pile up assets – and protect them from taxation in offshore banks. It might have been Warren Buffett, but don’t quote me on that.

  4. Churches being tax exempt if more than enough; what I find worse is tax abatement for big businesses to bring or keep them here. Low and middle income earners are supporting their infrastructure while those who can afford it get tax breaks. How did this begain?

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