Consider the New York Stock Exchange, which until recently was a nonprofit enjoying a tax exemption and which in 2003 awarded its chief executive, Richard Grasso, a pay package of $140 million. Three years later, bugged to distraction by the attentions of charities regulators, the Big Board reorganized itself as a profit-making corporation. As Stern observes, the Grasso affair “stands for the proposition that some organizations have no business being nonprofits in the first place.”
Unfortunately, there’s no discussion in “With Charity for All” of the latest outrage in this category, the tax-exempt “social welfare” organizations that funneled millions of dollars in donations into electoral campaigns last year. American Crossroads, founded by GOP operative Karl Rove, was the most prominent such outfit, but there were similar groups across the political spectrum. Their designation as “social welfare” organizations under section 501©4 of the tax code allowed them to keep their donor lists confidential, but in return for offering anonymity to well-heeled contributors they weren’t supposed to engage in electoral politics. It wasn’t until June last year that federal and state regulators began taking a look at the C4’s, and obviously the probes didn’t yield results before the election. They still haven’t.
“With Charity for All” also falters in its most important role: proposing remedies. The answer to underperforming nonprofits is to remake the tax law and empower aggressive regulators to distinguish functional charities from those that are exploiting the exemption for a free ride. Withdrawing the tax break and tossing the creators of bogus “social welfare” groups in jail might do wonders to clean up U.S. politics. Requiring water charities to meet minimum sustainability standards for their projects might cut back their drill-‘em-and-forget-‘em habits.
But these are minor flaws in a book that marks an important advance in educating the donor public. Whether they’re writing occasional checks for 50 bucks or making multimillion-dollar bequests, donors too often give to the wrong organizations and for the wrong reasons. “With Charity for All” is a good guide to what makes an effective charity, and how to figure out that the one getting your money meets that standard.
Michael Hiltzik, a Los Angeles Times business columnist, is the author of “The New Deal: A Modern History” and “Colossus: The Turbulent, Thrilling Saga of the Building of Hoover Dam.”
©2013 Los Angeles Times
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