Magazine article First Things; A Monthly Journal of Religion and Public Life

Spending the Future

Magazine article First Things; A Monthly Journal of Religion and Public Life

Spending the Future

Article excerpt

Spending the Future THE LEGITIMACY OF PHILANTHROPIC FOUNDATIONS: UNITED STATES AND EUROPEAN PERSPECTIVES Edited by KENNETH PREWTTT ET AL. Russell Sage Foundation, 294 pages, $45

THE FOUNDATION: A GREAT AMERICAN SECRET by JOEL L. FLEISHMAN PubluAffairs, 341 pages, $27.95

Reviewed by Peter Thiel

"WHEN YOU GIVE ALMS," Jesus says in the Sermon on the Mount, "sound no trumpet before you." Good advice, but, one must note, it is also forbidden by law in the United States-at least, for those who give alms through foundations. Beginning with the first rules in the 1913 tax code (and growing enormously since the Tax Reform Act of 1969), American regulations require foundations to make their finances public knowledge through disclosure on their tax forms.

In return for this invasion of privacy, foundations receive a benefit of high value: They are almost entirely tax exempt, both in the donations they receive and the income they receive from the growth of their endowments. In fact, tax exemptions made possible the flowering of foundations in the twentieth century. With their sometimes staggering endowments untouched by the IRS, America's sixty-eight thousand foundations-especially the largest: the two hundred foundations that give more than $12 million per year-constitute a major independent power center in American life.

The tax code leaves unanswered, of course, the question of why we allow foundations this privilege and this power. In The Legitimacy ofPbuanthropic Foundations, a recent collection of essays on the topic, the lead editor Kenneth Prewitt argues that private grantmaking foundations carry out a function no other institutions can perform. That uniqueness, however, is not immediately evident. After all, foundations redistribute wealth, support scientific and artistic endeavors, and seek to improve social conditions-all of which the government does as well. It is not, concludes Prewitt, what foundations do that makes them unique but what they represent: a Jeffersonian ideal, an American picture of individual freedom in service to moral ends.

This seems to mean that foundations should not be valued for what they are but for what they are not-the state. The state's benefits to society, Prewitt suggests, are inseparable from coercive means used to achieve them: taxation, market regulation, and eminent domain. "The foundation," he writes, "is the preeminent exemplar of the noncoercive, nonextractive funder of public goods. The foundation need not do its job well.... Legitimacy is unproblematic because foundations emblemize a central quest of the liberal society-a way to attach private wealth to public goods without encroaching on political and economic freedoms."

Well, perhaps. Certainly Prewitt is correct that these sorts of ideas are why the "core legitimacy" of non-profit foundations is rarely challenged. What are challenged, particularly by the other contributors to The Legitimacy of Philanthropic Foundations, are the specific procedures under which foundations operate. Under current laws, grantmaking foundations are required to pay out 5 percent of their asset value each year. Critics of foundations-including liberals who see foundations as too conservative, and conservatives who see foundations as too liberal-want that percentage increased, and there were attempts to increase it in Congress in 2003 and 2004.

This would doom foundations to short lives through ever-shrinking endowments, unless their holdings consistently increased by more than their payout each year. The more leftist among the writers in The Legitimacy of Philanthropic Foundations look suspiciously at foundations' enormous tax-free wealth and want to make foundations even more redistributive and devoted to leftist causes than they already are. They criticize the tax deduction for donations as a "tax subsidy," a payoff to the wealthy. Nowhere in Prewitt's collection of essays is it suggested that the tax rewards for charitable donations might not be large enough. …

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