DATELINE: March 26, 2008, Chicago
It's truly amazing. Whole Foods once again hit our Jack Siegel up for a charitable contribution at the checkout counter last week. After the last incident, when the checkout clerk roughed up his bananas, Jack was surprised to be asked again. But this time, Jack was ready, interrupting the clerk in midsentence to tell her that she shouldn't bother.
Well, Whole Foods is not the only one that pitches people at the proverbial checkout counter. Anyone who has looked at...
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a state income tax return as of late knows that many state governments also ask for loose change. The Illinois 2006 state income tax returns offers the opportunity to donate a portion of the taxpayer's refund to one of 13 charitable funds—wildlife, child abuse, Alzheimer's, homeless, breast cancer, multiple sclerosis, military family, Lou Gehrig's, veterans' home, diabetes, pet population, energy assistance, and heartsaver AED. We are so thankful to the State of Illinois. With over 850,000 charitable organizations in the United States and the Internet, we simply can't figure out how to give to charity or which one deserves our dollars.
Let's face it. This is more evidence of grandstanding by our politicians. Our tax returns aren't already long or complicated enough? In Illinois we need an extra 13 lines and additional instructions to make the task even more pleasant. Over the years, this list just gets longer and longer. If you are in the Illinois' state legislature, you can't get anything accomplished, as evidenced by the budget stalemate last year that went on for months. So if you can't spend taxpayer money on more programs, you can at least throw the special interests a bone by adding just one more line to the tax return. We can only wonder whether U.S. Senator Menendez's proposed embedded giving legislation applies to the State of Illinois or other states. We suspect not.
Just as we refuse to contribute when asked by Whole Foods, we do the same when asked by the State of Illinois. We go to the grocery store to buy groceries, and we file a tax return to pay our taxes.
This is why we are so pleased to see a New York state assemblywoman who finally is willing to say enough is enough to embedded taxing. According to the Associated Press, Nancy Calhoun has asked her fellow lawmakers to stop adding lines to the State of New York's state income tax return. Lawmaker Fed Up With Tax Donations, Mar. 26, 2008. According to the AP, this practice started in 1972, when Congress permitted taxpayers to contribute $1 to a presidential campaign fund. That certainly has been successful, eliminating the need for candidates to raise funds privately! In 1977, Colorado kicked off embedded taxing at the state level, offering taxpayers the opportunity to contribute a portion of their refunds to a wildlife fund. By 2003, 41 states had joined the program. According to the Federation of Tax Administrators, there are at least 220 of these programs in place, up from 103 in 1989. The State of Virginia lists 25 charities on its return. Currently, the New York Assembly has 11 bills in committees that would add new charities to the list on New York's state income tax return. The New York Senate would add 12. We assume one of these must be to raise funds to treat sex-addicted former governors.
Assemblywoman Calhoun offers evidence that the public is generous, but does suffer from donor fatigue. According to the AP, New York instituted the practice in 1983, when it offered taxpayers the opportunity to make a donation to Return a Gift to Wildlife. Between 1984 and 1987, over 300,000 taxpayers per year donated somewhere between $1.6 million and $1.7 million annually. By 2007, that number had dropped to 37,117 taxpayers, who donated just $475,763. The problem: six more charities had been added to the form, apparently diverting funds away from the wildlife fund. Oregon has seen a similar phenomenon, according to the AP. The number of taxpayers who gave to an AIDS/HIV charity declined by 8,624 from 1992 to 2005. Why? Presumably because taxpayers now had the opportunity to give to 17 other charities.
We write this piece with tongue firmly planted in cheek. However, there is a larger lesson here. As more and more marketers encourage more and more charities to engage in embedded giving, the public is faced with an ever-increasing number of asks. Every one of these campaigns generates some money so each can be rationalized by those doing the asking. But when all this asking is aggregated, it becomes a cacophony. While we don't have empirical evidence, we offer the hypothesis that all this background noise could result in some individuals actually reducing contributions that they would ordinarily make through more traditional channels. In short, is the sector running harder without making any forward process? To the extent substitution is going on, is it desirable? When someone decides to write a check in response to a mailing, they probably make a slightly more informed decision than they do when they are hit up for a few dollars by Whole Foods. In that sense, there is more accountability on the part of the charity when funds are raised through traditional channels.
We applaud Assemblywoman Calhoun. She is a politician who thinks rather than taking the obvious, but often wrong road.
And in a note to our friends in the academic community: The state data offers an opportunity for an interesting study. Do more choices reduce giving because people stop making decisions when confronted with too many? Or, does overall giving increase because people respond to options that target their specific interests? If total giving goes up, does the average gift per category go up? We suspect this data has a lot to reveal in terms of giving decisions. If we inspire you to undertake such a study, we hope you will credit us for the idea.
Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good."
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