According to Congress’s Joint Committee on Taxation, the charitable tax deduction will cost the federal government $230 billion from 2010 to 2014. Some economists believe that charities would lose less than that amount if the exemption were eliminated or modified, since people give for many reasons unrelated to tax incentives. Because of the perceived unfairness and inefficiency of the current system, many analysts, including at the Congressional Budget Office, have begun to look at substantial changes, from establishing floors or ceilings for deductions (sometimes in combination with making incentives available to non-itemizers) all the way up to eliminating the deduction.
4. Nonprofits are not profitable.
In 2010, U.S. charities reported more than $2.7 trillion in assets. Even putting aside the multibillion-dollar endowments of Harvard and Yale universities, many lesser-known charities have substantial war chests. In 2007, Ascension Health, a large Midwest charity hospital chain, reported reserves of $7.4 billion, more than twice the cash on hand at the Walt Disney Co.
Some donors look for small, underfunded charities, thinking their gifts will make a bigger difference. But that is not necessarily an effective strategy. Many of the charities with strong track records in delivering results — organizations such as Youth Villages of Memphis and the Nature Conservancy — are also quite good at building financial reserves. Charities like these identify clear goals and have third parties evaluate their work, practices that are more important than how much they have in the bank.
5. It is easy to find a good charity to support.
In fact, it is enormously difficult. Not only is there considerable confusion among charities — for example, there are more than 60,000 with the word “veteran” in their names — there is little information on groups’ effectiveness. The mutual fund industry employs 159,000 people to help investors make good choices. But there are fewer than 100 people nationwide whose jobs are to help the giving public make wise donations. So what is a conscientious donor to do?
Put in the work. On average, Americans spend more time watching television in one day than they do researching charities in an entire year. Finding good charities takes time. It means using the few organizations, such as GiveWell, that do in-depth studies of charities’ effectiveness. And it means remembering that the best organizations, charitable or otherwise, are built on more than a good story or a charismatic leader.
As Warren Buffett once said: “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.” That’s good advice when trying to make sure donated dollars actually do good.
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