Private charity can’t replace government social programs

As often happens when the financial demands on government social programs rise, there’s been a lot of talk lately about the need to return to the traditional American system of community and faith-based help for the needy: charity, not government handouts.

One hears this most often from fiscal conservatives such as House Budget Committee Chairman Paul Ryan (R-Wis.), who spoke on the radio not long ago about how suburbanites shouldn’t drive past blighted neighborhoods and say, “I’m paying my taxes, government’s going to fix that.” Instead, he advised, “You need to get involved yourself, whether it’s through a mentor program or some religious charity … to make a difference.”

It’s a common theme. Compared with government relief, private charity is supposed to be more responsive to individual need and less bureaucratic; more of a helping hand and less of an initiative-suppressing “hammock,” the term Ryan uses to deride the effects of government programs.

It’s supposed to be more humane, too. Listen to California’s own Rep. Doug LaMalfa (R-Richvale) telling his colleagues on the House Agriculture Committee that it’s far better to help poor people “through the church ... because it comes from the heart, not from a badge or a mandate.”

Leaving aside that LaMalfa uttered those words after having bellied up to the trough with his farm-owning family for more than $5 million in federal crop subsidies over the years, his conception of the relative ability of church and state to help the poor is an illusion. It’s a common illusion, however — what Mike Konczal, a fellow at the Roosevelt Institute, recently described as “the voluntarism fantasy.”

The idea that community or faith-based charities were more efficient, effective and capable than the government of addressing economic stringency hasn’t been true since the industrial revolution transformed the U.S. from an agrarian to an urban nation.

To suggest that such organizations can effectively supplant government social programs is worse than a mere fantasy — it’s a cynical and dangerous fantasy that serves only as a talking point to cut those programs.

The truth is that private, communal and religious giving simply can’t meet the needs that government programs handle. Let’s examine why.

To begin with, charitable organizations typically fall prey to the same economic pressures as the rest of society. “Giving falls when it’s needed the most,” observes Christopher Wimer, an expert on poverty and the social safety net at Columbia University.

In economic terminology, charitable giving is pro-cyclical, not counter-cyclical, unlike programs such as unemployment insurance and food stamps, which expand to meet rising needs.

The trend from the Great Recession is evident in data from Giving USA, a clearinghouse for information on philanthropy. U.S. philanthropic giving fell from $344.5 billion in 2007 to $293.7 billion in 2009; then rose back to $316.2 billion in 2012 (the figures are adjusted for inflation).

But the total still hasn’t returned to inflation-adjusted levels seen in 2004. Reductions were seen in all categories of donors — corporations, foundations, bequests and individuals — and also fell as percentages of personal income and gross domestic product.

Nor was that a new phenomenon. Part of the mythology of the Great Depression is that charitable giving rose during those hard times, but the truth is exactly the opposite. Overall giving fell by more than a fifth from 1929 through 1933, adjusted for inflation, before starting to recover. Among the wealthy, it fell an inflation-adjusted 70% in 1931-35 — about the magnitude of the stock market drop that had devastated wealth in the capital-owning class.

As the Depression took hold in the 1930s, the cost of caring for the unemployed and elderly quickly wiped out the resources of community and church groups, and then of state relief programs that had stepped in to fill the gap. The federal government responded with a series of relief programs, the most far-reaching of which, of course, was Social Security, which provided for not only old-age pensions but federalized unemployment insurance to relieve the states’ burden.

Another issue is that philanthropic giving is not synonymous — at all — with helping the needy. Quite the contrary.

As charitable giving is structured in the United States today, it too often plays out not as the rich helping out the poor, but as the rich increasing the gap between themselves and the poor.

A 2007 study by Indiana University’s Center on Philanthropy found that only 30% of individual giving in the benchmark year of 2005 was aimed at the needs of the poor — including contributions for basic needs, donations to healthcare institutions, for scholarships and allocations from religious groups. (The study was commissioned by Google.)

The smallest allocation of philanthropic giving to basic needs of the poor was made by the wealthiest donors, those with income of $1 million of more, who directed 3.8% of their giving directly to the poor. For the $100,000-$200,000 income group, that allocation was 12.4%.

“The existing evidence doesn’t support the idea that wealthy donors will step in” to replace government transfer programs, says Rob Reich, an expert in philanthropy at Stanford. As he wrote last year, “Philanthropy appears to be more about the pursuit of one’s own projects, a mechanism for the expression of one’s values or preferences rather than a mechanism for redistribution or relief for the poor.”

The largest single recipient of philanthropy is religion — 32% of the total, according to Giving USA. But only a small portion of that goes to outreach to the needy; more than three-quarters of donations to religious organizations is spent on “congregational operations,” including facilities upkeep, the Indiana University study found.

Certainly one reason that U.S. philanthropy is so unfocused on the needy is that the tax code makes no distinctions about the charitable giving subject to deductions. Contributions to food banks, homeless shelters, opera companies, hospitals and animal rescue missions receive the same income tax subsidy, assuming the recipients meet the rather indulgent legal requirements established by law.

Philanthropy is skewed even more toward the pet projects of the rich by the regressive nature of the charitable tax deduction.

To get any federal deduction at all, one must itemize deductions, which rules out most middle- and working-class taxpayers. The deduction is keyed to the taxpayers’ top tax rate, so that a family earning $450,000 or more gets roughly 40% of its charitable contributions back from the tax man, but a family earning $70,000 gets only 15% back.

One change Reich endorses would award a deduction only for donations exceeding 2% of the donor’s income, which would effectively reduce the value of the deduction for high-income taxpayers.

Where do the wealthy give much of their money? To educational institutions, including those educating their own children.

To give an example highlighted by Reich, the Woodside School Foundation in the heart of Silicon Valley collected more than $11 million in donations from 2007 to 2011, according to its public filings. The money went to a single public school district with a single elementary/middle school serving fewer than 500 children, many of them the offspring of successful tech entrepreneurs and engineers.

A few miles away, in East Palo Alto, the Ravenswood school district raised about one-third as much in the same period, to serve eight schools with 3,500 students, 90% of whom are from low-income families.

To be sure, nothing is wrong with parents donating to their kids’ schools; the issue is whether poorer parents should subsidize through their own taxes the spending of their wealthy neighbors to improve the educational experience for their already privileged children.

It’s worth noting that because of the deductions claimed by wealthy donors, the state of California has less money to spend on K-12 education in general.

What all this shows is that there’s an unspoken subtext when people like Ryan complain, as he did during the 2012 presidential campaign, about “cold social programs from the federal Department of Health and Human Services” built by a government that “took away much of our greatness.”

Ryan is evoking a golden-hued fairy tale of a past that never existed. In the real world today, those “cold social programs” from HHS and other federal agencies keep people fed and housed, and alive, and give their children opportunity.

We all wish they weren’t necessary, but they are; and we wish that the more fortunate and successful members of society would be willing to provide for the needs of the less fortunate and successful instead. But they don’t. Why pretend otherwise?

Michael Hiltzik’s column appears Sundays and Wednesdays. Read his blog, the Economy Hub, at latimes.com/business/hiltzik, reach him at mhiltzik@latimes.com, check out facebook.com/hiltzik and follow @hiltzikm on Twitter.