JAMES FREEMAN: Harry Reid’s Reagan Revisionism

February 12th, 2011 MacAoidh

JAMES FREEMAN: Harry Reid’s Reagan Revisionism – Wall Street Journal

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Louisiana families have always stepped up when neighbors need help. Whether it's pulling together after a hurricane, supporting local schools, or helping veterans get back on their feet, our communities thrive because Louisianans – and Americans everywhere – believe in taking care of each other, not waiting for Baton Rouge or Washington to solve every problem. That's why a troubling provision buried deep in the "One Big Beautiful Bill" should concern everyone who believes in civil society and especially those who value limited government. Hidden among otherwise a variety of sensible tax reforms is a dramatic increase in federal excise taxes on private charitable foundations – a move that could devastate the very organizations that make our communities stronger. Under current law, private foundations pay a modest 1.39% excise tax on their investment income. The proposed legislation would replace this with a tiered system that could tax large foundations at rates up to 10% – a nearly 600% increase. For foundations with assets between $50 million and $250 million, the rate jumps to 2.78%. Those with assets between $250 million and $5 billion would face a 5% rate, while the largest foundations – those with $5 billion or more in assets – would be hit with the full 10% rate. The numbers are staggering. The Joint Committee on Taxation estimates this provision alone would cost those taxpayers $15.9 billion over ten years, but independent analysis suggests the real impact could be much higher. Free-market principles have always recognized that civil society, not government bureaucracy, provides the most effective and responsive solutions to human need. What lawmakers seem to be missing is when you tax charity, you're taking money directly away from civil society organizations and the people they serve. This should alarm anyone who believes in limited government and personal responsibility. The timing couldn't be worse. As the Trump administration rightly looks to reduce the size and scope of federal bureaucracy, nonprofits are uniquely positioned to fill those gaps and respond to community needs. Federal government cannot, and should not, be relied on to meet all the needs of communities across our country. Yet this tax increase does exactly the opposite – it weakens the private sector's ability to solve problems and forces more Americans to depend on government programs. Think about what this means for places like Louisiana. We know well the role nongovernmental organizations play in hurricane relief, poverty alleviation, health care, and other challenges we face. Further, organizations like the Pelican Institute depend in part on foundation support (along with gifts from private individuals and businesses – we accept no government funding) to conduct the research and advocacy that drives better policy outcomes. If foundation resources are drained by punitive taxes, policy organizations across the country will have fewer resources to champion free-market solutions, promote government accountability, and educate citizens about the benefits of limited government. That's not just bad for think tanks – it's bad for democracy itself. The real-world impact extends far beyond policy organizations. As Jim Nicholson, former U.S. Secretary of Veterans Affairs, noted in The Wall Street Journal, "Money taxed from foundations is money not spent on scholarships for low-income students, grants to faith-based charities, support for veterans' programs or relief in times of crisis." When disasters strike Louisiana – and they will – we need robust private charitable networks ready to respond quickly and effectively. Conservatives should be especially troubled by this approach. As the Philanthropy Roundtable noted, "Conservatives have long believed that dollars are better left in the private sector than in the hands of Washington bureaucrats. Instead of restricting the engines of generosity, Congress should be celebrating and strengthening their ability to transform lives." The irony is palpable. At the same time Republicans are working to extend tax cuts for individuals and businesses – recognizing that private actors spend money more effectively than government – they're proposing to drain resources from charitable organizations that solve problems without adding to government payrolls or creating new bureaucracies. Civil society is the foundation of a free society. Congress should strengthen it, not tax it to death. Daniel Erspamer is the chief executive officer for the Pelican Institute for Public Policy, which advocates for free market principles.

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