All the talk about US domestic politics and economics at the moment focuses on the federal budget and the possible default that will result if the US debt limit is not raised by 2 August. As our readers are surely aware, Republicans keep floating grand proposals of “Cut, Cap, and Balance“, while Democrats deride the proposals as “Duck, Dodge, and Dismantle” – proving yet again that whatever your politics, you gotta admit the left tends to have a better grasp on how to play with language without breaking it (as, for example, Fox News has done).
What all sides generally agree to is that the tax code has developed a myriad of loopholes that need to be addressed. But what loopholes may be enjoyed by which groups remains a sticking point. Case in point: Senator Charles Grassley of Iowa, senior Republican on the Senate Judiciary Committee, wants to end federal support of charities that have overseas – thus tax-free – holdings and assets. What does he hope to achieve?
Senator Grassley’s website offers the following quote about his efforts to keep a close eye on every dollar the federal government spends – not a bad idea at any time, but one people only notice when we’re told a crisis is imminent:
The country faces a multi-trillion-dollar debt,” Grassley said. “The government has to be more selective than ever about the criteria for the organizations that receive tax dollars through federal grants. If organizations are holding money off-shore to avoid paying taxes, they shouldn’t be getting federal grants. If they accept federal grants, they should have to be transparent about executive compensation and fringe benefits. These are common-sense principles.
The charity that has drawn the most attention to this issue is The Boys and Girls Clubs of America, which readily admits it has overseas holdings precisely because they offer tax breaks that the charity needs. Besides, such holdings are not illegal. That said, BGCA also readily admits that his has had to draw on those overseas funds to a much higher degree than it hitherto has need because of the economic reality we all face:
In 2009, as BGCA engaged in its budgeting process for 2010, the organization budgeted $9 million in drawdown from unrestricted endowments and reserves, to be used during 2010 for the three purposes outlined above. While $9 million significantly exceeds the allowable spend rate, the board approved this exception, given the economic challenges of the times, to provide additional, much-needed support.
The Republican Senator Grassley noted the high compensation offered President Roxanne Spillet of the BGCA, some $900,000 since 2008, as one of the reasons federal support should not be given to such charities, who clearly have plenty of extra cash if they can afford tax-free overseas holdings and such payouts to executives. Moreover, Philanthropy.com, no friend of the Republican agenda, has run stories asking if the loopholes are indeed too large and flexible for all involved.
On the face of it, Senator Grassley’s points seem legitimate. But we would argue that (as is so often the case with such arguments over the last couple of years), the argument suggests universality when it really picks on a specific group that Republican leadership wants to weaken.
For example, Senator Grassley wants to pass his bill as a rider on Vermont’s Democratic Senator Patrick Leahy’s bill to reauthorize his bipartisan “Second Chance Act“, an effort to support rehabilitation of nonviolent criminals and their reintegration into society after they serve their sentences. That Republicans have fought tooth-and-nail to pretend to stop unrelated riders on bills seems to be of little consequence to Republican Senator Grassley, and a bipartisan bill on prisoner reintegration seems a perfect bill to get anything short of forced drowning of kittens through Congress.
Senator Grassley’s efforts to end the loophole seem well intended and would likely draw bipartisan support. Again, from his website:
“While this practice isn’t illegal, it’s a loophole that I saw exploited in the many investigations and hearings I conducted as the chairman and ranking member of the Finance Committee,” Grassley said. “As a senior member of that committee, I’ll continue to work to close that loophole for all charities. For now, it makes sense to question why the federal government should award taxpayer dollars, in the form of grants, to non-profits that are holding millions of dollars in off-shore bank accounts for the purpose of evading the tax code.”
But then, why are we after those $9 million of the GGCA resting in their offshore tax havens? If the desire is to strip the legality of organizations using such havens, why not go after GE’s $14 billion (yes, ‘billion’) in offshore profits that trickle back to US executives and share-holders tax free? Or the $8-10 billion Murdoch’s NewsCorps has sequestered from the IRS? Could such targeted indifference be because of NewsCorps’ generosity to the Republican Party?
If Senators are serious about closing overseas/tax-haven loopholes, more power to them. If Senators want to attack specific organizations doing so (especially those doing some social good in the process), shame on them.
