Alter the Tax Code to Avert Elder-Care Crisis

For all the public debate about the strains that the retirement of the baby-boom generation will place on our Social Security and Medicare systems, surprisingly little debate has occurred about the looming crisis in caring for the elderly. After all, the huge number of baby-boomer retirees will require not only their monthly pension and Social Security checks, but also unprecedented amounts of time-consuming and expensive individual care in their final years.

Providing American families with the help they need to care for the growing number of elderly will be a joint responsibility of the government and private organizations, including charities. If the task falls primarily on the government, however, it will only exacerbate the fiscal burdens and political tensions already caused by our aging society. Fortunately, an alternative exists that is particularly suited to the American milieu.

Throughout our history, we Americans have looked to charities and volunteers to perform many of the tasks that are performed in other societies by a paternalistic government. It may be, then, that American philanthropic institutions like charities, foundations, and churches could once again come to the rescue of the broader society — this time helping to meet the unprecedented need for the provision of quality care for the elderly in the coming century.

To help that occur, however, we must ensure that a sizable portion of charitable giving in the decades ahead be dedicated to caregiving. That could be accomplished by changing our tax code so that donations to nonprofit institutions of a strictly caregiving nature enjoy an even more favorable tax advantage than those of other kinds of nonprofit groups.

Fortunately for our nation as a whole — and potentially for our neediest citizens — we can expect a generational wealth transfer of enormous proportions over the next half-century, a significant share of which will go to charitable causes. John Havens and Paul Schervish, researchers at Boston College, predict a total wealth transfer of between $41-trillion and $136-trillion over the next 55 years. By 2025, it is estimated that charitable giving alone could surpass $1.2-trillion per year, in inflation-adjusted dollars.

To put this figure in context, that is nearly twice as much money as our government currently spends on all domestic discretionary programs.

As that example suggests, philanthropic largess could go a very long way toward alleviating the coming crisis of elder care as well as many other social problems — provided that this level of giving does materialize, and that a significant portion is directed toward helping the neediest and oldest Americans.

Unfortunately, the nonprofit world as it exists in the United States today is not well positioned to play a greater role in relieving the burden of care for the elderly that would otherwise fall on the government. First, relatively few of today’s growing number of nonprofit and community organizations are of a strictly caregiving nature. Second, there has been a significant social stratification in the realm of community organizations.

With the possible exception of certain religious denominations, most branches of civil society that are thriving today are of an elite nature. Elite-oriented charitable organizations, such as the opera, private universities, and environmental groups, tend to be doing quite well. But many of the groups and constituencies most in need — particularly the young, the old, and the inner-city poor — are not receiving the caregiving resources they deserve.

One obvious way to redress this situation is to redirect some of the philanthropic resources on which our communal institutions depend.

Currently, about 43 percent of philanthropic contributions flow to religious institutions, 14 percent to educational institutions (mostly higher education), 9 percent to health, 9 percent to human services, 6 percent to arts and culture, and 3 percent to environmental causes.

Clearly, the majority of philanthropic dollars does not go into direct services for the neediest Americans. How could a larger share of philanthropic dollars be redirected toward relieving the strain on families in the area of caregiving without undermining the philanthropic impulse or freedom of choice of individual donors?

The United States now recognizes two broad types of nonprofit institutions: those that focus on lobbying and those that are primarily charitable in nature. Contributions to the former are not tax deductible, while contributions to the latter are. We propose expanding this system by distinguishing between two types of tax-exempt organizations: the minority (like the Salvation Army or a church soup kitchen), which are entirely dedicated to providing direct care to the neediest, and the majority (like most religious institutions, universities, membership organizations, or the opera), which do serve the public interest but not as directly.

We believe that the strictly caregiving organizations should receive even more favorable tax treatment, to reflect their greater importance to the well-being of our society as a whole. Accordingly, we propose that donations to this new type of caregiving organization be rewarded through tax deductions worth 150 percent of the value of the contribution (as opposed to the current rate of 100 percent for all other charities).

Naturally, new regulations would need to be enacted to ensure that charities benefiting from this special deduction were devoted solely to caregiving for the neediest populations, and to prevent both donors and nonprofit organizations from gaming the system.

Such a policy, if it proved effective, could become one of the most innovative and important means of addressing the crises of care for the elderly that we will face in the coming decades, while at the same time helping the chronically poor of all ages, many of whom are at risk of being left behind in the new economy.

Providing a higher tax deduction for donations to strictly caregiving charities — whether religious or secular — would mean that the government would subsidize these to a higher degree. In this sense, our proposal would accomplish some of the goals that President Bush embraces through his charitable-choice and faith-based initiatives. Our approach, however, would avoid the biggest problem plaguing Mr. Bush’s proposals: having the government pick winners and losers in the nonprofit world. Under our plan, all such decisions would be made by individuals, through their own contributions.

Given the amounts of philanthropic giving expected in coming years, the results could be dramatic. Not only would many Americans choose to connect their own philanthropic and economic interests with those of the neediest citizens, but this new wave of financial support could inspire a whole new array of caregiving organizations.

In fact, many of today’s religious and secular nonprofit organizations would probably create caregiving offshoots of their own to take advantage of the preferential tax treatment, while allocating more of their resources to alleviating human suffering of multiple types.

Ideally, a new spirit of entrepreneurship, volunteerism, and innovation would emerge among nonprofit groups. And that might help turn what is now shaping up to be a vicious generational divide into a virtuous intergenerational collaboration.

Ted Halstead is founder and president of the New America Foundation, in Washington, where Michael Lind is a senior fellow. This article is adapted from their book, The Radical Center: The Future of American Politics (Doubleday) © 2001.