Monday, March 2, 2009

More Centralization/President Obama to Hit Non-Profits and Universities?

Michael Barone has amplified a recent report in the Wall Street Journal that the Obama Administration will propose additional tax surcharges on society's most productive members, over and above the higher tax rates he proposed during the campaign. To be precise, the new Obama plan would limit deductions for charitable giving and mortgage interest for individuals in the 33, 35 and 39.6 percent tax brackets. Such individuals could only deduct 28 percent of the value of such payments from their tax liability, instead of 33, 35 or 39.6 percent, as the case may be. As Barone notes in a blog post at U.S. News and World Report, the result of this change would be to divert Billions of dollars from the private charitable sector (including Universities and, I might add, hospitals) to the coffers of the National Government. Barone also explains that this change will tend to undermine one of America's great strengths --- a decentralized system of charitable giving and education, with neither government nor private entities dominating the other.

Barone's argument for decentralization reminds me of a famous judicial opinion that justified so-called "Corporate Social Responsibility," A.P. Smith Manufacturing Company vs. Barlow, 90 A.2d 581 (New Jersey 1953). There several shareholders challenged the corporation's gift of $1,500 to Princeton University. The New Jersey Supreme Court rejected the challenge, holding that, absent countervailing language in the corporate charter, a firm's directors were free to make such gifts. The opinion rested in part on testimony by former executives in other firms, including U.S. Steel, to the effect that corportate support for independent centers of learning helped create the conditions necessary for a thriving free society.
"Mr. Irving S. Olds, former Chairman of the Board of US Steel, opined that . . . . 'Capitalism and free enterprise owe their survival in no small degree to the existence of our private, independent universities' and that if American business does not aid in their maintenance it is not 'properly protecting the long-range interest of its stockholders, its employees and its customers.' Similarly, Dr. Harold W. Dodds, President of Princeton University, suggested that if private institutions of higher learning were replaced by governmental institutions our society would be vastly different and private enterprise in other fields would fade out rather promptly. Further on he stated that 'democratic society will not long endure if it does not nourish within itself strong centers of non-governmental fountains of knowledge, opinions of all sorts not governmentally or politically originated. If the time comes when all these centers are absorbed into government, then freedom as we know it, I submit, is at an end.'"
Let's hope that Congress rejects this proposal, and not simply because our most productive citizens already pay enough in taxes !