Dollars for dogs – harmful indulgence or expression of property rights?

Dog Eat Your Taxes?
Op-Ed Contributor
Ray D. Madoff
July 9, 2008
The New York Times

Newton, Mass.
THE latest news from the Palace, that Leona Helmsley left instructions that her charitable bequest of as much as $8 billion be used for the care and welfare of dogs, rubs our noses in the tax deduction for charitable gifts and its common vehicle, the perpetual private foundation. Together these provide a mechanism by which American taxpayers subsidize the whims of the rich and fulfill their fantasies of immortality.

The charitable deduction enables people to donate as much of their assets as they like for charitable purposes without paying a tax. While some choose to contribute to broad public goals, the law does not require it. In recent years, charitable status has been recognized for organizations with purposes as idiosyncratic as promoting excellence in quilting and educating the public about Huey military aircraft. Indeed, Mrs. Helmsley might have limited her beneficence to the Maltese breed of dogs she favored, and that, too, would have been allowed as a “charitable” purpose.

If this were only a matter of Leona Helmsley wasting her own money, no one would need to care.  But she is wasting ours too.

The charitable deduction constitutes a subsidy from the federal government. The government, in effect, makes itself a partner in every charitable bequest. In Mrs. Helmsley’s case, given that her fortune warranted an estate tax rate of 45 percent, her $8 billion donation for dogs is really a gift of $4.4 billion from her and $3.6 billion from you and me.

To put it in perspective, our contribution to Mrs. Helmsley’s cause equals approximately half of what we spend on Head Start, a program that benefits 900,000 children.

What will we get for our $3.6 billion? An eternal monument to Leona Helmsley’s generosity toward dogs. Even the dogs will not benefit as much as one might think, because Mrs. Helmsley elected to disburse her bequests through the Leona M. and Harry B. Helmsley Charitable Trust.

Most such foundations perform no charitable work but only give money to organizations that do.  The law requires foundations to spend a minimum of just 5 percent of their assets a year, thus helping ensure their perpetual existence, and their donors’ immortality. In meeting this requirement, foundations are allowed to count fees paid to their trustees and other administrative expenses.

In 2003, legislation was introduced in Congress that would have required private foundations to devote the full 5 percent to charitable expenditures. But the foundations complained that this would threaten their perpetual existence, and the bill did not pass.

Some people who establish perpetual charitable trusts may assume that their philanthropic dollars will go further if the trust distributes only its investment income and preserves its principal. Anyone familiar with the story of the goose that laid the golden eggs knows the importance of not spending principal. However, because a dollar spent today is worth more than a dollar spent several years from now, in many cases, the sum of payments made over time — even in perpetuity — never equals the value of the original principal. The true beneficiaries of perpetuity are the banks and trust companies that receive annual fees for managing foundations’ assets.

There are other reasons the law should not encourage people to tie up their resources — and ours — for all time. The perpetual foundation is based on the assumption that people can make intelligent decisions about the use of resources far into the future. But a look back shows how flawed this thinking is. Would it really make sense for current policy to be dictated by the vision of someone living in 1930? 1630? 1230?

By setting aside assets for the uncertain needs of the future, we deprive ourselves of resources for addressing the obvious and compelling needs of today.

We should not give a blank check to support the whims of the wealthy. There should be a limit — a dollar amount or a percentage of the estate — on the estate tax charitable deduction. People could still give to charity as they like, but after a point they would be giving after-tax dollars. The deduction should be lower for bequests to private foundations than for money given directly to good causes.

We should also stop subsidizing immortality. Private foundations should be required to spend more of their assets on charitable work, even if it threatens their perpetual existence.

Until Congress makes these changes to the tax code, it is not just Leona Helmsley’s fortune that is going to the dogs; it is our tax dollars as well.

Ray D. Madoff, a professor at Boston College Law School, is writing a book on immortality and the law.

Should a Big Bequest Go to the Dogs?
Leslie Lenkowsky
August 21, 2008
The Chronicle of Philanthropy

Leona M. Helmsley’s decision to leave most of her fortune — worth at least $4-billion — to a foundation to care for dogs sets a new record for aid to animals. It dwarfs the previous biggest donation to help animals, a 1998 donation of $200-million in stock by David Duffield, the founder of PeopleSoft, to create Maddie’s Fund, which promotes a “no kill” approach to dealing with unwanted pets.

The result of such generosity has been an extensive debate about so much money literally being allowed to go to the dogs. And the debate concerns not just the wisdom of the bequest from Ms. Helmsley, the controversial hotel mogul, but the rationale for charitable giving more broadly.

One prominent critic of Mrs. Helmsley’s actions has been Ray D. Madoff, a law professor at Boston College. Ms. Madoff argued in a New York Times column that public policy was at fault for giving people such as Mrs. Helmsley a substantial tax deduction for their donations to charity and, especially, to create private foundations that can last forever.

The tax code, she wrote, makes “American taxpayers subsidize the whims of the rich and fulfill their fantasies of immortality.” According to Ms. Madoff, Mrs. Helmsley’s bequest shows the need to limit the deductibility of such gifts and raise spending requirements for foundations.

Others have taken a more supportive view of Mrs. Helmsley’s philanthropy.

Whatever one might think of her judgment in leaving the bulk of her estate to care for dogs, it was her money, and as the Nobel Prize-winning economist Gary Becker wrote in his blog, “Respecting individual preferences, no matter how idiosyncratic, is one important measure of a free society, even when those tastes relate to bequests and inheritances.”

Although Mr. Becker, a University of Chicago professor, favors restricting how long foundations should exist, he defends deductions for bequests and other gifts on the grounds that they support services that are not financially sustaining and prevent government from being the sole provider of them.

However, limits on donations have existed for many years. For example, foundations cannot provide support for most political activities, and gifts to organizations that primarily help their members, like fraternal orders or unions, are not deductible (even if they might also provide public services). So respect for a donor’s preferences is not enough to justify Mrs. Helmsley’s bequest as a legitimately charitable one.

But nor is it correct, as Professor Madoff suggests, to regard it as merely the expression of a wealthy person’s whim. To the contrary, helping animals has long been accepted as a charitable purpose, though that was not always the case.

Indeed, the word “philanthropy” itself means “love of mankind,” not of dogs, cats, and other animals. Moreover, the Statute of Charitable Uses, enacted in Elizabethan England in 1601 and the precedent for modern tax policy on charities, does not include animal welfare in the lengthy list of purposes for which exemptions could be granted.

Neither did the law passed in 1913 to authorize the income-tax system. It excluded associations “organized and conducted solely for charitable, religious, or educational purposes” from paying the corporate portion of the tax.

But five years later, it became clear that Congress realized it did not include animal-welfare groups originally, because it voted to extend the tax exemption to include charities whose purpose was the “prevention of cruelty to children and animals.”

The reason for this change has generally been forgotten, but it apparently had more to do with the two-legged than four-legged creatures.

In 1909, the first White House conference on children was held, followed three years later by the advertisement creation of the Federal Children’s Bureau, whose leadership came from settlement houses and other charities. Its goal was to improve conditions for young people from disadvantaged families, which meant not just overhauling labor laws and the juvenile-court system, but also putting more of them under the care of child-welfare organizations, rather than being left to public institutions (or to fend for themselves).

Although hard evidence is scarce, the expansion of the criteria for tax exemption in 1918 was probably an outgrowth of this “child saver” movement.

Animal welfare was also included because many of the groups working with children began as — and still were — animal-protection societies.

Indeed, Henry Bergh, founder of the American Society for the Prevention of Cruelty to Animals, figured prominently in a late-19th-century incident that helped start the “child saver” movement.  A few years afterward, the American Humane Association was formed, which continues to include preventing harm to both children and animals in its mission.

Because of this history, in 1918, exempting child-welfare groups, but not animal-welfare ones, would undoubtedly have seemed incongruous to Federal Children’s Bureau officials and members of Congress.

But little could they have imagined that in making prevention of cruelty to animals a legitimate charitable purpose, they were also laying the groundwork for Mrs. Helmsley’s multibillion-dollar bequest 90 years later.

To be sure, much has changed in that time, not least of all the distance between organizations concerned about children and those whose focus is on animals. Instead of springing from the same humanitarian roots, their efforts now seem to stem from very different ones and, at times, even to be in competition.

To today’s “child savers,” Mrs. Helmsley’s money could have been better spent caring for young people, not dogs. But perhaps to Mrs. Helmsley, her billions do not come close to offsetting the much greater sums spent by foundations and government on child welfare.

In a society that values individual rights, philanthropy gives those with such differing views opportunities to act on them constructively, regardless of what others may think. That is why public policy in the United States, if not always elsewhere, encourages it and gives it broad, but not unlimited, scope.

If it were really unhappy about Mrs. Helmsley’s big gift, Congress could redefine what it considers charitable. But where dogs are concerned, don’t count on it.

Leslie Lenkowsky is professor of public affairs and philanthropic studies at the Center on Philanthropy at Indiana University and a regular contributor to these pages. His e-mail address is