Zerbe is most famous for his years as a top staffer of Sen. Charles Grassley (R-Iowa) at the Senate Finance Committee, when he was feared by charities and foundations for threatened “reforms” of the tax-exempt sector. Sometimes he was in the right, as when he waded into the issue of cars donated to charities. Taxpayers were claiming excessive tax deductions, and middlemen were ripping off charities by not paying reasonable sums for the cars.
At other times Zerbe was your typical Hill staffer, running roughshod over the admittedly imperfect sorts who live outside the Beltway. It’s always easy for pols to find someone doing wrong, and then concoct a vast, one-size-fits-all “reform” that will harm countless innocent citizens but allow pols to preen about how they’ve punished the bad guys. And if things end up even worse, well, that just means Washington must save us once again.
Zerbe left for the private sector awhile back, and his patron Grassley is about to step down from the Ranking Member role at the Finance Committee. But that doesn’t mean Zerbe isn’t whispering in important ears, and he’s still full of interesting and sometimes dangerous ideas from his perch as national managing director of the alliantgroup.
You can catch his latest performance at this week’s panel before the Bradley Center for Philanthropy and Civic Renewal, where he was joined by other thoughtful D.C. observers, including Sandra Swirski of the Alliance for Charitable Reform.
Zerbe spoke at breakneck speed and covered lots of territory, then raced out before any panelist or audience member could engage him. (Did he have visions of last summer’s health care town hall meetings?) Highlights of his talk included predictions of policy changes that won’t happen -- including changes in the foundation excise tax, federal requirements dictating the composition of charity or foundation boards, and 501(c)(4) reform -- as well as predictions of policy changes that may happen, such as special rules for 501(q) credit counseling organizations and changes in charitable rules for nonprofit hospitals and universities.
Nonprofit hospitals have long been one of Zerbe’s bêtes noires. He admitted that some nonprofit hospitals, especially inner-city Catholic ones, are exemplars of charity, but he complained that the rest of them aren’t distinguishable from for-profit hospitals. Of course, in his best Capitol Hill fashion he didn’t bother to point out that all hospitals are being charitable to a lot of their patients, because Congress already forces hospitals to care for government-funded patients at below-cost rates. That doesn’t mean nonprofit hospitals are beyond criticism, but as usual government is deeply mixed up in the problems it then self-righteously criticizes.
Zerbe was at his most entertaining when he bashed colleges and rattled off numerous embarrassing data points and quotations about those cozy enclaves of privilege. My favorite was the little-known fact that a college employee who receives free tuition for his children is not taxed on that generous benefit, whereas all mere mortals who receive tuition assistance are taxed on it. One more government-created incentive to keep tuition skyrocketing. The rest of Zerbe’s rant against spendthrift colleges deserves its own blog post.
His final gripe involved the unrelated business income tax (UBIT). He worries that charities operating business ventures can harm the tax base and unfairly compete against regular businesses.
Zerbe’s most annoying tic, congenital to those who have had their fingers on the federal purse strings, is to refer to any money they let you keep as a “tax expenditure.” When Uncle Sam deigns not to take what is presumably his by right, you must grovel in gratitude and prove that you’re worthy of such generosity. That’s a very wrongheaded way to think about money, but this philosophical error connects to a much more reasonable philosophical point Zerbe also makes: Charities should be charitable. That is, a charity should resemble a local Boys and Girls Club, providing help to those who need it, and not, say, the Department of Health and Human Services or General Motors.
Some in the tax-exempt sector squirm at this view, preferring large organizations that seek the “root causes” of various social ills and pride themselves on their professional expertise, as the Bradley Center’s William Schambra regularly warns us.
Whatever you think of this proposition philosophically, Sandra Swirski’s helpful presentation on what to expect from the new Congress stressed the fact that dozens of new lawmakers headed to Washington share the same general view of tax-exempt institutions. These lawmakers may be a lot less likely to call a tax break a “tax expenditure,” but they don’t necessarily cotton to large and lavish organizations that don’t seem to serve the public humbly.
Like it or not, a populist electorate sent a tidal wave across America, and populists generally don’t trust large, prestigious institutions of any sort. Moreover, big-government liberal Democrats weren’t the only ones who drowned in that wave. Swirski noted that Grassley’s replacement on Senate Finance will likely be Sen. Orrin Hatch, who just watched his fellow Utah Republican Bob Bennett go under in the primary season. Hatch, Swirski observed, is up for re-election in 2012 and will not be the only Republican looking in the rear-view mirror nervously, wondering how to please an irate populist electorate. (Watch the video for the rest of Swirski’s predictions or read a summary here.)
Gary Bass, head of OMB Watch, gave a more standard-issue presentation from the center-left nonprofit perspective. “Welcome to the nightmare,” he began, meaning that nonprofits reliant on government funds could be in for a rough two years. He complained that social service charities face “so much uncertainty, you can’t plan.” One sympathizes with that, but I wish the average nonprofit “advocate” would recall that the President and Congress they happily elected last time have brought no little uncertainty to business owners’ plans – and no little unemployment thanks to that uncertainty.
Bass also complained that out-of-control government spending on entitlements is “driving the bus” of our out-of-control federal budget, and yet it’s the budget’s relatively puny discretionary spending side, where nonprofits feed, that is most in danger of cuts. True indeed. That’s why the generic support for bigger government from most persons in the nonprofit sector is so frustrating. Government is obese, thanks to a lack of proper restraint in numerous areas, and if charities that receive government grants want to see that cash continue, they better start being much more hard-headed about the trade-offs of expanding all government tentacles.
Bass was kind enough to note that the tax-exempt sector hates regulations on itself but often loves to see regs expand in areas like climate control and consumer protection – another case where more hard-headed thought about trade-offs would be nice.
But the best bit about our government’s elephantiasis comes from a story Bass told of a senator headed for a floor vote on tax-exempt issues. The lawmaker asked Bass to remind him what the difference is between a 501(c)(3) and a 501(c)(4). I saw the same kind of jaw-dropping ignorance among legislators and their staff during my brief sojourn on the government payroll. It’s easy to understand: they’re expected to keep track of everything the federal behemoth does, which is impossible because it does so much. So pity them for having overwhelming responsibility – and pity the rest of us for being governed by people who are clueless about the laws they make and unmake. But don’t pity the folks pleading for ever larger government, who refuse to see how laughably incompetent that oversized government already is.
All in all, Hudson has produced another excellent -- and truly diverse -- discussion of the charitable sector’s most important issues. Let’s see where things stand two Novembers hence.
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