The Paradox of Corporate Giving: Tax Expenditures, the Nature of the Corporation, and the Social Construction of Charity

Corporate charitable giving is big business. Fundraisers estimate that in 1992, U.S. corporations contributed $6 billion to qualified charitable organizations. Hard-pressed for funds, qualified charities actively seek and compete for corporate contributions. Fundraising literature identifies corporate giving as the last great frontier of philanthropy. Marketing literature touts corporate giving as the latest advertising and public relations technique. Both camps proclaim that corporate giving is good for business and extol the business advantages which flow from transfers to charity. In short, corporate giving means doing best by doing good. Legal scholarship ignores the way corporate giving is described, justified, and expressed by those making the transfers (corporate managers) and those receiving the transfers (fundraisers). Instead, it presents the widespread practice of corporate giving as an apparent paradox: why would corporations give away $6 billion in assets each year? It then analyzes this practice in terms of the theory of corporate purpose and federal tax policy. Both approaches fail because they misapprehend the behavior they purport to explain. Both assume that the distinguishing feature of corporate giving is the absence of a quid pro quo; the absence of an expected commensurate benefit. Yet, this assumption is at odds with the contemporary understanding of corporate giving. Marketing and fundraising literature describes corporate giving in terms of enlightened self-interest, making it clear that a corporate transfer to charity is not altruistic; it is intensely self-interested. Such transfers are made with the expectation of receiving a commensurate benefit in return, ranging from immediate advertising and marketing services to long-term public relations and goodwill advantages. Only corporate transfers to qualified charitable organizations made without the expectation of receiving a commensurate benefit qualify as a deductible contribution or gift under section 170. Other transfers to charity may be deductible as ordinary and necessary business expenses under section 162. Thus, federal tax policy assumes that there are two distinct types of corporate transfers to charity: one advances the corporate goal of social responsibility (section 170 contribution or gift), and the other furthers the goal of profit maximization (section 162 ordinary and necessary business expenses). The proponents of corporate giving explain corporate giving in terms of the two classic expressions of corporate purpose: profit maximization and social responsibility. When a corporation makes a transfer to charity it advocates a model of corporate social responsibility, but it articulates the goal of profit maximization. Corporate giving consciously tries to capitalize on the goodwill associated with social responsibility and to use such charitable goodwill for corporate advantage. This commodification of charitable goodwill is known in the advertising and marketing industry as the halo effect. This article examines and documents why corporations make transfers to charity. Part I provides a historical background of corporate giving. Part II reviews the various explanations for corporate giving, including the current understanding of corporate giving as expressed in marketing and fundraising literature. Part III discusses the tax expenditure theory of deductions and recasts the analysis of the corporate charitable contribution deduction as an indirect federal subsidy for the corporate purchase of advertising or public relations services.