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CHARITIES ON THE FRONTLINE:

HOW THE NONPROFIT SECTOR MEETS

THE NEEDS OF AMERICA’S COMMUNITIES

HEARING

BEFORE THE

SUBCOMMITTEE ON SOCIAL SECURITY

AND FAMILY POLICY

OF THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

SEPTEMBER 13, 2005

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

CHARLES E. GRASSLEY, Iowa, Chairman

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

RICK SANTORUM, Pennsylvania

BILL FRIST, Tennessee

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

MAX BAUCUS, Montana

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

KOLAN DAVIS, Staff Director and Chief Counsel

RUSSELL SULLIVAN, Democratic Staff Director

SUBCOMMITTEE ON SOCIAL SECURITY AND FAMILY POLICY

RICK SANTORUM, Pennsylvania, Chairman

CHARLES E. GRASSLEY, Iowa

JIM BUNNING, Kentucky

BILL FRIST, Tennessee

TRENT LOTT, Mississippi

JON KYL, Arizona

GORDON SMITH, Oregon

MIKE CRAPO, Idaho

KENT CONRAD, North Dakota

JOHN D. ROCKEFELLER IV, West Virginia

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

(II)

(III)

C O N T E N T S

OPENING STATEMENTS

Page

Santorum, Hon. Rick, a U.S. Senator from Pennsylvania, chairman, Subcommittee on Social Security and Family Policy ............................................... 1

Conrad, Hon. Kent, a U.S. Senator from North Dakota ...................................... 3

WITNESSES

Hingson, Luke, president, Brother’s Brother Foundation, Pittsburgh, PA ......... 4

Hood, Major George, director of National Community Relations and Development, The Salvation Army, Alexandria, VA ...................................................... 6

Reccord, Dr. Bob, president and CEO, North American Mission Board, Southern Baptist Convention, Alpharetta, GA ............................................................ 9

Gale, Dr. William G., senior fellow, The Brookings Institution, Washington,

DC .......................................................................................................................... 11

Steuerle, Dr. C. Eugene, senior fellow, Urban Institute, Washington, DC ........ 13

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Bunning, Hon. Jim:

Prepared statement .......................................................................................... 27

Conrad, Hon. Kent:

Opening statement ........................................................................................... 3

Gale, Dr. William G.:

Testimony .......................................................................................................... 11

Prepared statement with attachments ........................................................... 28

Hingson, Luke:

Testimony .......................................................................................................... 4

Prepared statement .......................................................................................... 48

Responses to questions from subcommittee members ................................... 51

Hood, Major George:

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 55

Responses to questions from subcommittee members ................................... 62

Reccord, Dr. Bob:

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 66

Responses to questions from subcommittee members ................................... 70

Santorum, Hon. Rick:

Opening statement ........................................................................................... 1

Prepared statement .......................................................................................... 74

Steuerle, Dr. C. Eugene:

Testimony .......................................................................................................... 13

Prepared statement .......................................................................................... 78

COMMUNICATIONS

Association of Fundraising Professionals (AFP) ................................................... 87

The Bruderhof Foundation, Incorporated .............................................................. 96

March of Dimes ........................................................................................................ 98

Modular Building Institute ..................................................................................... 101

National Kidney Foundation .................................................................................. 105

(1)

CHARITIES ON THE FRONTLINE:

HOW THE NONPROFIT SECTOR MEETS

THE NEEDS OF AMERICA’S COMMUNITIES

TUESDAY, SEPTEMBER 13, 2005

U.S. SENATE,

SUBCOMMITTEE ON SOCIAL SECURITY & FAMILY POLICY,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10 a.m., in

room SD–106, Dirksen Senate Office Building, Hon. Rick Santorum

(chairman of the subcommittee) presiding.

Also present: Senator Conrad.

OPENING STATEMENT OF HON. RICK SANTORUM, A U.S. SENATOR FROM PENNSYLVANIA, CHAIRMAN, SUBCOMMITTEE

ON SOCIAL SECURITY AND FAMILY POLICY

Senator SANTORUM. Good morning. Thank you for being here. I

want to thank Senator Conrad for joining me here this morning for

a hearing on charities on the frontline.

Obviously, we had planned this hearing weeks ago, not aware

that we would be in the midst of a recovery and rebuilding effort

in the Gulf as a result of Hurricane Katrina. But it is obvious for

anyone who has followed the events of the last couple of weeks, the

role of charities in the recovery effort has been absolutely extraordinary.

It has been stunning to see the acts of kindness and heroism on

the part of the average American citizen, many of them motivated

by their charitable commitments, whether it is through church and

religious organizations, civic organizations, or other types of nonprofits that care and nurture those in trouble in our society, from

the Red Cross, to the Southern Baptist Church. We have seen a

tremendous outpouring of the American spirit through out charitable organizations.

It was very heartening to me to see America’s good side amidst

what was obviously not the greatest aspect of American society, in

our governmental response and some of the activities that were occurring during the days immediately after the flooding in New Orleans, in particular.

We are seeing, again, these charitable organizations, such as the

Baton Rouge Area Foundation partnering with LSU, to open field

hospitals with a thousand people in an old K-Mart. We saw America’s Second Harvest and the Florida Boulevard Baptist Church

feed the hungry.

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We have seen fraternal societies who are feeding and housing,

providing supplies, clothes, toiletries, cash, and beds to those in

need of shelters, both in Houston and New Orleans. I think we can

all say the list goes on and on and on.

For years I have been working with Senator Joe Lieberman in

trying to pass a piece of legislation known as the CARE Act to try

to get more resources into the hands of these particular organizations through a variety of different measures: incentives for nonitemizers to make charitable donations; IRA charitable roll-overs;

food donation provisions; corporate giving incentives, just to name

a few of the items in the CARE Act, all of which were designed to

strengthen the nonprofit sector.

We have seen over the last several years that charitable giving

has leveled off and actually fallen in this country to where only a

little over 1 percent of our overall GDP gets funneled toward charities, where 30, 40 years ago that number was 2.5 to 3 percent. So

we have seen as a society, as we have, candidly, gotten wealthier,

we have not been as generous.

One of the things that I have learned in my time here in Washington is, if you want more of something, subsidize it and create

incentives for it; if you want less of something, tax it.

Well, I am a strong believer in creating incentives and subsidies,

if you will, through the tax code to encourage the kind of donations

to these organizations, many of whom we are going to be hearing

from today.

The CARE Act is currently before us in the 109th Congress. Portions of it were included in a package that Senator Grassley and

Senator Baucus announced yesterday as a temporary relief measure for those who have been affected by Hurricane Katrina. I am

grateful to both Senator Grassley and Senator Baucus for the inclusion of many of the provisions of the CARE Act in that legislation.

I will certainly be working with them on a couple of minor

changes, to hopefully include some additional provisions to help us

better respond to those in need in our society, and also to pursue

a piece of legislation that provides more of a long-term response,

not just to the situation we’re dealing with in the Gulf, but a

longer-term response to the problems that we are experiencing

with a flattening out and a decreasing amount of money going to

charitable organizations.

We have other issues that I know are before us in the nonprofit

area. We have had several hearings here in the Finance Committee

about some abuses in the area of nonprofits.

I would commend the Chairman for the hearings that he has

had, and suggest that the IRS has increased enforcement in the

area of nonprofits, and I think we have seen a decrease, as a result

of that, in some of the abuses that were noted during those hearings.

Much of that has been improved and cleaned up, and I think the

Chairman and the committee deserve credit for focusing attention

on these problems. Increasing enforcement has resulted in some

improvements in the way nonprofits function.

So I am hopeful that, with any long-term solution, we can have

a responsible set of reforms that Congress can put forward to further tighten up the accounting, as well as the management of our

3

nonprofit sector, without imposing undue burdens on that sector

that would cause it to not have the efficacy that we have seen in

so much of our nonprofit sector here just in the last few days.

With that, let me thank, again, Senator Conrad for being here,

our Ranking Member on this subcommittee, and I would turn it

over to him for his comments. Thank you.

OPENING STATEMENT OF HON. KENT CONRAD,

A U.S. SENATOR FROM NORTH DAKOTA

Senator CONRAD. Thank you, Mr. Chairman. Thank you for holding this hearing. It has proven to be especially timely, given the

catastrophic events surrounding Katrina. I think it is appropriate

at this moment to say that all of us are very focused on that disaster and have in our thoughts and prayers the hundreds of thousands of people affected.

I do not think anyone can fail to be moved by the images that

come into our homes every night of those families that have been

so devastated, many of them moved hundreds of miles away from

their homes, others who are still searching for family members who

are missing.

I read in this morning’s news, accounts of the extraordinary trauma of so many faced with this disaster. I remember very well my

own State’s experience in 1997 when we had what was at the time

the largest city in American history since the Civil War to be mass

evacuated, the city of Grand Forks, ND, some 60,000 people.

Ninety-eight percent had to be evacuated.

Many of them did not get back to their homes ever, because hundreds and hundreds of homes were destroyed. So, I think we have

some sense of what the people of the Gulf region are going through,

and our hearts go out to them.

I remember very well that in the tragedy in North Dakota, where

we had the worst winter storm in 50 years, followed by the worst

flood in 500 years, followed by the outbreak of fire in much of the

downtown area, that we did not experience a single fatality.

We know the results in the Gulf region are far different. We

know there are hundreds and hundreds who have been killed. We

read with horror this morning the story of 45 people being found

dead in a hospital. It is hard to fully grasp the dimensions of this

disaster.

But many of the people testifying here this morning grasp it because they have been on the front lines in dealing with and in helping the people so badly hurt, and we want to honor them here

today and show our respect for them and get their ideas on what

we can do to help them deliver the assistance that is so desperately

needed.

I was told this morning by Major Hood that they have already

served a million meals. I think that was what I was told. A million

meals. It is really staggering to imagine the effort behind that. He

told me of people sleeping on the ground, because there is no place

else to stay, who are the caregivers, who are responding to this disaster. We appreciate their sacrifice and their service.

Generosity in the face of a catastrophe like Katrina characterizes

the compassion of millions of Americans. I know the response has

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been extraordinary. Everywhere I go, people are asking me, what

can they do to help, where should they give.

Increasingly, I think it is clear that those organizations that

have delivered help in the past are doing it again. But their ongoing missions cannot take a back seat while charities deal with extraordinary needs. It is important to make certain that we do no

harm when we legislate in this area.

The Finance Committee has examined a number of options for

encouraging charitable giving in recent years. We already have provisions in the Internal Revenue Code that have proven effective in

stimulating charitable giving. Certainly, the itemized deduction for

charitable gifts is well-established. We will also hear today the role

that the estate tax plays.

I look forward very much to the testimony of those here, in some

cases, to provide us an insight into what can be done immediately

to help those that are suffering so grievously.

Again, Mr. Chairman, I thank you for holding this hearing.

Senator SANTORUM. Thank you, Senator. Again, I appreciate your

taking the time to come and show your interest in the area of nonprofits.

We will begin with charities who have been on the frontline, not

just in Hurricane Katrina, but for many years in this country.

First, we will hear from Luke Hingson, who is one of my constituents from Pittsburgh. He is the president of Brother’s Brother

Foundation, a 48-year-old Pittsburgh organization founded by his

father.

Brother’s Brother Foundation has received top honors from Charity Navigator, earning an overall rating of four out of four stars.

Their administration and operating costs are below 1 percent of the

value of the program services.

Just to talk about the work done in Hurricane Katrina, on Friday, September 2, they shipped 12 pallets of new clothing, kids’

kits, and plastic drinking cups for Hurricane Katrina survivors. Additionally, they shipped 5,000 pairs of New Croc shoes, which

leaves for Atlanta, I guess, later this week.

Finally, I also want to recognize Joe Geiger, who is from the

Pennsylvania Association of Nonprofit Organizations. I am pleased

that Joe could be here also today.

Mr. Hingson, thank you for being here.

STATEMENT OF LUKE HINGSON, PRESIDENT, BROTHER’S

BROTHER FOUNDATION, PITTSBURGH, PA

Mr. HINGSON. Thank you, Senator Santorum and Senator

Conrad.

As you mentioned, Brother’s Brother Foundation is a 48-year-old

organization based in Pittsburgh. We provided $1.6 billion worth of

medical supplies, textbooks, food, seeds, and other humanitarian

supplies to those in need around the world in over 120 countries.

We have done this with gifts from the general public, corporations,

and the U.S. Government.

In 2004, we sent $226 million worth of donated goods overseas,

about 3 million pounds, most of it being medical items, to over 40

countries, including Argentina, Armenia, the Czech Republic, Ethiopia, Iraq, Poland, and even the United States.

5

We have received a number of national recognitions, the Charity

Navigator being one. We were ranked as the top charity in Forbes

magazine last year, of which we are very proud, along with other

identifications by other institutions around the country.

Most recently we were involved with sending aid to the tsunami victims in South Asia. We raised $2 million in cash and delivered

$41 million worth of our donated products, and helped ship 4,000

tons of donated goods from other charities to Indonesia, Sri Lanka,

and India.

Over the past 2 weeks, we have had to respond to the sudden

needs due to Hurricane Katrina. Because of our international disaster experience, we felt very comfortable with our emergency response in the United States.

Through our efforts, we have been able to deliver multiple tractor

trailer loads with new clothes, shoes, and other items through the

United Methodist distribution center near New Orleans. We have

worked with the Church of Latter Day Saints in their distribution

center in Atlanta.

We have provided air, land, and sea shipments of requested

medicines and other supplies to charity clinics in Mississippi and

Texas via the Southern Baptist Convention and its many parts, the

Texas Association of Community Health Centers, and, I am told, as

of this morning, the donated product value of our shipments exceeds $1.6 billion.

We are currently resettling several families from New Orleans in

the Pittsburgh area. We are providing assistance, including housing, education, daily sustenance, child care, and economic rehabilitation.

Brother’s Brother Foundation is a member of the Pennsylvania

Association of Nonprofits, or PANO. PANO is a membership organization of hundreds of nonprofits throughout Pennsylvania, and

we are enrolled in the PANO Standards for Excellence Program as

a way of demonstrating our commitment to the highest standards

of ethics and accountability. I want to add that there are many

State associations like PANO around the country doing exactly the

same thing.

With respect to the provisions of the CARE Act, first, we support

the non-itemizer tax deduction under Section 301. We feel this

would increase incentives for charitable giving, as about two-thirds

of taxpayers do not itemize their deductions.

Second, we support the IRA roll-over provision of Section 302, because we believe that would encourage charitable giving by middleincome Americans with secure financial resources.

Third, we support the tax deduction for donated food items, as

this would provide further incentives to give. Fourth, we support

the tax deduction for volunteer vehicle mileage for individuals who

provide volunteer services, including transportation, as this would

encourage more citizens to be involved with charitable activities. In

our case, it would allow us to better receive and deliver donated

medical goods to those in need.

Additionally, I would like to state that we recognize that there

have been some abuses in the charitable sector, but only a tiny

number of charities are engaged in this type of conduct. Most are

run by honest, well-intended individuals.

6

They deliver essential services that the government is either unwilling or unable to provide. As such, I urge the committee to reconsider nonprofit reform legislation that will have certain consequences, some unintended, with respect to smaller charities. This

is not the time to undermine a charity’s ability to function in the

name of reform.

At this time, our Nation is calling upon the charitable sector to

do more, not less. It is my firm belief that had the elements of the

CARE Act already been enacted into law, we would have had a

greater ability to provide relief to evacuees seeking relief from Hurricane Katrina, and I am sure this is the case with the other charities represented here today.

I also endorse more rigorous use of existing laws to protect charities from those individuals in the private sector who abuse charitable intent by making false representation for private gain.

I want to thank you, Senators, for giving me the opportunity to

express my concerns before the subcommittee, and I invite each of

you to visit our facility in Pittsburgh. Perhaps in this way you can

see how we work, and how other charities work, to provide essential relief efforts to our communities and those around the world.

Thank you.

Senator SANTORUM. Thank you very much.

[The prepared statement of Mr. Hingson appears in the appendix.]

Senator SANTORUM. Our next witness is Major George Hood.

Major Hood is the director of National Community Relations and

Development for the Salvation Army. Major Hood was commissioned as an officer to the Salvation Army in 1968 and has had a

diverse career: 20 years of nonprofit leadership and 15 years in corporate marketing and business.

Now you are doing that similar role of marketing and communications and public relations for the Salvation Army here in the

United States. Major, thank you for being here.

STATEMENT OF MAJOR GEORGE HOOD, DIRECTOR OF NATIONAL COMMUNITY RELATIONS AND DEVELOPMENT, THE

SALVATION ARMY, ALEXANDRIA, VA

Major HOOD. Thank you, Mr. Chairman, Senator Conrad. Thank

you very much for inviting us here to allow us to be a part of this

dialogue.

We are obviously on the front lines, there is no question about

it. You have already heard some of the statistics relating to the

work of the Salvation Army.

I want to tell you a very close and personal frontline story, and

then I would like to talk about the merits of the CARE Act that

we have supported since its inception several years ago.

In New Orleans, we have watched all of the media coverage of

what took place in the city of New Orleans. I want to tell you about

a facility there operated by the Salvation Army known as the Center of Hope. It was the last bastion for about 290 people, including

four senior citizens on dialysis and 14 children ranging from the

ages of 4 to 11 years of age.

Before Katrina hit the coast, the Salvation Army sent out word

throughout the community that that facility was open to be a shelVerDate 11-MAY-2000 14:26 Sep 26, 2006 Jkt 095484 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 29778.000 SFIN1 PsN: SFIN1
7

ter as they rode out together the Katrina storm, and people came

to that facility seeking refuge and protection throughout the night.

Once the storm passed, the officers there decided that it was

time to allow these people to go home. To their amazement and

surprise, they were greeted on the ground floor with rushing flood

waters, and they realized in an instant it was impossible to evacuate the 290 people.

As the first floor became consumed with water all the way up the

walls, they took all these people up to the upper floors, floors two,

three, and four. The last phone call we had from them was on the

Monday of the event, to which they said, we have a supply of food

for 1 day, we have limited water, there is no electricity, and the

battery on this cell phone is going to die any minute.

For the next 5 days, we had no contact with those people, with

the Salvation Army officers or the 290 people who were inside. We

were fearing that those who were on dialysis would be lost and we

were just worried to death as to what we could do to get them out

of there. Fortunately, on the sixth day, the National Guard and the

Coast Guard went in and airlifted 290 people out of that facility

and not one person was lost.

It is a testimony to the commitment and the compassion of Salvation Army officers who are working on the front lines in that

area, where the people who were protected are telling us: they

prayed with us, they sang songs with us, they hugged us, they

loved us, and they rationed out all of that food and water to feed

every one of us for 5 full days. Those people, 290 very frightened,

today are very grateful people and they call Majors Fay and Richard Brittle their heroes.

I share this story because it exemplifies what I believe is going

on in that area, not just by the Salvation Army, but by a multitude

of nonprofit organizations who are reaching out to people who are

desperately in need of our help.

Many charities are down there. We partner with many, many of

them in making sure that we address the immediate needs of those

people, and we are, today, designing long-term social service care

that we are already envisioning will last 3 to 5 years.

We could not do any of the work that we do if it were not for

the donor public of the United States. Every penny that we spend

at a disaster site is given to us, entrusted to us by the people of

this country. They support our disaster work in ways that you just

cannot even begin to comprehend; how they can keep giving from

hurricane to hurricane, disaster to disaster, they continue to continue.

So that is why the language of the CARE Act, I believe, is so important, not just to the Salvation Army, but to all charities, to the

nonprofit sector at large, because it has built into it all of the very

practical, simple incentives that will allow people to continue giving not only 365 days a year, but, when there is a crisis of this

magnitude, they reach out, they give lots of $20 checks, they give

lots of clothing, tremendous volumes of food that are routed down

to that area, and it is a practical way by which these kind of people

can give.

When we look at the CARE Act and the language that is there,

it is designed to facilitate non-itemizers, low-income people, lower

8

middle-class people, young working professionals who will write out

those $20 and $25 checks to respond at a point in crisis. We support the non-itemized element of the CARE Act, and we hope that

it is soon put into law.

We also are interested in the IRA roll-over. You have already

heard the rationale behind that. From the very inception, we have

made it known that we believe in the IRA roll-over provision, and

we think it is a very critical element to the CARE Act.

I also should point out to you that we operate, across the United

States, 110 alcohol and drug rehabilitation centers. These facilities

where we have a 60- to 70-percent success rate, serving 40,000 individuals suffering from addictions on an annual basis, are funded

100 percent through the sales of donated household items, clothing,

furniture, and used cars.

The impact of tax law changes on used cars has already made

a negative impact, and we are fearful that any reforms that will

put caps on the value of donated material goods is going to be devastating to our ability to maintain a successful operation of those

alcohol and drug rehabilitation centers.

I would like to conclude by pointing out that the nonprofit sector,

the entire sector in cooperation with Federal, State, and local governments, has truly stepped up in light of the tragic human events

that we are experiencing from Katrina. We have a sector that is

willing and ready to respond to the critical humanitarian needs

throughout the year, and especially at times of disaster like this.

It seems so inappropriate to me to divert the ability of the American public to respond in the compassionate ways they do by doing

anything that would restrict their rights and their ability to make

those gifts and to protect the tax incentives that come along with

making those kind of contributions.

We appreciate, Senator, all that you are doing on behalf of the

nonprofit sector and your endurance on pushing this CARE Act

through the legislative process.

You will be happy to know that there are eight teams of Pennsylvania volunteers from the Salvation Army who are on the front

lines down in the Gulf Coast region supporting our work, and

working on behalf of the people who have been devastated.

Thank you again for this opportunity to be with you this morning.

Senator SANTORUM. Thank you, Major. Again, thank you for the

tremendous work you and the Salvation Army are doing in response to our needs.

[The prepared statement of Major Hood appears in the appendix.]

Senator SANTORUM. Next is Dr. Bob Reccord, who is the president and CEO of the North American Mission Board of the Southern Baptist Convention. Bob became the first president of the

North American Mission Board in June of 1997. Prior to leading

the Mission Board, he served as a senior pastor of the First Baptist

Church in Norfolk, VA, and Bell Shoals Baptist Church in Brandon, FL.

Dr. Reccord is a published author, including a book written with

Houston Astros’ pitcher Andy Pettit, entitled—and we are two

baseball fans up here, just so you know, and we know who Andy

9

Pettit is—‘‘Strike Zone: Targeting a Life of Integrity and Purity.’’

He is also a featured speaker at PromiseKeepers.

Thank you very much for being here this morning. Thank you

and the work of Southern Baptists in response to the hurricane disaster. You have been truly extraordinary also. Thank you.

STATEMENT OF DR. BOB RECCORD, PRESIDENT AND CEO,

NORTH AMERICAN MISSION BOARD, SOUTHERN BAPTIST

CONVENTION, ALPHARETTA, GA

Dr. RECCORD. Thank you. Thank you, Senator Santorum and

Ranking Member Conrad.

I resonate with my colleagues. I have the privilege of representing 43,000 Southern Baptist churches who are proud to be a

part of the solution. We are charged at the North American Mission Board with the missions arm of North American focus for

Southern Baptist life.

That includes starting churches, enabling volunteers to serve as

they are right now in Katrina, sending missionaries, of which we

have approximately 5,200 across North America, everywhere from

the inner cities of New Orleans, to the United Nations and Capitol

Hill, and striving redemptively to influence our culture.

We are proud to be partners by Memorandums of Understanding

with both FEMA, and the Salvation Army and the Red Cross. We

are the third largest disaster relief entity in America after the Red

Cross and the Salvation Army. As a result of the hurricanes in

Florida last year, we served 2.4 million hot meals to those who

were survivors, and took care of cleaning up 8,000 homes.

Right now, Senator, you would be interested that there are also

teams in Southern Baptist life from Pennsylvania, along with 32

other States, serving. The one from Pennsylvania is, right now, in

Biloxi, MS, in the heart of that. As of today, we are serving approximately 250,000 meals per day to those who have survived and

who have been evacuated, including, in addition to that, hot showers, laundry units, clean-up and recovery, and chainsaw crews. I

have actually been down there, and I just would say, the people

who are stepping forward are amazing.

One of those is Freddy Arnold. He is the head of a disaster relief

unit there in Covington, just outside of New Orleans. I spent a couple of hours with Freddy ministering to people, and then I put my

arm around him in private, and I said, ‘‘Freddy, how are you

doing?’’ At that point, Freddy Arnold said, ‘‘Well, I’m doing okay,

but my home in New Orleans is 18 feet under water. Everything

I had is gone.’’

Then I looked at him and said, ‘‘Then what are you doing here?’’

His response was, ‘‘I have the Lord, I have my wife, and I have my

health. He has never allowed me to miss a paycheck or miss paying

a bill, though there has not been a lot of money. Now, though I

don’t have much, I’m giving everything I’ve got to those who don’t

have anything.’’ That is the passion of faith-based ministries who

step forward and say, we are going to make a difference.

The Southern Baptists have also asked all of their churches to

become houses of hope, to house evacuees, both in church facilities

and homes, and to adopt churches that have been destroyed or severely damaged, and take over getting them back on their feet.

10

Some amazing things are happening as a result of that. For instance, Fairview Baptist Church in Jackson, MS took in 68 members of an extended family so that they did not have to be separated. All 68 went to one church.

In addition, Greenwald Street Baptist in Baton Rouge, in 50

years, has not had an African-American member or marriage in

that church, but as a result of the evacuees, just this week they

performed their first African-American marriage in a white Louisiana church. To that, we say, ‘‘Praise God’’ for the reconciliation

that is going on in this process as well.

We, in addition, support the CARE Act and its emphases. We

support any effort by the Federal Government that will encourage

people to give and reward that generosity. With the bill that has

been authored by you, Senator Santorum, we say a hearty ‘‘amen.’’

Because of that, as has already been mentioned, non-itemizers

will be able to participate more importantly in giving. That is important, in my view, because, frankly, in the State of Texas, 80 percent of the dollars of relief and gifts are given by somebody 50

years of age and older.

You get that trend graphed out, and there is going to come a

time when, who is going to be doing the giving? If we do not include the younger and less affluent to be more effective and able

to give, we are going to be in trouble when these kinds of things

happen down the road.

In addition, the tax-free contributions from individual retirement

accounts, we applaud. The ability to give food stuffs, we would determine, according to America’s Second Harvest, would allow 878

million meals to be given in the next 10 years. As an industry that

does about 3 million meals ourselves per year, that is critical to

keep the fabric of this Nation strong and undergirded.

In addition to that, I would want to say the individual development accounts, I think, are very important. That would allow

300,000 low-income working Americans to be able to build assets

that are matched with saving accounts to do things like purchase

homes, expand their education, and start businesses, and in the recovery of Katrina, that kind of legislation will be absolutely critical.

In addition to that, in providing $150 million per year for a compassion fund, that will greatly assist small communities and faithbased organizations.

In closing, I want to say we applaud, at Southern Baptist, the

bill’s provision allowing corporate deductions for charitable donations to increase, because we are hearing, and I am sure all of us

are right now, we would give more if we could.

As I close, I would say that we do oppose linking charitable reforms to the CARE Act. Many of those reforms would prove, we believe, to be onerous and burdensome to the very charities that

make the quick response possible.

For the very, very large, they may be able to incur the cost, perhaps. But for many, the onerous and burdensome reforms would

possibly put them literally under the ground and stop their effective response. We at the North American Mission Board are thankful for Southern Baptist churches, all 43,000, that keep our administrative costs covered.

11

Our overhead has been decreased to only 11.1 percent, and, because of that efficiency and because of the churches, 100 percent

that is given to disaster relief through Southern Baptist goes directly to the field. We need even more to make a difference in the

days ahead, so we want to say to you: 16 million Baptists stand

ready to support, encourage, and help with the CARE Act and the

legislation that is needed to help us go forward in the future and

continue to serve those in need when the bottom drops out.

Thank you so much.

Senator SANTORUM. Thank you very much, Bob. I appreciate it.

I appreciate all three of our panelists who have been out there on

the front line, and out there for many, many years in meeting the

needs of our society.

[The prepared statement of Dr. Reccord appears in the appendix.]

Senator SANTORUM. So we go from the practitioners to the policy

makers, or at least the policy suggesters.

We have with us Dr. Bill Gale, who is a senior fellow at The

Brookings Institution. He is deputy director of the Economic Studies program and co-director of the Tax Policy Center, a joint venture of Brookings and Urban Institute.

He is actually the co-director with Dr. Steuerle, who happens to

be sitting right next to him. Before joining Brookings, Dr. Gale was

an assistant professor in the Department of Economics at the University of California at Los Angeles, and an economist at the Council of Economic Advisors.

Dr. Gale, thank you for being here.

STATEMENT OF DR. WILLIAM G. GALE, SENIOR FELLOW,

THE BROOKINGS INSTITUTION, WASHINGTON, DC

Dr. GALE. Thank you very much, Mr. Chairman. Let me just say,

this is a hard group to follow. The tales of trauma that we have

all witnessed the last few days have been heartbreaking.

The tales of heroism that we have heard in the public and here

are uplifting. I, and I know others, are moved by and applaud the

efforts of these gentlemen and their organizations.

It is also a little humbling to be speaking after them, and I feel

a little apologetic about turning to the rather dry topic of tax policy

and charitable giving. But if anything, the events of the last few

weeks remind us of how important policy is and how important it

is to get policy right.

So the main reason to talk about the more general issues of tax

policy and charitable giving now in the middle of a crisis can be

thought of in the following ways.

Just as policymakers are rethinking policies toward physical infrastructure, urban redevelopment, and so on, we need to rethink

what we do for charitable giving so that our charitable infrastructure is ready to go the next time something like this happens, and

to counter the long-term decline in giving that you noted in your

opening comments.

So I have been tasked with talking about one piece of the infrastructure that helps support giving in this country, and that is the

estate tax. The main point of my testimony is simple: repealing the

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estate tax or cutting the top rate would have a significantly negative impact on giving in this Nation.

This is the result of several research projects that people in a variety of research institutions across the country have done. The

basic logic is that the estate tax encourages giving at death by giving a deduction for bequests that go to charitable causes.

Less obviously, the estate tax also encourages giving during life,

because, if you give the money when you are alive, you not only

reduce your income tax, you reduce the size of your estate, and

therefore reduce your estate taxes, so you get a double tax subsidy

for giving during life.

Now, aggregate giving from living individuals far exceeds giving

at death, but that means that, even if the estate tax has a minor

impact on giving during living, that effect can be as big as the effect on giving at death.

Most studies show that if you repeal the estate tax, charitable

giving at death would fall by a quarter to a third. Total giving

would fall by about $10 billion a year; roughly between $7 and $13

billion a year. That is a 5-percent cut in overall giving nationwide.

Another way to think about it is, it is about the magnitude of the

combined giving of the largest 110 foundations in the United

States. So think of essentially every foundation you have heard of,

and probably another 50 or so, their combined giving is what would

disappear. That is a way of gauging the impact of repealing the estate tax on giving.

Now, those estimates leave out an important factor. They’re

based on dry statistics. What they do not capture is that, if you repeal the estate tax, you could very well change the culture of giving

in a way that would reduce giving even more.

Right now, charitable groups use tax deductibility of giving as a

selling point, as a hook. Financial planners use it as a hook to get

people to start giving earlier in their life rather than waiting. Repeal would also convey an implicit message that giving at death

was no longer encouraged by the Federal Government.

So, the impact could actually be larger than the dry statistical

estimates suggest, and impacts of these magnitudes dwarf the likely effect, for example, of allowing non-itemizers to make deductible

contributions.

Regardless of the merits of that policy, the magnitude of the effects we are talking about there are an order of magnitude smaller

than the magnitude of effects from repealing the estate tax. So if

we want to build the charitable infrastructure, we need to recognize that the estate tax has been an important element of that for

almost 100 years now.

One other item I will mention, and then sum up. The pattern of

giving suggests that giving is very highly concentrated among estates that face high tax rates. In 2001, 300 decedents with gross

estates in excess of $20 million gave almost $7 billion to charity.

These decedents accounted for 1 out of every 8,000 people that

died in that year, but they accounted for 42 percent of all giving

at death in that year. Now, those decedents faced relatively high

tax rates in the estate tax and therefore, even in the absence of repeal, dramatically reducing the top rate would get you most of the

contribution loss that repeal would do.

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In contrast, raising the exemption in estate tax would have a

minimal effect on giving because up to the levels that are being discussed, $3 million, say, that would have a minimal effect on giving

because it does not affect the marginal tax rate, the marginal incentive for giving for most decedents.

So let me just summarize. I think there is an important link between the underlying structure of tax policy and the very important lifesaving events that you have just heard about.

As we move forward, it is important to build in elements of the

tax system that help support the nonprofit sector, and the estate

tax is certainly one big piece of that exercise. Thank you.

Senator SANTORUM. Thank you, Dr. Gale.

[The prepared statement of Dr. Gale appears in the appendix.]

Senator SANTORUM. Finally, Dr. Gene Steuerle, who is a senior

fellow, as mentioned before, of Urban Institute, and is co-director

of Urban Institute–Brookings Tax Policy Center. In addition, he is

a columnist for Tax Notes, and the editor of 11 books and more

than 150 reports and articles.

Under President Reagan, he served as the economic coordinator

and original organizer of the Treasury’s tax reform effort, and later

as the Deputy Assistant Secretary of Treasury for Tax Analysis.

Dr. Steuerle, thank you for being here.

STATEMENT OF DR. C. EUGENE STEUERLE, SENIOR FELLOW,

URBAN INSTITUTE, WASHINGTON, DC

Dr. STEUERLE. Thank you, Senator Santorum and Senator

Conrad. Indeed, I am both honored and humbled to be on this

panel with this amazing group of witnesses.

As witnessed in response to Hurricane Katrina, our many charities show that they are a tremendous source of strength to this

country, not just because of what they are doing now, but because

of the infrastructure that they had in place to which we could turn

in this time of crisis.

On a personal note, I have been involved with charities as a recipient, as a contributor, as a founder, and as a researcher, so I

have been involved at all levels.

Still, a lot is at stake, and I believe that impels us to constantly

examine whether incentives can be improved. I believe that is a

major motivation behind the CARE Act that you support, as well

as behind the other efforts of the Senate Finance Committee to try

to remove waste and corruption within the sector.

Now, my role is a somewhat narrow one, but I do not think it

is an unimportant one. In some ways, it even has its own moral

dimension. That is to offer advice on how you really might be able

to get the maximum bang per buck out of every tax dollar you

spend in this area.

In many cases, that means I favor expanding incentives; in some

cases it means that I would suggest that you consider options to

limits ways in which there is waste or abuse in the charitable sector or in which the dollars which you spend are not providing much

in the way of incentive.

As you well know, in recent months and years you have held testimony on bills both to expand incentives and to reduce inefficiency

within the nonprofit sector. To me, these are two sides of the same

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coin. A combined legislative package could really be a clear win-win

package.

Some existing incentives in the tax system are not well-designed.

They are not really increasing giving. In addition, a fair amount of

cheating takes place when it comes to charitable giving.

For the amount of revenues foregone, therefore, much more charitable giving could be generated—much more charitable giving that

could go to the very efficient types of charities that you have represented here at the table today.

The net result, it seems to me, can be a better tax policy, better

tax administration, a stronger charitable sector, and one that better represents the public that it is serving.

What are some of the elements that I suggest in my package? I

have time only to summarize them very briefly here.

I believe you need to allow a deduction that is the same for

itemizers and non-itemizers alike. I believe you need to stop phasing out itemized deductions of charitable contributions and remove

some of the limits on charitable contributions, such as in the IRA

proposal that you have. I would add to that IRA proposal, allowing

a complete deduction for contributions of lottery winnings.

Several suggestions I make are beyond what is in the CARE bill

and would actually cost revenue. I would raise and simplify the

various limits on charitable contributions that can be made as a

percentage of income. There is no reason we need to stop at 50 percent of income.

I have a suggestion that I believe would substantially increase

giving, which is to allow deductions to be given until April 15, just

as we allow for IRA and KEOGH contributions. I would reduce and

dramatically simplify the excise tax on foundations, which would

end up going to charity. But, as I say, I would also do things that

I believe would strengthen the sector in other ways.

I would devote more IRS resources to monitoring the charitable

sector, and I would especially try to help donors get the same type

of information on charities that they can now get with respect to

publicly traded companies.

The information system that donors now receive is somewhat

abysmal, and it leads to a lot of money, even in the case of money

going for Hurricane Katrina, not going to the best of the charities.

I would change the foundation payout rule so that it does not encourage giving to be done in a pro-cyclical manner, but in a way

that is a counter-cyclical response to needs. I would provide an improved information reporting system to taxpayers for charitable

contributions.

I would limit deductibility of in-kind gifts for cases where the

revenue cost to government is greater than the net value of the gift

given. I can give you examples where people might give a thousand

dollar car to charity, $100 goes to charity, and the government

spends $300 to pay for it. That is not an efficient way to spend the

money that you provide in incentives.

I would place limits on the deductibility of pure cash contributions where there are absolutely no records and IRS has no means

of enforcement whatsoever.

Now, I believe that this broader legislative package, where you

combine things together, would be win-win for a variety of reasons.

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For instance, the additional reporting requirements make it easier

to allow giving until April 15th.

A tighter restriction on cash contributions is likely to be more

than offset by the extent to which the revenues you would raise

from that change would allow you to expand the deduction you

want to provide to non-itemizers.

In summary, I believe that we have an ideal trade-off possible

before us. The money that could be derived from improved incentives, improved compliance, and a better system of information reporting could be spent on enhancing charitable incentives. It could

be spent on providing incentives where they are most likely to be

effective at the margin, increasing giving.

Now, one need not agree with every item I have suggested. The

Senate Finance staff is working closely with the Joint Committee

on Taxation, with the Independent Sector, and others to offer ways,

both public and private, of improving the behavior and operations

of nonprofit organizations.

Others are working closely in areas, as in the CARE bill, on how

to create incentives that would really work best at the margin to

improve giving. My principal suggestion is that you develop a legislative package that gives you the most bang per buck, maximizing

giving per dollar of revenue cost, while recognizing legitimate concerns for good tax administration.

I recognize that this is hard work, but if you do maximize giving

per dollar of revenue cost, you will do more to help those charities

that are on the front line. Thank you.

Senator SANTORUM. Thank you very much, Dr. Steuerle.

[The prepared statement of Dr. Steuerle appears in the appendix.]

Senator SANTORUM. Let me just review a couple of questions on

the CARE Act, and then move to some other issues.

I did not hear any of you mention the deduction for vehicle mileage. Anybody have any thoughts about that as to whether that

would be something that you would find important or helpful? Any

of you?

Dr. RECCORD. Senator Santorum, I would say, definitely, because

our people who respond to the volunteer issues of disaster are all

people who drive themselves, and therefore any benefit they get in

the impact of their mileage costs is huge, especially when you see

it dropped against the backdrop of what we are finding in fuel costs

today. So that would be a huge help for any of us who have volunteers who have to expend mileage to get there.

Senator SANTORUM. On the food donation side, just quickly—and

you all have been supportive of that—can you give me a sense as

to where we are? As far as in the current relief efforts, do you

think that enough food is being donated to meet the needs that are

currently before us in the Gulf area?

Major HOOD. We have had numerous offers for the distribution

of food. The problem is the infrastructure down there. We cannot

find enough warehouse space right now to store that food.

But I would tell you, if it was not for Operation Blessing and the

Southern Baptist men, we would be really strapped to deliver the

kind of meals that we are delivering. It is through that collaboVerDate 11-MAY-2000 14:26 Sep 26, 2006 Jkt 095484 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 29778.000 SFIN1 PsN: SFIN1
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rative partnership that we keep the back-end processing of food

coming in to the front lines.

It is through the donations that other organizations have made

of trucks and vehicles and refrigeration and massive storage areas

in their base operations that they can truck that food in so that we

can use it upon demand.

But the big problem with Katrina is finding available warehouse

space on-site to store the massive volumes of food that people want

to ship down there. It is needed, but it does not need to be wasted.

So, we are very meticulously trying to establish warehouse networks so that we can begin to receive more of that food.

Dr. RECCORD. I would agree with that. We are, right now, as I

mentioned, at 250,000 meals a day. We have been asked to ramp

up to 500,000 a day. So one of the challenges that we have not assessed yet is if there would be enough food in the pipeline to provide it.

We have had a number of places, one of which I had the privilege

of being at, that had 1,000 people that had not eaten in 6 days.

One of our challenges, as George so well said, is there is the infrastructure issue, and there is also the food availability issue. Sometimes on the field, it is tough to know exactly which is causing the

problem. As a result, it is not an either/or, it is a both/and.

Senator SANTORUM. Just in listening to this conversation and

your testimony, you talk about the coordination that is occurring.

Is there anything that we can be doing from a structural point of

view, a legal point of view, here in Congress to aid in your coordination? Are there any thoughts you might have?

Major HOOD. I will tell you, in the first 48 hours we could have

used anyone’s help, because the devastation was so intense that

the infrastructure was demolished. But in the last week, we have

been in intimate dialogues with FEMA. The infrastructure at

FEMA has come together. We are getting wonderful support.

They embedded a FEMA employee in our office for about 10

days. We are sitting at the table in Baton Rouge, which has become

the primary command location down there. There is dialogue every

day between the Salvation Army, FEMA, the Red Cross, and all of

our MOU partners. I truly believe it is coming together. There has

been an obvious shift from the immediate crisis.

We are still feeding people who are without homes, but we are

now thinking of the social service impact for the next 3 to 4

months, and already looking down the road at how do we design

the most responsive social service plan to spend the money that the

public has entrusted with us in the most proper way where we can

do the most good for the most people who have the greatest needs.

Those are the kinds of conversations that are going on today.

I do think that we have fixed the immediate problem of getting

supplies, product, and volunteers in to keep the people well-fed and

hydrated—it is enormously hot down there—on top of having no

place to go, no place to bathe. These things have now come together

and we are functioning extremely well.

Dr. RECCORD. I would add, in addition to that, that we are talking and asking ourselves a lot, would it have helped had there been

some military capacity to help get some supplies there very fast.

There are often bases close by that could get things in and out

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quicker than we as civilians can. Had that been available to us, I

think all of us would have benefitted greatly.

Because, as the hurricanes were coming in, I know we as Southern Baptists, Salvation Army, Red Cross, and others, on Sunday,

when it hit Monday, we were already focused and mobilizing. On

Monday we were in place, and on Tuesday we were feeding. That

is a pretty good response.

One of the challenges, though, was getting the supplies there

quick enough. So we had mobile units, of which we have 230 now,

deployed in 37 communities who are sometimes sitting there with

no supplies to do anything with.

So one of the questions that I think needs to be asked is, are

there capacities to move, by military transport, quickly to aid those

folks who are already, by infrastructure, geared to respond so

quickly and rapidly, but need the materials, like food, there to get

going that fast?

Senator SANTORUM. There are no problems with the government

interacting with faith-based organizations in this response. Are

there any barriers there that you are encountering where the government says, well, because you are a faith-based organization we

cannot work with you, we cannot give you things?

Major HOOD. From our perspective, there is no communication

problem whatsoever. We are working extremely well with government and designing long-term response partnerships where we will

be a support organization to the much larger government response

to this disaster.

Dr. RECCORD. Yes. It was not so much a problem of, well, you

are faith-based and we are government as it was a lack of decision

and implementation. It was just sort of frozen and was not acted

on quickly.

Senator SANTORUM. One final question. That is, you heard some

of the comments of the gentlemen here about charitable reforms,

and some of the reforms that have been suggested by the committee. Can you give me a sense of how those reforms may affect

your ability to be able to operate your organizations and to respond

to emergencies?

Major HOOD. I can find no fault with an overriding premise that

we need to improve incentives and eliminate waste and illegal operations by some nonprofits. There is no overriding premise that

says that is a bad thing.

As I have looked at some of the recommendations, I do think that

we are realizing, as I have stated earlier, the impact of the cap put

on used car donations has had a negative impact.

I am fearful that caps on donated household goods will create

some financial pressure for our organization, and I know that

Goodwill, Catholic Charities, St. Vincent de Paul, and many of the

other operations that depend upon thrift store income are very concerned about that.

I think if there is an overriding element to all of the charity reform, if I am understanding it accurately, it is that fulfillment of

the reform is going to add administrative costs to nonprofit organizations.

There is going to be a burgeoning of new paperwork that charities are going to be required to undertake in order to meet the fulVerDate 11-MAY-2000 14:26 Sep 26, 2006 Jkt 095484 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 29778.000 SFIN1 PsN: SFIN1
18

fillments of some of the language of this law. When that happens,

there is less money going directly to people in need and more

money going into administrative costs.

So in trying to fix a problem, we have to be very careful that we

do not place more paperwork and administrative burden on nonprofits in order to make that happen, because it defeats our ability

and it minimizes our ability to continue directing the bulk of our

funds into direct assistance to people in need.

Dr. RECCORD. I would say a hearty ‘‘amen’’ to that. I think anything along the line of a full-blown Sarbanes-Oxley kind of approach would be so onerous by the very things that George said

about the needed time, the needed safeguards, the needed people,

the needed hours, et cetera, that it would be huge and burdensome

to so many entities. But I think that has to be balanced with the

fact of accountability, as Dr. Steuerle said.

I think if you cannot be accountable, if you cannot prove by toprate audit firms that you are living according to law, then I think

you ought to be held responsible for breaking that law or compromising that law to the fullest extent of that law.

I think that is true for any nonprofit, faith-based entity, or even

nonprofit that does not even deal with faith, because you are representing a steward of things people are putting into your care. If

you are not being a good steward, then you need to be held ultimately and tightly responsible for it.

My concern, and our concern, is just the huge administrative

load of a Sarbanes-Oxley kind of approach that could be absolutely

devastating. I would say that we who now are able to give 100 percent to the relief effort immediately would no longer be able to do

that. We would have to pull some of that in administratively.

Senator SANTORUM. You two gentlemen represent large charitable organizations. Luke, you represent smaller charitable organizations, certainly small in comparison to these gentlemen’s organizations. Do you have any comments on how it would affect a smaller charitable organization?

Mr. HINGSON. Well, I think that there are a number of regulations already in place by a variety of regulatory agencies that just

simply need to be enforced. It is not just pressing the charities, the

philanthropic sector itself to do better.

We do have people out there who attempt to take advantage of

us. They will take advantage of the smaller organizations, or at

least attempt to, because we do not have the collective experience

as, say, some of the larger ones, or at least that is the perception.

You can have a new group that is suddenly created because of

a Hurricane Katrina, or suddenly has two, three, four, five times

the amount of resources that it did the year before.

That organization becomes a target for someone who just wants

to take advantage of those resources that are being generously

given by the American public, and in some cases quite suddenly

given.

So I think that there should be continuing emphasis on strengthening the ability of our government to enforce existing laws to protect the charities and what we are trying to do, as well as to make

us do better ourselves.

Senator SANTORUM. Senator Conrad?

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Senator CONRAD. Thank you, Mr. Chairman, and thank this

panel. It has really, I think, been an outstanding panel. Each of

you have brought something that has certainly broadened my understanding, so I appreciate very much your taking the time to be

here.

First of all, I would like to say, Dr. Reccord, you said something

that really resonated with me. I was at a meeting with a group of

farmers last night from my State. We produce a lot of food in North

Dakota.

The broadest-based farm organization in my State has started a

major food drive. One farmer alone just brought in an entire semiload of lentils, just donated 44,000 pounds of lentils. It is amazing.

They just told me the response that they are getting is amazing.

These are from farmers in North Dakota. They are ready to drive

it down there themselves.

But what you said is exactly what I have been told, that the ability to transport, to get it where it was needed, was a big problem

here and a lack of decision-making on getting it to where it was

needed.

I have also been told, as you know, because we went through this

terrible disaster in North Dakota, we have a lot of contacts with

your wonderful organizations. You people were superb. Church

groups came and mucked out hundreds of homes in Grand Forks,

ND. Boy, that is not pleasant work. You are not just mucking out

water.

Senator SANTORUM. That is right.

Senator CONRAD. And the need to have military involved, for several reasons. One, to bring order, to have people who are seen who

are authority figures, and to be able to have transport that responds quickly to get things where they are needed. So that is very

important. That is not on the subject that we are dealing with here

today, but I did not want to miss the point because I thought you

made it very well.

I would be interested to know, Major Hood, do you know, what

is the average size of the contribution to your organization?

Major HOOD. Well, it is a fascinating study, because if the gift

comes over the telephone it ranges probably in the $50 to $75

range. If it comes over the Internet, it is ranging at a $100 to $150

range. If it comes through the mail, there are just literally hundreds of thousands of $20, $25, $30 checks. So the medium that

people choose to make the contribution will pretty much mandate

what is the typical average size of the gift.

Of course, when you look at the checks, you know this is a lot

of lower middle-class, elderly women, people who are sitting in

their homes who have not become comfortable with technology.

There we have 17 to 20 buckets of mail, light mail that has been

unsolicited, that has come to our office. We now have a team of

people just sitting there, opening and responding and receipting

every one of those checks.

So the importance of the CARE Act is that there are millions of

people out there who will write out a small check at the moment

of crisis. They need to have that tax break, the same as the person

who sends us more. One check we opened was for $20,000.

20

So, there is a disparity in the equality of who is allowed to take

these deductions. People who have higher incomes and have tax accountants and people that do their returns for them, they are well

taken care of.

The small person, the lower middle-class people who want to

give, do not have that advantage, so that is why the non-itemizer

is so important for that element of the population.

Senator CONRAD. To give them some incentive.

Major HOOD. Right.

Senator CONRAD. Let me ask you this. There have been all kinds

of academic studies done that say it does not change behavior to

give an incentive, to give a tax incentive for a charitable contribution. What do you think?

Major HOOD. I think in times of disaster like this, the American

public will give from their heart and they are not worried about the

tax break. It is the ongoing operational expenses 365 days of the

year where the problem will begin to set in.

Senator CONRAD. How big an organization do you have? Can you

give us some idea?

Major HOOD. That was part of the longer testimony that I shortened. We have our footprint in 5,000 communities across the

United States. We have 5,000 commissioned Salvation Army officers, 65,000 employees, 165,000 lay members, and 3.5 million volunteers who are actively involved with the Salvation Army.

On an annual basis, we respond to the needs of in excess of 34

million people, and they are typically the poorest of the poor. That

is who we are called to serve.

Senator CONRAD. You know, one Thanksgiving my staff and I

went to one of your centers in North Dakota and served meals. I

will tell you, it was really an eye-opener. The people that are dedicated to your operation—and they are paid very little—it was

amazing, the work that they do.

I would like to go to Dr. Steuerle, if I could, for a moment. You

had a series of recommendations there in your testimony. Could

you tell us, what are the most important of them in terms of bang

for the buck? Because that is what we are interested in here. What

is going to work?

What is going to encourage people, in the most efficient way, to

contribute? Of your recommendations, if you could give us some

idea of what you think are the real keys, both in terms of an incentive to give and in terms of tightening things up. It is like everything in life: there are a few rotten apples that spoil the barrel.

We have already had reports of some of these shops opening up,

and they are calling elderly people, telling them to give to Hurricane Katrina relief, and it has nothing to do with Hurricane

Katrina relief. They are just pocketing the money. We have already

gotten reports of these bucket shops opening up.

Tell us, what are the keys, from your standpoint, after studying

this issue for many years?

Dr. STEUERLE. Well, Senator Conrad, the ones I listed in my testimony were the ones that I knew the most about, where I really

thought you could have a major impact on giving.

I should say that I have not got a really thorough knowledge of

every proposal in the Senate Finance list. Even though I am on one

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of their advisory groups, there is an enormous range of issues, so

I just wanted to indicate the ones that I had thought a lot about.

For instance, I very much favored Senator Santorum’s and other

Senators’ efforts to try to extend a deduction to non-itemizers. But

it should be done in a way that can maximize, get the most bang

per buck.

For instance, the more we do not create a cap or ceiling on the

deduction, the more likely we will be providing an incentive at the

margin. Economists think that your incentive for the last dollar

you give is a lot greater than for the first dollars you might give

anyway. So the more you can remove ceilings and put on floors, the

more contributions you can get out of your allowance of a deduction.

Senator CONRAD. So that is an important principle that you believe as to what we do here. Does anybody disagree with that? [No

response.]

Dr. STEUERLE. And by the way, then, there would be more that

we would get back in the way of removing abuses. I have to admit,

because I did have a revenue estimating staff, that the revenue estimating staff is going to have a very hard time estimating some

of this. Still, the more that they estimate that you could get back

in terms of curbing back abuses, the more we could spend on this

non-itemizer deduction.

Senator CONRAD. Yes.

Dr. STEUERLE. Now, you might say we could give it to everybody

among non-itemizers, but the fact is, IRS really does not, and cannot, enforce the law as it is now, so we have to figure out a way

to put the resources where they are best used.

So to the extent we put a floor on (so we cut out modest amounts

of giving for which there is very little incentive), expand incentives

for non-itemizers who give a substantial amount, or remove some

of the caps like the 50-percent cap on giving, the more we can

apply these incentives at the margin.

I have also suggested, as you know, that we should allow giving

until April 15th, which, by the way, does not cost anything unless

people give more, because if people just switch their giving or their

timing of giving a little bit, then there is really litle or no net effect

on the overall cost.

Senator CONRAD. As I understand it, what you are doing is, instead of giving it at the end of the calendar year, you give it right

up to the time you file your tax return, and people pay a lot more

attention the closer they get to filing. Is that the idea?

Dr. STEUERLE. That is right. Because when do people advertise?

They do not advertise 4 months before you go in the store. When

you walk into the grocery store, they show you the advertisement.

When you are filing that tax return and you are dealing with

your accountant, that is when the accountant says, ‘‘Hey, if you

give a little bit more here, I can cut your taxes today and get you

this money right back right away.’’ So, that is an incentive.

Now, if you accept that proposal, there are administrative aspects to it, because you need to know what dollars are given. So

you need a good recordkeeping system, which would then add, admittedly, to your administrative burden—which, by the way, the

deduction for non-itemizers also does, because now you have a lot

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more people for whom you have to keep records, and people have

to keep records.

I am trying to figure out how to create a balance between expanding the incentives, and at the same time keep down the administrative burdens for taxpayers, IRS, and for charities, alike.

Senator CONRAD. Could we just quickly get the reaction of the

three that are in organizations? In terms of extending until April

15th the time to contribute, is that something that you think would

be helpful?

Major HOOD. If I understand the mind-set of the American public, it probably would be a nice incentive, because as they are sitting there trying to figure out, how do I cut my tax liability, I will

write out a check to charity right now and get that benefit.

Again, I would want to take time to understand what would be

the administrative burden of that. I do think it would be a wonderful incentive for the donor public. How the charities would manage

that in terms of our own accountability to donor management

would be the thing that I would want to study then.

Senator CONRAD. Mr. Hingson?

Mr. HINGSON. I think we have already had some experience with

that. Earlier this year we had the extension because of the tsunami

appeals. That caused a lot of money to go to international charities

that were involved with the tsunami. So that was a one-time arrangement.

Senator CONRAD. And you were very involved in that.

Mr. HINGSON. That is right. That is right. We certainly had more

people give to us as a result of that one-time arrangement. So I can

imagine, by extension, that you are going to have more people be

interested in giving in March and April. That typically, incidentally, is the time when it is quiet for many charities.

Senator CONRAD. Dr. Reccord?

Dr. RECCORD. I would say the same thing. I do not see it inadvertently being an onerous kind of burden. Do you gentlemen? I

mean, it would not add to us a lot more than we already do to try

to be really on top of the records.

Senator CONRAD. I am sure you keep very good records.

Dr. RECCORD. Yes, sure. We sure do.

Senator CONRAD. It is very important to your operation.

Dr. RECCORD. Absolutely. Because the credibility and integrity of

all of us depend on that.

Senator CONRAD. If the Chairman would allow me, if I could go

back to Dr. Steuerle one more time. Are there any other of your

proposals that you think would be especially important for us to

adopt in terms of getting bang for the buck?

Dr. STEUERLE. Well, Senator, let me go to the other side of the

ledger here a little bit, too. I have been working with groups that,

for a decade or two, have been trying to move towards making tax

returns available to the public.

We think if we could get electronic filing of these returns—I am

not even sure that Congress has to spend money as much as ask

IRS to do this (which, by the way, would not affect some of the people here because they are churches)—we could have a much better

information system made available to the public.

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The public is really kept in the Dark Ages with respect to a lot

of charities as to the information they get. If you buy a stock, you

can get information. You can find information or your broker can

find information on the company you are buying.

If you want to find information about a charity, it is very hard

today. There are a variety of ways of moving towards electronic filing of information, for instance, that would enormously help our

ability to monitor the sector.

As I also mentioned, in the case of automobiles and some in-kind

donations, there remain abuses. We hear advertising on the radio

every day, a lot of times, for charities that do not make good use

of these donations.

For a $1,000 automobile, some charities are spending $900 in intermediary costs and advertising costs; $100 is going to charity,

the government is spending $300. The donation, by the way, is not

going to Salvation Army, which does not spend huge amounts on

advertising for automobiles, but basically accepts them. So, we

have these types of problems: how can we get the donations to

those charities that make best use of them?

Efforts towards better information reporting, even though I realize in some cases it is going to add some administrative burden,

can help us enormously in getting the money where we want it to

go.

Senator CONRAD. I will tell you, I just had a personal experience.

I had an organization that somehow got my name, and they would

call me about every 3 months wanting to know if I would donate

a car. I looked into it and I found out this particular organization

was largely a scam operation. There was virtually nothing going for

charity. Really, $100 would be well in excess of what they were

doing for $1,000.

Dr. STEUERLE. This is true for some of the organizations that

also call us for clothes donations as opposed to, again, the Salvation Army, where I often make donations. So these issues are

there. To the extent we can help deal with them, I think we have

a better chance not only of getting more money to charity, but getting more money to the right charities.

Senator CONRAD. Yes. We want to get money to charities that

really are charities. People represented here today have sterling

reputations. Mr. Hingson, we look at your operation. It is phenomenal, the reviews of how you operate and what an extraordinary job you do of having minimal administrative expenses and

delivering so much of what you receive directly to the intended recipients. We all know the record of the Salvation Army. It has really quite a history. And Dr. Reccord, what you are doing is most impressive.

But there are some people who want to get out, and if they would

expend all this energy doing something legitimate, they would

probably make a great success of themselves. But they, for some

reason, have a larcenous heart, and we have to deal with those

people, too.

I thank you.

Senator SANTORUM. Thank you, Senator Conrad.

Just to follow-up on a couple of things that Senator Conrad was

questioning on. You mentioned, Dr. Steuerle, the non-itemizer and

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you suggested a floor. Can you give me a sense of what floor you

would suggest for a non-itemizer?

Dr. STEUERLE. I would go to the Joint Committee on Taxation.

I would figure out how much money you would want to spend on

this deduction. I would ask them, give me a floor that gives me the

most bang per buck that is liable to increase incentives the most.

Now, there is a debate over what the size of this incentive is, but

quite honestly there is almost no debate over whether putting a

floor on and removing a ceiling adds to the incentive.

The reason, as I say, is the ceiling, such as in the CARE bill now.

Is it $1,000? I do not know what the latest one is. It was $1,000

at one time. It basically gives no incentive for people who are already giving $1,200 to give $1,300, or $1,500. And these are among

your most important givers.

So I would ask the Joint Committee, what can we do in removing

ceilings and putting on a floor so we can spend that money better?

Now, I do not know whether the floor is $100, $200, or what.

I have one complication, and I admit, this is politically difficult.

You can really simplify the tax return if you make it a common

floor for itemizers and non-itemizers alike. A floor for itemizers actually could take away a tiny bit of what they have, but a common

floor allows this deduction to go on one part of the tax return only.

If you have a non-itemizer deduction and a separate itemizer deduction, there is an enormous amount of confusion, paperwork, and

administrative costs for taxpayers and their preparers to figure

out, where is it better to take the deduction? You get all sorts of

weird calculations that can result that you can remove, by the way,

if you put on a common floor.

Also, by the way, if you put on a floor, I think indirectly you will

be able to get rid of the phase-out of the charitable contribution.

The charitable contribution is now phased out with the phase-out

of itemizable deductions.

I think if you get the deduction out of the itemizable category,

then that is going to help charities too, especially if, for revenue

reasons down the road, you end up retaining the phase-out of

itemizable deductions, which is turned off for 2 years and then goes

back on.

So without resolving that debate, if you put the common floor on

and get the deduction out of the itemizable category, you can expand incentives also because you are going to get rid of that phaseout.

I cannot tell you the exact dollar amount of the floor, but I could

work with your staff or the Joint Committee staff on how to do an

estimate, given the amount of money that you feel that you are

going to be able to come up with as a Congress.

Senator SANTORUM. On the e-filing, I am supportive of the idea

of e-filing. A couple of issues. Number one, as you know, there are

organizations out there who, for religious reasons or others, will

not electronically file, do not use the Internet, and will not, so I believe in a good-cause exemption to that electronic filing.

The other complaint I have heard is, the IRS basically says they

are not ready to do this, and this is impractical for them. Do you

have any comment on that?

25

Dr. STEUERLE. Well, this is one of our many difficulties. The exempt organization function of IRS has always been an unwanted

stepchild. It does not raise revenues. Once in a while, when you

call them to task, they end up saying, well, we will try to do a little

bit more, and then they go back to old habits.

Quite honestly, it is part of a balance. Probably because Congress

might pressure IRS now to do more on auditing people, it might

start putting this e-filing effort aside. It has the capability of allowing this. It does have some electronic filing.

There is an existing minor legal rule that I believe is addressed

in some of the bills of Congress, too, that prevents mandated e-filing for individuals or preparers who have less than 250 returns. It

is basically preventing IRS from even requiring e-filing.

Michigan has now undertaken to try to require mandatory e-filing, so it is giving an example. Some other States are considering

it. I should indicate that the e-filing, by the way, would be, for

many charities, a great simplification, because if we could get the

e-filing with the IRS, most States will then accept that tax return

for the State attorney general’s functions. We could get a much

simpler system of filing.

I should mention, by the way, another problem which I have not

even brought up here. Technically, a lot of small charities that receive gifts from multiple States are supposed to be filing with every

State. If we go to e-filing and have common e-filing with those

States, we might be able to get rid of that potentially onerous requirement that is really not, in practice, adhered to.

Senator SANTORUM. One final question for you, Dr. Steuerle.

That is, you talked about some reforms you would suggest, but in

looking at the broader charitable reforms that are being discussed

here in the committee, do you have concerns about the impact on

smaller charities and their ability to deal with some of the requirements that are being suggested?

Dr. STEUERLE. Definitely. I think every comment made by my fellow panelists is exactly correct. The dilemma is, we cannot just say

that any new administrative burden is necessarily bad. In some

cases, if charities, for instance, take on a better system of reporting, as they did, for instance, with the existing $250 requirement,

it actually helped individual taxpayers and removed some administrative burdens for them because they had better records.

I really think that the statement (required for gifts of $250 or

more) that is sent to individuals, by the way, should start being

filed with the IRS, maybe starting with the larger charities.

You know, when we are dealing with charities, it is the same

issue we have with small businesses. The small businesses are

often the most entrepreneurial, the most dynamic part of the economy.

They are also a part of the economy where often we have a lot

of abuses and cheating, because the recordkeeping is worse. You

sort of have the same issue with charities. You are trying to strike

a balance.

Some of the smaller charities are among the most dynamic, entrepreneurial, and innovative of the entire charitable sector, and so

we really like that part of the charitable sector. They are often the

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part that pays their staff people the least, so they are among the

most efficient.

But at the same time, because they are small, they are also

groups that are very hard to monitor, for IRS to track. And so, at

some level, we have to impose some administrative burdens. Reaching a balance is something that is difficult, but something that has

to be addressed.

Senator SANTORUM. Thank you.

Senator Conrad, do you have any more questions?

Senator CONRAD. Mr. Chairman, I want to again thank you for

holding this. I thank the panelists. I think it has just been excellent. I apologize. I wish we could go further. I have a whole series

of other questions that I would like to put to this panel, but I have

another obligation at 11:30.

Again, my thanks to this entire panel. We appreciate very much

your taking the time to be here.

Senator SANTORUM. Let me, first, thank you, Senator Conrad,

again, for your interest and your stick-to-it-iveness, staying here

for this entire hearing. I appreciate your interest in this and your

participation.

Again, I want to echo his comments in thanking all of you for

your testimony, and particularly the three service organizations

here, for the tremendous effort that you do on behalf of those in

need in our society.

Thank you. We are adjourned.

[Whereupon, at 11:23 a.m., the hearing was concluded.]

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