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Wall Street Pennies Can Yield Nonprofit Billions

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While religious and other nonprofits are organizing new coalitions to join established leaders fighting to preserve the charitable tax deduction, most charities have remained silent about severe cuts in government funding for domestic needs. Even more disturbing, few in the nonprofit world seem aware of a new legislative initiative that could add billions of dollars to such programs and their own funding streams.

Senator Tom Harkin (D-IA) and Representative Peter DeFazio (D-OR) have introduced a financial transaction tax modeled after one approved by the European Parliament to be implemented in eleven nations. Oddly, while their version of this "Wall Street speculators sales tax which has attracted support from over 40 national nonprofit organizations and labor unions, it has not caught the imagination of local and regional charities or nonprofit sector leaders.

According to one optimistic study, up to $350 billion a year might be raised by a tax on stock and bond trades, options, swaps, futures trading, etc. Such a tax would not apply to the day-to-day financial transactions of individuals and business, such as banking, loans, and capitalization.

To generate that large sum, stock transactions would only need to be taxed at a 0.5 percent rate (i.e., $5 on each $1,000 traded). For bonds and other speculative transactions, the rate would be only a tiny fraction of even that modest amount (10 pennies on each $1,000. This would not present a significant burden on Wall Streeters and the trading public.

Even at its much lower rates (less than a third of those imposed by the European model), the Harkin/DeFazio legislation would generate an average of $35 billion in additional revenue annually

America's charities and the people they serve need those dollars. Federal spending on programs for the poor fell by more than $28 billion between 2011 and 2012; for healthcare the drop was over another $25 billion, and that was before sequestration. And since the sequester went into effect, $31 billion more in cuts have been made to domestic programs, many of which are critical to nonprofit organizations and the problems they address.

Those cuts have very real consequences. For instance, it's estimated that over 80,000 HeadStart slots have been lost for needy children, along with 30,000 staff positions. State-by-state examples of the sequester's impact on diverse nonprofit organizations and government agencies shows significant reductions in programs such as Meals On Wheels, child care, housing, senior services, job training, homeless services, student support, and on and on.

While news media and others chronicle some of the effect of sequestration's cuts, surprisingly few charity leaders have called for repeal of these funds. Nor have many even expressed concern about the additional cuts recently proposed by congressional Republicans -- including 50 percent reductions in funding for arts and humanities endowments, plus further cuts in grants for poor students, and reduces by more than a third the budget of the Environmental Protection Agency eliminating its ability to enforce greenhouse-gas regulations and targeting energy programs.

But to simply fight against past and proposed cuts, including a cap on the charitable deduction, is to let others define the debate. In place of spending cuts, charities should offer spirited and vigorous leadership in arguing for a revenue-increasing alternative to fund domestic programs. They can do this by supporting the Wall Street Trading and Speculators Tax or even a more ambitious dedicated effort.

The vast majority of funding generated from a Wall Street sales tax would be paid by wealthy individual (and institutional) speculators. It is they who have benefitted disproportionately from tax breaks and tax cuts, as well as earlier deregulation.

The top 1 percent of Americans increased their share of income since the 1970s. In the last decade it climbed to levels not seen since the Roaring '20s. Since the recovery began in 2009, the top 7 percent have seen their wealth increase by almost 30 percent while the other 93 percent of us have seen a decline of about 5 percent. In fact, stock market transactions have been a major driver of this grotesque inequality.

As a result of these trends and the speculator-caused recession, the American middle class has shrunk to an all-time low while income inequality grows faster than it has in over the last twenty years. Astounding in a nation that prides itself on upward mobility, inequality is now much greater in the US than in any of the world's 26 "advanced economies."

So, faced by the out-sized and increasing wealth of market speculators, the resulting and alarming growth of inequality, and proposals for still more damaging cuts in domestic programs and nonprofit funding, doesn't it make sense to support a financial transaction tax? Shouldn't private individuals and institutional speculators who have done so well at the expense of the rest of us appropriately bear an increased share of the costs necessary to meet public needs and advance the common good?

Why hasn't nonprofit sector leadership issued such a call? Some charities may fear reprisals from conservatives who view the nonprofit sector as a greedy arm of government. To these critics, an organization that advocates on behalf of the homeless and decries cuts in funding for food kitchens and shelter beds is simply reflecting its own interests and promoting big government; so too an arts organization that advocates for fully funding the National Endowment for the Arts; a disabilities group fighting to preserve funding for the homebound; a women's health group advocating continued financing for cancer screenings; a university wanting to maintain student aid levels; an environmental group trying to protect investment to reduce greenhouse gases; and so forth.

Such accusations are absurd. When underfunded organizations staffed by hardworking and usually underpaid staff and over-extended volunteers fight for a cause, it's because they care about people, communities, society, the environment, and the commonweal. They understand that there must be shared responsibility to address profound public problems, that private philanthropy, no matter how generous the wealthiest of Americans, will never be adequate to the scale of need we face.

To suggest that these charitable groups operate in self-interest reflects cynical- rather than compassionate-conservatism. Nonprofits should take pride and strength from the higher moral ground in advocating for enhanced funding streams.

Charities must change today's deficit-cutting debate, especially in the face of new Republican proposals. The nonprofit organizations and unions that support a financial transaction tax should be given the philanthropic support they need to organize and fuel a national campaign to inform and animate a base of local groups demanding new revenue. Those groups should demand that their congressional representatives and senators enact a significant Wall Street sales tax, one that even goes beyond the Harkin/DeFazio bill.

Wall Streeters got us into this mess. They should welcome the chance to use some of their profits to help clean it up .

Versions of this piece also appear in the Chronicle of Philanthropy and PhilanTopic.