A Philanthropist Goes to Washington

Ruth Lilly's $120 Million Donation to Americans for the Arts is Hardly Philanthropic

In philanthropy, as in other human undertakings, there are degrees of performance, from inspired to disappointing. Because the very act of generosity merits some credit, we are reluctant to give an entirely negative rating to any donor, but sometimes a philanthropist comes along who tests our forbearance. A case in point is Ruth Lilly, heiress to the Eli Lilly pharmaceutical fortune, who announced last December a gift of $120 million to support the arts.

If you had $120 million and wanted to assist the arts, how would you do it? Well, you could simply identify 12,000 artists and give each $10,000. Or you could give the money directly to art museums, art schools, orchestras, and so on. Unfortunately, Ruth Lilly and her lawyers had a different idea. She donated the entire $120 million to an organization called Americans for the Arts, a pressure group that lobbies for taxpayer funding of the arts. Its main effort is a yearly campaign to persuade Congress to pass higher appropriations for the federal National Endowment for the Arts (NEA). From its plush offices on Vermont Avenue and K Street, in Washington, D.C., Americans for the Arts organizes teams of lobbyists and celebrities who, the Washington Post reports, “fan out across Capitol Hill, calling on members of Congress and other key officials.”

In other words, instead of buying art, Ruth Lilly has chosen to buy votes–which she hopes will translate into art. She’s not alone in this approach. Over the years, a number of donors and foundations have targeted their giving not at helping people and solving problems, but at getting government to help people and solve problems. One philanthropist in this mold was Albert Lasker, who in the 1940s was interested in cancer research. Instead of directly supporting such research, Lasker gave his millions to the American Cancer Society to support its lobbying for tax funding of cancer research.

What’s wrong with this politically oriented philanthropy? To begin with, there’s an ethical problem. Government does not have any wealth of its own. Its subsidy programs simply transfer it. They take money away from Americans who were going to spend it on worthy causes of their own choosing–food, housing, travel, business investment, education, charity–and transfer it to the beneficiaries of the subsidy program. Hence what Ruth Lilly is trying to buy with her purchase of lobbying services is an enhancement of the system of robbing Peter to pay Paul the art administrator. Since the biggest taxpayers are wealthy individuals, the Peters being robbed are, to a large extent, her fellow philanthropists who are thus prevented from spending their money on their chosen causes. Even if the lobbying works, this is not a high-minded, creative approach.

The second problem with Lilly’s lobbying approach is waste. Government subsidy systems have huge overhead costs. These include not only the costs of running the IRS but also a much larger burden placed on the economy in the form of tax-compliance costs and disincentives to production. By a conservative estimate, these costs amount to 65 cents for every tax dollar collected. In addition, there is the overhead and waste in the government agencies that disburse the funds. For example, the NEA spends only about half its appropriations in actual grants to artists and art projects. The rest is eaten up in administrative overhead, transfers to other agencies, and public-relations campaigns.

Overhead Costs

So let’s step back and see just what is happening to Ruth Lilly’s gift to Americans for the Arts. After raking off a share for its own overhead costs, Americans for the Arts then tries to “buy” the votes of enough congressmen to increase the appropriations of the NEA. There are two possible outcomes. One is that the lobbying campaign succeeds, that it results–let’s be optimistic-in a $10 million increase in the NEA budget (now $105 million). This will mean that Ruth Lilly has made Americans about $16.5 million poorer (the figure includes the tax-system waste factor) in order to direct about $5 million to art (the figure includes the bureaucracy waste factor). So under this optimistic scenario, Ruth Lilly will have purchased something like 4 percent of the arts support she could have had simply by spending her $120 million directly on the arts.

The other possibility is that the lobbying campaign is unsuccessful. Perhaps higher appropriations for the NEA are blocked by a budget crunch, or changing political winds. In this scenario, then, Ruth Lilly has completely wasted her $120 million. Instead of the 12,000 artists who could have been supported with that money, all that remains are wistful memories of celebrity visits to congressional offices.

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