Corporate philanthropy and the market for altruism

Columbia Law Review

Volumn 109, Issue 3, 2009, Pages 571-627

  Henderson, M Todd ^a   Malani, Anup ^a,b  

^a UNIVERSITY OF CHICAGO   (United States)

^b Department of Law ^*

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EID: 66049135022     PISSN: 00101958     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (280)

1. Milton Friedman, The Social Responsibility of Business Is to Increase Its Profits, NY. Times Mag., Sept. 13, 1970, at 32, 33 [hereinafter Friedman, Social Responsibility] (arguing that "in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation," and that his "responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society").
2. Bill Gates, Speech at the 2007 Harvard University Commencement (June 6, 2007), available at http://www.gatesfoundation.org/speeches-commentary/pages/ bill-gates-2007-harvard-commencement.aspx (on file with the Columbia Law Review). While this is a good reason for philanthropy, it is not a good reason for corporate philanthropy. Cf. infra Part I.B (discussing duty-based corporate social responsibility).
3. The picture is actually more complex. As discussed below, state statutes specifically audiorize corporate philanthropy and courts generally take a hands-off approach, but there are cases that purport to command a norm of shareholder wealth maximization. See, e.g., Dodge v. Ford Motor Co., 170 N.W. 668, 684 (Mich. 1919) ("A business corporation is organized and carried on primarily for the profit of the stockholders."). Dodge, however, does not create a substantive standard that is enforceable in court, but rather an aspirational goal for corporate directors. The business judgment rule, which applies to philanthropic decisions just like any other corporate decision, insulates firms from judicial review of decisions that allegedly do not maximize shareholder value.
4. The "corporate social responsibility" (CSR) movement takes a different tack. Instead of offering a descriptive theory of why corporations engage in philanthropy to answer the normative question whether they should do so, they answer the normative question and use it to explain why one observes corporations engaging in philanthropy. Under the CSR view, corporations have a moral duty to do good for others, even if it comes at the expense of the bottom line, and we see corporations engaging in philanthropy because of this moral duty. We address this view infra Part I.B.
5. See infra notes 34-38 and accompanying text.
6. See infra notes 26-33 and accompanying text.
7. After all, the current debate just begs the question why managers engage in altruism or why consumers, employers, and regulators offer goodwill in exchange for it.
8. Altruism is well documented, but explanations for its origins are debated. Compare H.A. Simon, A Mechanism for Social Selection and Successful Altruism, 250 Science 1665, 1665 (1990) (arguing that human tendency to accept social influence accounts for development of altruism through natural selection), with R.L. Trivers, The Evolution of Reciprocal Altruism, 46 Q. Rev. Bio. 35, 35 (1971) ("[U]nder certain conditions natural selection favors [certain] altruistic behaviors because in the long run they benefit the organism performing them."). This debate is beyond the scope of this Essay. We take it as noncontroversial that some individuals are altruistic.
9. There are actually two separate altruistic motivations that we define and unpack a bit more below. Economists call the two possible motives "pure altruism" and "warm glow." Pure altruism is a desire that other people's lives be improved, whether or not one contributes to that improvement. Warm glow is a desire actually to contribute to that improvement. Economists call the combination of these preferences "impure altruism." For simplicity we will call them "altruism." See infra notes 52-53 and accompanying text.
10. See Appendix A for specific estimates of charitable contributions.
11. Food is an obvious example. Individuals can grow their own, but most rely on specialization to deliver food at lower prices and with less effort than self-production would require. The same arguments can be applied to altruism.
12. There are no good estimates of the amount of good individuals do for others without using an intermediary, so our discussion of the market for altruism ignores self-production in the same way that measures of the size of the economy and competition within it ignore individual self-production of goods and services.
13. Although taxes are mandatory, individuals can engage in various levels of compliance and tax avoidance, and can, of course, politically support higher or lower tax burdens.
14. See Appendix A for a discussion and rough sizing of the relative market share of the various altruism intermediaries.
15. Our definition even includes payment of corporate taxes that support good works by the government to the extent that those payments are voluntary. The voluntary component of payments is that part which the corporation could have avoided or successfully (in expectation) evaded but did not.
16. See, e.g., Mike Boyer, Cinergy to Reduce Airborne Emissions, Cin. Enquirer, Sept. 10, 2003, at 1A (reporting company's planned reduction of emissions by five percent over seven years);
17. Press Release, AstraZeneca, AstraZeneca to Provide Free Medicines to Facilities that Serve the Uninsured in West Virginia (Jan. 23, 2008), available at http://www.astrazeneca-us.com/about-astrazeneca-us/newsroom/corporate/ 2041753?itemld= 2041753 (on file with the Columbia Law Review) (announcing provision of free medications to health centers in West Virginia).
18. There are no existing estimates of the total amount or dollar cost of voluntary compliance, so we base our estimate on the opinions of environmental law experts, including Jonathan Adler and Michael Vandenbergh. Telephone Interview with Jonathan Adler, Professor of Law, Case Western Reserve Univ. (Jan. 10, 2008);
19. Telephone Interview with Michael Vandenbergh, Professor of Law, Vanderbilt Univ. (Jan. 10, 2008).
20. This may not be literally true, in that there are numerous benefits to managers, shareholders, customers, employees, and other individuals that must be added up on both sides to determine the true social value of these actions. For example, reducing carbon dioxide emissions may preempt more costly regulatory intervention, and thus reduce the firm's ongoing expenses, while donations to charity may be more conspicuous and generate goodwill for the firm, which also may reduce future costs or increase future revenues. If such overcompliance is intended merely to forestall government regulation, then it is more like government social work outsourced to corporations. If, however, it is overcompliance to engender the goodwill of private stakeholders, then it differs little from donations to a nonprofit or direct social action.
21. Patagonia, through its "1% for the Planet" campaign, joins a group of businesses that have pledged one percent of sales to help environmental causes. See Patagonia, 1 % for the Planet, at http://www.patagonia.com/euro/en- GB-GR-/patagonia.go?assetid= 1960 (last visited Jan. 14, 2009) (on file with the Columbia Law Review) (noting Patagonia alone has "awarded over 30 million dollars" to environmental groups through this program).
22. Google donates one percent of its profits to Google.org, a "hybrid philanthropy" that administers grants and engages in socially responsible business endeavors, as well as manages the nonprofit Google Foundation. See Google.org, Inform and Empower to Improve Public Services, at http://www.google.org/inform.html (last visited Nov. 3, 2008) (on file with the Columbia Law Review); Google.org, Our Structure, at http://www.google. org/about.html (last visited Jan. 22, 2009) (on file with the Columbia Law Review).
23. We discuss some elements of this market competition in detail infra Parts II and III. It is important to note here that this "market" is not exactly like the market for automobiles or accounting services. We explore these differences infra Part IV.A.
24. See infra Part IV.B (discussing comparative advantages of corporate charity).
25. The current tax regime often favors corporate giving over direct donations by shareholders, see infra Part V.B.2, but this regime may itself be inefficient.
26. Nonprofits and the government compete in the market for education and also indirectly compete with firms in the markets for housing, credit, and transportation; all three types of actors occasionally compete in the market for health care and health insurance. In nearly all other product markets, for-profit firms are the only market participants.
27. See 26 U.S.C. § 170(a)-(c) (2006) (allowing deduction of "any charitable contribution" to groups "organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes").
28. Michael E. Porter & Mark R. Kramer, The Competitive Advantage of Corporate Philanthropy, Harv. Bus. Rev., Dec. 2002, at 57, 59 [hereinafter Porter & Kramer, Competitive Advantage] ("[S]ocial and economic goals are not inherently conflicting but integrally connected ⋯.").
29. See Madhu Khanna & Lisa A. Damon, EPA's Voluntary 33/50 Program: Impact on Toxic Releases and Economic Performance of Firms, 37 J. Envtl. Econ. & Mgmt. 1, 21, 24 (1999) ("[W]hile the immediate impact of participation in [a voluntary pollution reduction] program on profits is negative relative to the profits of nonparticipants, in the long run participating companies are expected to be more profitable ⋯.");
30. see also Seema Arora & Shubhashis Gangopadhyay, Toward a Theoretical Model of Voluntary Overcompliance, 28 J. Econ. Behav. & Org. 289, 291 (1995) (discussing how consumer preference and response to firm reputation have resulted in firms' willingness to overcomply with EPA regulations);
31. Lance Moir & Richard J. Taffler, Does Corporate Philanthropy Exist?: Business Giving to the Arts in the U.K., 54 J. Bus. Ethics 149, 154-57 (2004) (analyzing gifts to the arts by sixty firms, and finding they were internally justified almost entirely by profit maximization).
32. See, e.g., Khanna & Damon, supra note 27, at 21 ("[I]nvestors expect the costs of ⋯ improving environmental performance to be offset in the future by ⋯ increased consumer goodwill ⋯.");
33. Moir & Taffler, supra note 27, at 150 (describing common view among scholars that corporate giving is primarily promotional).
34. Daniel W. Greening & Daniel B. Turban, Corporate Social Performance as a Competitive Advantage in Attracting a Quality Workforce, 39 Bus. & Soc'y 254, 276 (2000) (finding firms with reputations for corporate social performance may develop competitive advantage in attracting employees);
35. see also Jeanne M. Logsdon et al., Corporate Philanthropy: Strategic Responses to the Firm's Stakeholders, 19 Nonprofit & Voluntary Sector Q. 93, 104 (1990) (same).
36. See David P. Baron, Private Politics, Corporate Social Responsibility, and Integrated Strategy, 10 J. Econ. & Mgmt. Strategy 7, 44 (2001) (suggesting giving reduces risks of activist action);
37. Thomas P. Lyon & John W. Maxwell, Corporate Social Responsibility and the Environment: A Theoretical Perspective, 2 Rev. Envtl. Econ. & Poly 240, 245 (2008) ("One important reason that industry invests in CSR is to preempt advocacy groups from organizing to enter the political arena and press for regulation ⋯.").
38. See Peter Navarro, Why Do Corporations Give to Charity?, 61 J. Bus. 65, 89-90 (1988) (concluding that corporate contributions represent form of advertising, as firms that spend more on advertising also tend to give more to charity).
39. Indeed, Einer Elhauge has suggested that shareholders may draw nonfinancial utility from corporate social actions even if they lower corporate profits. See Einer Elhauge, Sacrificing Corporate Profits in the Public Interest, 80 N.Y.U. L. Rev. 733, 783-96 (2005) ("To at least some extent, shareholders value nonfinancial aspects of corporate activities, such as whether those activities further the shareholders' social and moral views. Thus, maximizing shareholder welfare is not the same thing as maximizing profits.");
40. see also Joshua Graff Zivin & Arthur Small, A Modigliani-Miller Theory of Altruistic Corporate Social Responsibility, Topics in Econ. Anal. & Pol., 2005 art. 10, at 1, 12-15, at http://www.bepress.com/bejeap/topics/ vol5/issl/artlO (on file with the Columbia Law Review) (arguing that firms acting in socially responsible ways are providing utility, what they call an "ethical premium," to investors in those firms).
41. Friedman, Social Responsibility, supra note 1, at 124, 126.
42. See, e.g., Faith Stevelman Kahn, Pandora's Box: Managerial Discretion and the Problem of Corporate Philanthropy, 44 UCLA L. Rev. 579, 586 (1997) (arguing that lack of regulation and disclosure requirements have "meant that corporate senior executives have had a blank check to make corporate charitable contributions independent of both business objectives and shareholder preferences");
43. see also Jayne W. Barnard, Corporate Philanthropy, Executives' Pet Charities and the Agency Problem, 41 N.Y.L. Sch. L. Rev. 1147, 1160-64 (1997) (disregarding any profit or tax motives, and imputing much of donation to personal (largely selfish) motives of CEOs);
44. James R. Boatsman & Sanjay Gupta, Taxes and Corporate Charity: Empirical Evidence from Micro-Level Panel Data, 49 Nat'l Tax J. 193, 200-02 (1996) (discussing data on corporate philanthropy consistent with managers' utility maximization rather than profit maximization);
45. Jill E. Fisch, Questioning Philanthropy from a Corporate Governance Perspective, 41 N.Y.L. Sch. L. Rev. 1091, 1097 (1997) (concluding that corporate giving is motivated by management self-interest because studies fail to find link between giving and profitability);
46. Bill Shaw & Frederick R. Post, A Moral Basis for Corporate Philanthropy, 12 J. Bus. Ethics 745, 747-48 (1993) (concluding that empirical evidence suggests corporate giving is primarily motivated by citizenship interests).
47. See William O. Brown, Jr. et al., Corporate Philanthropic Practices, 12 J. Corp. Fin. 855, 856 (2006) (concluding that "agency cost considerations play a prominent role in explaining corporate giving");
48. see also Lisa Atkinson & Joseph Galaskiewicz, Stock Ownership and Company Contributions to Charity, 33 Admin. Sci. Q. 82, 97-98 (1988) (finding that among sampled firms, companies with higher percentage of ownership by CEO or with large blockholder give less to charity);
49. Bruce Seifert et al., Having, Giving, and Getting: Slack Resources, Corporate Philanthropy, and Firm Financial Performance, 43 Bus. & Soc'y 135, 147 (2004) (finding that generous firms have much higher free cash flow at discretion of managers).
50. For example, the New York Stock Exchange lists charitable organizations as relevant in determining the independence of directors. See NYSE, Inc., Listed Company Manual § 303A.02(a) cmt. (2008), at http://www.nyse.com/Frameset. html?nyseref= &displayPage=/lcm/1078416930885.html (on file with the Columbia Law Review) (stating that charitable relationships can be "material" and thus render a director not independent). The Manual requires firms to adopt governance guidelines including, inter alia, consideration of payments made to charities affiliated with directors.
51. Id. § 303A.09 cmt. (stating that concerns regarding director independence "may be raised when the listed company makes substantial charitable contributions to organizations in which a director is affiliated").
52. See Fisch, supra note 34, at 1097 ("The possibility that corporate giving is motivated by management self-interest rather than profit maximization is ⋯ supported by studies that fail to find a conclusive link between charitable giving and profitability.").
53. See Seifert et al., supra note 35, at 147 (finding positive correlation between corporate philanthropy and cash flow).
54. See Brown et al., supra note 35, at 875 (stating that agency-cost and profit-maximization theories are not mutually exclusive). Other evidence, like larger relative giving by firms in regulated industries, conceivably cuts both ways: Regulated firms may be giving to build goodwill with regulators (and thereby reduce regulation and increase profits) or may simply face less competition and therefore have greater managerial discretion over cash flows.
55. See id. at 872.
56. See Navarro, supra note 31, at 67 (arguing that profit-maximization and agency-cost explanations are not mutually exclusive).
57. See Kahn, supra note 34, at 594 (describing transition from judicial prohibition of corporate philanthropy in early twentieth century to enactment of open-ended enabling laws validating corporate philanthropy after mid-century).
58. See Shlensky v. Wrigley, 237 N.E.2d 776, 781 (111. App. Ct. 1968) (holding decision not to install lights at Wrigley Field to benefit baseball and local neighborhood was permissible exercise of business judgment);
59. Dodge v. Ford Motor Co., 170 N.W. 668, 684 (Mich. 1919) (holding increase in wages for workers - Ford's famous five-dollar day - was not impermissible charitable donation);
60. A.P. Smith Mfg. Co. v. Barlow, 98 A.2d 581, 590 (NJ. 1953) (holding gift from plumbing supply company to Princeton reasonable and calculated to benefit shareholders).
61. Today, nearly all state corporation statutes specifically authorize corporate altruism. For example, Delaware gives boards the power to "[m]ake donations for the public welfare or for charitable, scientific or educational purposes." Del. Code Ann. tit. 8, § 122(9) (2006). This protects specific donations; corporate activities that improve social welfare, like overcompliance with environmental laws, are protected under the business judgment rule.
62. See, e.g., David P. Baron, The Positive Theory of Moral Management, Social Pressure, and Corporate Social Performance 5 (Stanford Univ. Graduate Sch. of Bus., Research Paper No. 1940, 2006), available at http://ssrn.com/ abstract=913808 (on file with the Columbia Law Review) (describing "moral duty" as one theoretical base for CSR claims).
63. See, e.g., Douglas J. Den Uyl, The New Crusaders 8-9 (1985) (describing four schools of CSR, including the "concession theory," which suggests that "corporations are creations of the state" and therefore must serve its interests or those of society at large).
64. See, e.g., John M. Conley & Cynthia A. Williams, Engage, Embed, and Embellish: Theory Versus Practice in the Corporate Social Responsibility Movement, 31 J. Corp. L. 1, 2 (2005) (discussing CSR proponents' arguments that corporate managers should consider "a variety of 'stakeholder' constituencies, including employees, residents of communities affected by their activities, governments, and organizations advocating for various social and environmental interests," as well as their shareholders).
65. Milton Friedman, Capitalism and Freedom 133-34 (1962) [hereinafter Friedman, Capitalism].
66. See David L. Engel, An Approach to Corporate Social Responsibility, 32 Stan. L. Rev. 1, 1-2 (1979) ("[T]he topic of corporate social responsibility cannot be debated except against the background of a general political theory.").
67. Evidence that shareholders care about utility, not just money, is provided by the rise of socially responsible investing, which we describe infra Part I.A.1 of Appendix A.
68. See supra notes 26-30 and accompanying text.
69. See supra notes 34-38 and accompanying text.
70. We recognize this is a complex question; much ink has been spilled debating whether individuals are inherently selfish or altruistic, and, if the latter, what the evolutionary reason is for this. See supra note 8. We don't weigh in on this debate, but rather simply look at the amount of charitable contributions and activities in the market - about one trillion dollars last year - as evidence of some individual preferences for altruism.
71. See James Andreoni, Giving with Impure Altruism: Applications to Charities and Ricardian Equivalence, 97 J. Pol. Econ. 1447, 1448-49, 1455 (1989) (defining "warm glow" and "pure altruism" as the two motives that animate charitable giving). Together these two types are called "impure altruism," since the warm glow component is considered a selfish motive. For simplicity, we refer to the combination simply as "altruism." Our usage is slightly at odds with Andreoni's. He uses "altruism" as a synonym for "pure altruism" whereas we use "altruism" as a synonym for "impure altruism."
72. Id. at 1455;
73. see also supra note 9 (describing use of these terms in this Essay). Because this Essay is largely unconcerned with disaggregating the various motives behind philanthropy, we prefer our usage for its brevity.
74. We document evidence for these tradeoffs in Appendix A.
75. In an important work, Joshua Zivin and Arthur Small develop a model in which corporate philanthropy can offset (either in whole or in part) private donations shareholders would make to nonprofit charities. Zivin and Small argue that investors in socially responsible firms "view the securities of these firms as a bundle that delivers both financial and social characteristics." Zivin & Small, supra note 32, at 12. The authors' model shows how corporate altruism may be a perfect substitute for the private donations to charity it displaces, in which case share prices of altruistic and nonaltruistic firms should be the same, ceteris paribus.
76. See id. at 3. It also demonstrates how share prices might be affected if this substitution effect is imperfect. Zivin and Small speculate about the impact of government and taxes on this tradeoff. We extend their work by considering more fully the market for altruism. Specifically, we identify more comprehensively all of the suppliers in the market, their relative strengths and weaknesses, the role of the government in setting the rules for the market, the sizes of the various inputs and outputs of the market, and the inefficiencies created by the tax code in the delivery of altruism. Finally, we suggest reforms to the tax code to rationalize tax treatment of altruism.
77. Some proponents of duty-based CSR might argue that corporations ought to engage in philanthropy or other good works regardless of demand, because of an independent moral duty. See supra notes 44-46 and accompanying text (describing theories of CSR). But this moral duty must be based on a demand from someone for something, otherwise it makes no sense. In this case, the demand animating the moral duty may come from citizens who are impacted by, but do not necessarily interact voluntarily with, the corporation in question.
78. Cynics will argue that managers are not truly altruistic. Rather they engage in corporate philanthropy only to bolster their own image in the community. But, again, this just begs the question why such philanthropy helps the reputation of managers. The answer is that other members of the community value philanthropy and exchange their respect for philanthropy engineered by managers.
79. See infra Part IV.
80. Armand Hammer, the head of Occidental Petroleum, had the board donate one-third of the firm's profits in one year to build a museum to house his personal art collection. See Kahn v. Sullivan, 594 A.2d 48, 50-51 (Del. 1991) (affirming lower court's approval of settlement with shareholder plaintiffs).
81. See Michael E. Porter, How Competitive Forces Shape Strategy, Harv. Bus. Rev., Mar.-Apr. 1979, at 137, 137 [hereinafter Porter, Competitive Forces] (identifying "five forces" shaping competition in market that are relevant to any strategic calculation).
82. 26 U.S.C. § 501(c)(3) (2006). Consumers who purchase altruism from nonprofit organizations through donations of cash or assets are also given certain tax breaks, but we shall address that topic infra Part V.B.
83. 26 U.S.C. §501(c)(3).
84. A public good is one that is nonrivalrous (one person's consumption does not preclude another's) and nonexcludable (one person cannot stop another from consuming the product). See Paul A. Samuelson, The Pure Theory of Public Expenditure, 36 Rev. Econ. & Stat. 387, 387 (1954) (defining public goods or "collective consumption goods").
85. See Richard Cornes & Todd Sandier, The Theory of Externalities, Public Goods and Club Goods 10 (2d ed. 1996) ("Governments allocate resources for those goods and services for which the private sector fails to assign sufficient resources."). Implicit in this argument is the claim that, while certain activities can satisfy both warm glow and purely altruistic preferences, they do not always do so. There may be some activities which are driven largely by warm glow and others that mainly satisfy purely altruistic preferences. Examples of the former are the construction of a fancy university building, which gives the donor warm glow but only marginally benefits students, or a personal act of kindness that is not revealed to - and thus cannot confer purely altruistic benefit upon - others. In contrast, an example of an activity that primarily satisfies purely altruistic preferences is an anonymous donation to pay for an especially sick child's surgery. The limited cost of the surgery caps the number of people who can donate and obtain warm glow, while press coverage of the surgery permits the entire population to draw purely altruistic benefits from the child's care.
86. This is an obvious overstatement, but it is likely true on the margin, meaning there will be some rational free riding and thus less altruism than is optimal.
87. Arthur C. Brooks, Who Really Cares? The Surprising Truth About Compassionate Conservatism 55-57 (2006) [hereinafter Brooks, Who Really Cares?];
88. see also Jerald Schiff, Does Government Spending Crowd Out Charitable Contributions?, 38 Nat'l Tax J. 535, 540-41 (1985) (finding that "aggregate [charitable] contributions fall as local governments increase spending").
89. Jonathan Gruber & Daniel M. Hungerman, Faith-Based Charity and Crowd Out During the Great Depression 18 (Nat'l Bureau of Econ. Research, Working Paper No. 1132, 2005), available at http://www.nber.org/papers/W11332 (on file with the Columbia Law Review) ("[E]ach dollar of government spending crowded out 1.15 cents of church benevolence.").
90. There is an international component of this story too. While European and Asian governments contributed more in absolute dollars (and much more on a per-GNP basis) than the American government to aid the victims of the 2004 tsunami (for example, Germany gave $674 million and Japan gave $500 million compared with only $350 million from the United States), private contributions by Americans made up for the difference: "Americans ⋯ donated more than $1.5 billion in cash and gifts." Brooks, Who Really Cares?, supra note 66, at 117. Extrapolating back to the homefront, this suggests a view of welfare that is the sum of public and private efforts, with the United States relying more heavily on the latter than the former.
91. See Dodge v. Ford Motor Co., 170 N.W. 668, 684 (Mich. 1919) (establishing norm of shareholder wealth maximization as duty of corporate boards).
92. See M. Todd Henderson, The Story of Dodge v. Ford Motor Company: Everything Old Is New Again, in Corporate Law Stories (Mark Ramseyer ed., forthcoming 2009) (manuscript at 51, on file with the Columbia Law Review) [hereinafter Henderson, The Story of Dodge] ("The Five-Dollar Day was a response to business pressures and was brilliant competitive strategy."). The link between corporate charity for workers and the bottom line was also a key feature of company towns, which were ubiquitous for the five decades after the Civil War.
93. See M. Todd Henderson, The Nanny Corporation and the Market for Paternalism 13-18 (Jan. 5, 2009) (unpublished manuscript, on file with the Columbia Law Review) [hereinafter Henderson, Nanny Corporation] (describing profit motives behind creation of company towns).
94. See Henderson, The Story of Dodge, supra note 70, at 66 (noting that "courts generally will not enforce a strict shareholder wealth maximization [norm] on all firm decisionmaking").
95. See, e.g., Del. Code Ann. tit. 8, § 122(9) (2006) (giving firms specific powers to "[m]ake donations for the public welfare or for charitable, scientific or educational purposes ⋯.");
96. A.P. Smith Mfg. Co. v. Barlow, 98 A.2d 581, 586 (N.J. 1953) (using business judgment rule to decline judicial inquiry into propriety of gift to Princeton University).
97. We discuss the willingness to trade cash (either in labor or investment income) for charitable utility infra Appendix A Parts I.A.2 and I.A.3.
98. An interesting implication is that when a corporation produces altruism, it is behaving like a producer cooperative, albeit with specialized workers. There is a large body of economics literature that documents how cooperatives behave differently - and perhaps less efficiently - than shareholder-owned firms producing widgets. See, e.g., Philip K. Porter & Gerald W. Scully, Economic Efficiency in Cooperatives, 30 J.L. & Econ. 489, 491 (1987) (listing hypotheses for comparative inefficiency of cooperatives). What is less clear is whether corporations are more or less efficient than nonprofits or the government at producing altruistic goods.
99. See infra Appendix A Part I.A.I for a discussion of the socially responsible investing phenomenon.
100. See supra note 1 and accompanying text.
101. One can say that there are economies of scope between the production of two goods if the producer can lower its costs of producing one of the goods by also producing the other good. For example, goods A and B may each cost $1 to produce separately, but cost $0.75 each to produce together.
102. See Starbucks Coffee, Starbucks, Fair Trade, and Coffee Social Responsibility, available at http://www.starbucks.com/aboutus/ starbucksandfairtrade.pdf (last updated Mar. 7, 2006) (on file with the Columbia Law Review) (noting that Starbucks paid premium between 83% and 118% above prevailing market prices for coffee in 2003).
103. See, e.g., Lawrence M. Mead, Beyond Entitlement 69 (1986) ("There is a good reason to think that disadvantaged workers are unlikely to labor regularly unless they are required to as a condition of support by society.").
104. To be clear, we do not claim that nonprofits do not obtain economies of scope. They may start with donating money to coffee farmers in developing countries and decide that it would be easier to generate demand for donations if they also ran a coffee shop or to find farmers if they also bought coffee from them. A real world example of such a move is that a nonprofit seeking to train poor or disabled individuals for jobs may actually start a fast food franchise to improve the productivity of its job training program. See, e.g., Colleen DeBaise, Profits on the Side: Take a Charity; Add a Franchise Outlet; The Result; More Money for the Mission, Wall St. J., June 25, 2007, at R3 (discussing "social franchising" as a way for nonprofit groups to supplement their income). Rather, our claim is that nonprofits produce private goods less commonly than corporations produce altruistic goods.
105. See Leo Hickman & Simon Chilvers, Can Fashion Play Fair?, Guardian (London), July 25, 2008, at Features 18 ("It is almost exactly a decade ago ⋯ that the sports fashion retailer Nike, the first major company to face sweatshop allegations, finally reacted to the ire of protestors around the world and announced a series of changes in its working practices.").
106. See Dara O'Rourke, Outsourcing Regulation: Analyzing Nongovernmental Systems of Labor Standards and Monitoring, 31 Pol'y Stud. J. 1, 7, 10 (2003) (describing development and breadth of Nike's internal compliance division). Another example is Ikea, which monitors the use of child labor by suppliers of its rugs from India.
107. See Ikea, Ikea's Position on Child Labour 2 (2003), available at http://www.ikea.com/ms/en-US/about-ikea-new/about/read-our-materials/ ikea-position-child-labour.pdf (on file with the Columbia Law Review) (describing monitoring of suppliers by Ikea staff and outside auditors).
108. O'Rourke, supra note 82, at 7 (noting that in 2003 Nike's supplier network comprised some 900 factories employing over 650,000 workers).
109. Michael Vandenbergh's important work on private provision of public goods is instructive here. See generally Michael P. Vandenbergh, The Private Life of Public Law, 105 Colum. L. Rev. 2029, 2037-39 (2005) (discussing new focus on private role in provision of public goods).
110. The need for action by for-profit firms arises in part because of the lack of a political solution to the problem. This is related to the problem of diversification discussed infra Part IV.B.3. The point is simply that political consensus may be difficult to reach on certain issues, and firms can meet this demand more efficiently. See Henderson, Nanny Corporation, supra note 70, at 42.
111. The premium for hybrid versions of most vehicles is several thousand dollars. Which Hybrids Save You Money?, Consumer Rep., Oct. 2008, at 40, 41 (noting several Lexus, Toyota, and Honda hybrid vehicles costing between $4,000 and $8,000 more than their gasoline equivalents). If these vehicles cost the same or less than gasoline versions, state subsidies for hybrids would be unnecessary.
112. One might argue that consumers pay a premium in order to signal certain personal attributes, such as a commitment to the environment, through their purchases. One can achieve this same benefit through other means, however, such as notorious donations to charities, displaying bumper stickers of support, simply telling people about one's commitment, and so on. A large purchase may be a means of making this commitment to the environment more credible, but it seems unlikely, given the alternative mechanisms available and the likely size of the benefits, that this explanation can account for the difference in price individuals are willing to pay for hybrid vehicles. Even if the purpose of paying the premium is to signal certain personal attributes to a third party, the premium still represents a demand for altruism. One reason that the third party values receiving the signal from purchase of a hybrid may be that the third party has an altruistic preference to contribute to a public good. Even if the third party does not have such a preference but is using the hybrid purchase as, for example, a costly screening device as suggested in Michael Spence, Job Market Signaling, 87 Q.J. Econ. 355, 364 & n. 6 (1973), the premium still reflects demand for a transfer. In short, our analysis requires only that there is some demand for an altruistic public good. It does not matter that the demand is driven by costly signaling any more than it matters that the altruistic preferences are driven by, for example, religious ideology or a childhood experience.
113. It is true that the federal government provides tax breaks to promote sales of hybrids. However, these breaks do not fully offset the additional cost of hybrids. For a list of tax breaks, see U.S. Dep't of Energy, New Energy Tax Credits for Hybrids, at http://www.fueleconomy.gov/feg/tax-hybrid.shtml (last updated Jan. 9, 2009) (on file with the Columbia Law Review).
114. Moreover, the tax breaks have expired for many cars, see id., but demand has not. Compare id. (indicating decreasing tax credits for Toyota Prius from 2006 through 2007), with Press Release, Toyota, Worldwide Prius Sales Top 1 Million Mark (May 15, 2008), available at http://www.toyota.co.jp/en/news/08/ 0515.html (on file with the Columbia Law Review) (indicating increased sales from 2006 to 2007).
115. This advantage comports well with an account of strategic corporate philanthropy offered by Michael Porter and Mark Kramer. See Porter & Kramer, Competitive Advantage, supra note 26, at 68 ("[T]he more closely a company's philanthropy is linked to its competitive context, the greater the company's contribution to society will be. Other areas, where the company neither creates added value nor derives benefit, should appropriately be left - as Friedman asserts - to individual donors following their own charitable impulses.").
116. Recall that the government solves free riding with mandatory contributions to altruistic public goods. See supra notes 65-66 and accompanying text.
117. Zivin and Small claim that free riding is not an issue in the market for altruism because of the presence of warm glow: The investor who sheds his holdings in an enlightened firm may still enjoy the public benefits of the firm's social activism, but will no longer enjoy the positive feeling that comes through a perceived personal connection to the endeavor. It is this private benefit, we claim, that underlies incentives to devote private resources to charitable and altruistic causes ⋯. Zivin & Small, supra note 32, at 14. The presence of warm glow is certainly a helpful condition, but it is not sufficient to overcome the free riding problem. Warm glow provides incentives for some individuals to donate, but not pure altruists. Assuming the mix of desire for pure altruism and warm glow is heterogeneous across individuals, the presence of warm glow will reduce free riding, but not eliminate it. And, on the margin, there will be less philanthropy than would be socially optimal. The solution we offer arising from corporate bundling is a superior explanation for the corporate advantage because it accounts for this heterogeneity and the marginal donors.
118. Another reason that corporations may be able to reduce free riding is, ironically, managerial graft. The main argument against corporate donations is that they are given by managers serving their own preferences (or reputation) rather than those of shareholders. But even purely altruistic shareholders have an incentive to free ride. So when a manager ignores shareholders' preferences, he also ignores the incentive to free ride. Thus managerial graft may, fortuitously, reduce free riding. There are two limits to this reasoning that keep us from including it in the main text. First, it requires managers to be motivated by warm glow (or reputation) while shareholders are motivated by pure altruism. Otherwise managers too would simply free ride on others' production of pure altruism. But why would managers have different preferences, especially since they too are shareholders in other companies? This disconnect is partly bridged by the fact that managers are spending shareholders' money and even pure altruists would buy a free public good. Yet all models of managerial wage under asymmetric information find that graft to some extent trades off with wage - that is, that more opportunity for graft is a form of compensation that reduces wages. See, e.g., M. Todd Henderson & James Spindler, Corporate Heroin: A Defense of Perks, Executive Loans, and Conspicuous Consumption, 93 Geo. LJ. 1835, 1864 (2005) (describing perks as substitutes for cash in executive compensation). Therefore, managers' donations are not entirely free. Second, managers' preferences among charities might not match those of shareholders. For example, managers may like the local opera while shareholders like helping soup kitchens.
119. This point is different from the first comparative advantage we have highlighted. The first was that corporations, because of economies of scope, may be able to produce the altruistic public good more efficiently, whether the demand for that good is driven by warm glow or pure altruism. See supra Part IV.B.1. The current point is that this joint efficiency helps reduce free riding when consumers are driven by pure altruism.
120. We have arbitrarily drawn such a C*. In contrast to our smooth and continuous depiction, C* may be a single point or piecewise linear. This will not affect our conclusion.
121. The astute reader will ask: Might not the consumer land in the region above U on C* but to the left of Yc, a segment we have labeled "less y?" Although this would decrease the altruistic efficiency of bundling, it is very unlikely to happen because of the nature of public goods. Matthew Kotchen's work on "green markets" shows that an important feature of free riding is that the larger an economy is, the more free riding on public goods there will be. Matthew J. Kotchen, Green Markets and Private Provision of Public Goods, 114 J. Pol. Econ. 816, 826-27 (2006) (finding that availability of green good in a larger economy will tend to crowd out direct donations to improve environmental quality). In other words, there will be less y purchased by each individual. In the extreme, yc will fall to zero, and thus bundling that raises the budget constraint to C* can only increase the consumer's expenditure on the altruistic public good y. But this is a rather technical point that does nothing more than preserve the main argument from all but the most improbable circumstances.
122. For a related bundling benefit for shareholders, see Henry N. Butler & Fred S. McChesney, Why They Give at the Office: Shareholder Welfare and Corporate Philanthropy in the Contractual Theory of the Firm, 84 Cornell L. Rev. 1195, 1203-04 (1999) ("Shareholders would prefer to give at the office precisely because giving through the firm forces all others who will also benefit from giving at the office too.").
123. See, e.g., supra notes 19-20 (discussing the commitments of Patagonia and Google);
124. see also Corporate Philanthropy's Biggest Givers, BusinessWeek Online, at http://bwnt.businessweek.com/interactive-reports/philanthropy-corporate/(last visited Jan. 15, 2009) (on file with the Columbia Law Review) (tracking philanthropic giving by companies in S&P 500 and providing a key for "favored causes").
125. See Herbert Kaufman, Are Government Organizations Immortal? 34 (1976) (finding only fifteen percent of government organizations present in 1923 had been eliminated by 1973). Even studies claiming government programs are not immortal show remarkable stickiness that dramatically exceeds the survivability of firms or programs in the private sector. For example, a recent study concludes that "over 80 percent of programs survive for at least 30 years." Christopher R. Berry et al., Matters of Life and Death: The Durability of Discretionary Programs 1970-2004, at 11 (Harris Sch. of Pub. Policy Studies, Working Paper No. 0701, 2006), available at http://ideas.repec. org/p/har/wpaper/0701.html (on file with the Columbia Law Review).
126. See infra notes 162, 166, and accompanying text.
127. Cf. supra note 89.
128. We mean this in the Coasian sense - transaction costs include any monetary, psychic, or other cost that individuals experience when deciding on a course of action. One of these costs in this context might be some notion of commodification and the belief that a donation is in some sense a bribe or payoff, while paying a bit more for a product is not. We do not know what is in the minds of individuals making these choices, but we observe behavior that is inconsistent with purely rational behavior. A full consideration of the reasons is beyond the scope of this Essay.
129. Individuals may, for example, engage in various types of "mental accounting" that suggest money is nonfungible and therefore skew purchase choices based on budgetary constraints. For example, an individual might allocate a certain amount at the beginning of the year to give to charity, and then make payments to it at the end of the year, while separately choosing to buy fair trade coffee and not debit these purchases from the charity budget. For a full treatment of mental accounting heuristics, see generally Richard H. Thaler, Mental Accounting Matters, 12 J. Behav. Decision Making 183 (1999).
130. Under certain circumstances, buying a product-charity bundle may be efficient. Buying green goods not only increases philanthropic activity the consumer demands, but in some cases also decreases activities that are detrimental to those demands. For example, buying a cup of fair trade coffee not only makes an implicit donation to coffee farmers, but also takes money away from companies that might exploit the same farmers. Depending on the magnitudes of the increase and decrease, as well as the size of the tax advantage from direct giving, it may be efficient for consumers to purchase green goods.
131. The same argument applies equally to working for or investing in firms committed to doing good.
132. See Eric Posner, The Strange Case of One Laptop per Child, University of Chicago Law School Faculty Blog, Jan. 7, 2008, at http://uchicagolaw.typepad. com/faculty/2008/01/the-strange-cas.html (on file with the Columbia Law Review) (describing controversy over charity founded to provide laptop computers to children in developing world).
133. See, e.g., Roberta Romano, Public Pension Fund Activism in Corporate Governance Reconsidered, in Institutional Investors and Corporate Governance 105, 105 (Theodor Baums et al. eds., 1994) (noting that commentators concerned about corporate performance have "call [ed] for more active monitoring by institutional investors" and public pension funds in particular).
134. See Dana Brakman Reiser, Enron.org: Why Sarbanes-Oxley Will Not Ensure Comprehensive Nonprofit Accountability, 38 U.C. Davis L. Rev. 205, 244 (2004) ("Sarbanes-Oxley does not, by its terms, address the nonprofit sector.");
135. cf. Bill Birchard, Nonprofits by the Numbers, CFO Mag., July 2005, at 50, 52 ("Although most Sarbox rules apply only to publicly held for-profit firms ⋯. [n]onprofit directors drawn from the corporate world are now asking why the law's reforms shouldn't apply to nonprofits as well.").
136. See, e.g., Ron Nixon, Bottom Line for (Red), N.Y. Times, Feb. 6, 2008, at Cl (noting that detractors "criticize a lack of transparency at the company and its partners over how much they make from Red products" and that one publication reported "Red companies had collectively spent as much as $100 million in advertising and raised only $18 million").
137. See, e.g., Janet Greenlee et al., An Investigation of Fraud in Nonprofit Organizations: Occurrences and Deterrents, 36 Nonprofit & Voluntary Sector Q. 676, 679 (2007) ("Prior literature has conjectured that fraud may be easier to perpetrate in a nonprofit organization [than in a business organization, due to] an atmosphere of trust, the difficulty in verifying certain revenue streams, weaker internal controls, lack of business and financial expertise, and reliance on volunteer boards ⋯.").
138. See, e.g., William P. Barrett, Genuinely Needy, Forbes, Dec. 8, 2003, at 246, 246 (describing annual survey of 200 large charities);
139. American Institute of Philanthropy, at www.charitywatch.org (last visited Nov. 7, 2008) (grading performance of approximately 500 American charities over various categories);
140. Charity Navigator, at www.charity navigator.org (last visited Nov. 7, 2008) (rating financial health of over 5,000 charities).
141. A different type of agency cost arises with government providers of altruism. Individuals' ability to monitor what is done with their contributions is likely higher in the case of for-profit or nonprofit entities than in the case of government production of altruism. Taxpayers can less directly trace tax dollars to philanthropic ends than they can trace their own purchases of goods, ownership of stocks, or donations to charities. In other words, individuals likely get more warm glow and pure altruism spending $200 on fair trade coffee than giving the government the same $200 in taxes, since the latter is used for a variety of purposes, some of which may even be inimical to the philanthropic ends desired by the individual.
142. The lines here are obviously blurry: Taxpayer-funded junkets look similar to corporate managers' private use of the company's jet. The point is simply that the lines are a bit less blurry for government and nonprofit employees, since there are direct rules or laws on point, while the market constraints are higher for corporate managers. Insofar as one relies on the former, preferring nonprofits or the government makes more sense, and vice versa.
143. Our suggestion that warm glow production generates network effects is supported by some empirical evidence. Studies examining the effect of matching contributions on giving by donors show donors give more to charity when told their donation will be matched by their employer or some other donor. See, e.g., John A. List & Daniel Rondeau, Matching and Challenge Gifts to Charity: Evidence from Laboratory and Natural Field Experiments 4 (Nat'l Bureau of Econ. Research, Working Paper No. W13728, 2008), available at http://www.nber.org/ papers/wl3728.pdf?new-window=l (on file with the Columbia Law Review) ("We observe that a challenge gift attracted 23% more donors and increased total dollar contributions 18% when compared to the identical campaign in which no announcement of leadership gift was made."). If a donor did not obtain some warm glow from the matching contribution, it should have no effect on the donor's contribution. In fact, if the donor had purely altruistic preferences, the matching contribution might actually lower her own donation, because she can free ride on the public benefits it provides.
144. See Michael Katz & Carl Shapiro, Network Externalities, Competition and Compatibility, 75 Am. Econ. Rev. 424, 424 (1985) ("There are many products for which the utility that a user derives from consumption of the good increases with the number of other agents consuming the good.").
145. This positive externality in warm glow may justify subsidies to encourage delivery in this aggregated way.
146. See, e.g., Campbell R. McConnell & Stanley L. Brue, Economics 404-08 (16th ed. 2005) (showing how economies of scale decrease a firm's average total costs, and therefore lead to increased production by the firm relative to higher cost firms).
147. James Andreoni, Giving Gifts to Groups: How Altruism Depends on the Number of Recipients, 91 J. Pub. Econ. 1731, 1748 (2007) ("[A]s groups [of altruism recipients] grow, altruism of the givers is congested and the value of the gift to the giver does not grow proportionately with the social value of the public good.").
148. The federal budget in 2009 is about $3.1 trillion. Office of Mgmt. and Budget, Budget of the United States Government, Fiscal Year 2009, at 139 tbl.S-1 (2008), available at http://www.whitehouse.gov/omb/budget/fy2009/budget. html (on file with the Columbia Law Review). The amount firms have to devote to public goods is much less. The Wilshire 5000 index, which estimates the value of all publicly traded firms, was about $10 trillion on December 31, 2008. Wilshire, The Dow Jones Wilshire 5000 Composite Index, Fundamental Characteristics, at http://www.wilshire.com/Indexes/Broad/ Wilshire5000/Characteristics.html (last visited Jan. 17, 2009) (on file with the Columbia Law Review). To estimate the amount available to all firms, one would need to convert this figure to earnings, then multiply by one or two percent, which is the average for most firms engaging in philanthropy, see infra note 192 and accompanying text. This number will be significantly less than the amount available to the government.
149. Individuals also get less warm glow from paying taxes than from buying philanthropic goods, thus giving nonprofits an additional advantage over the government. Tax time is not widely considered a good time of the year, and there is a vast amount of resources devoted by individuals and firms to minimize taxes and by the government to stop tax evasion. See, e.g., Econ. Policy Inst., Bridging the Tax Gap, at vii (Max B. Sawicky ed., 2005) (citing government estimates that up to $350 billion in taxes is not paid voluntarily, and about $50 billion is recovered through enforcement). Many states also offer the option for taxpayers to voluntarily pay additional taxes; few, if any, choose to pay. Case in point is the Virginia plan called the "Tax Me More Fund," which was designed to allow citizens of the Commonwealth to voluntarily pay more taxes to close a $1.4 billion budget shortfall. From its inception in 2002 until February 2008, the Fund collected about $10,000. See Seth McLaughlin, "Tax Me More Fund" Raises Little Revenue, Wash. Times, Feb. 15, 2008, at Bl. In 2006, Virginia taxpayers collectively paid an extra $19.36.
150. See id.
151. Cf. Porter, Competitive Forces, supra note 60, at 145 ("The key to growth - even survival - is to stake out a position that is less vulnerable to attack from head-to-head opponents ⋯.").
152. This "crowd out" of private altruism by government altruism is offset to some extent by a "reverse crowd out" effect since some - but not all - philanthropic activities are tax-deductible and thus reduce government revenues. Moreover, corporations - unlike § 501 (c) (3) nonprofits - can engage in unrestricted lobbying of the government to stop engaging in altruistic activities that compete with corporate philanthropy.
153. This is just a variant of the typical economist's claim that the proper, narrow role of government is to provide public goods. See, e.g., Friedman, Capitalism, supra note 47, at 22-36 (defining role of government as limited to establishing and maintaining conditions for a free market, enforcing the rule of law, and dealing with neighborhood effects, all of which are public goods).
154. Alternatively, she can donate an appreciated asset and deduct not only the full value of the asset from her taxable income, but also avoid paying capital gains tax on the appreciation. Internal Revenue Serv., Publication 526: Charitable Contributions 11 (2007), available at http://www.irs.gov/pub/irs-pdf/ p526.pdf (on file with the Columbia Law Review) ("When figuring your deduction for a gift of capital gain property, you generally can use the fair market value of the gift."). To see the capital gains benefit, imagine the person sold the stock and donated cash instead of the stock. She would have to pay capital gains tax on the appreciation.
155. It should be noted that the costs from self-production of altruism, for example, giving change to a homeless person, cannot be deducted from taxable income and thus are also not privileged with a discount. See 26 U.S.C. § 170 (2006) (allowing a deduction of "any charitable contribution" to charities authorized by the Secretary of the Treasury, and not including the purchase of green goods or donations of this kind).
156. If, instead of allowing its stock to appreciate, the philanthropic corporation distributed profits via dividends, the sacrifice of corporate profits to engage in philanthropy would lower the dividends rather than share price. Since dividends are taxed as ordinary income, see id. § 61 (a), the second benefit would be to reduce the altruistic shareholder's personal income tax bill rather than her capital gains tax bill. The net effect of altruism purchased via share ownership would be a price discount that is a mix of the corporate income tax rate and the personal income tax rate. Since the personal income tax rate is higher than the capital gains rate for higher income individuals, tax policy favors corporate philanthropy over direct donations to a nonprofit even when the corporation issues dividends.
157. Of course, the conclusion may be reversed if the person donates appreciated stock. See supra note 123. It may be reversed back if the corporation distributes all of its profits via dividends.
158. See supra note 125.
159. The specific rates are derived infra Appendix B.
160. 26 U.S.C. § 63(b) ("In the case of an individual who does not elect to itemize his deductions for the taxable year, for purposes of this subtitle, the term 'taxable income' means adjusted gross income, minus - (1) the standard deduction, and (2) the deduction for personal exemptions provided in section 151.").
161. For this to be administrable and not skew incentives to engage in corporate philanthropy, one would have to eliminate the corporate income tax for all corporations regardless of whether they engage in philanthropy. See infra note 131 for a discussion of side effects from this intervention.
162. Despite its intent, the proposal would leave two broad classes of altruistic purchases with tax breaks. One is any contribution of time, via volunteering, working at a nonprofit, or doing pro bono work for a for-profit firm. To the extent this contribution lowers the individual's earnings, it will reduce her labor income and thereby offer a tax break proportional to her personal income tax rate. The other class is altruism produced by social activities paid for by shareholders (not including donations by firms to charity, which would no longer be deductible to the corporation). Firm expenditures on these activities are deductible as an ordinary business expense (even without a specific charitable deduction), and reduce either the capital gains or dividends of shareholders. This means the general business expense deduction, which is not going away, offers a blended tax break based on the corporate income tax rate and either the capital gains rate or the personal gains rate, depending on whether the expense reduces capital gains or dividends, respectively. Both of these holes in the solution would be nearly impossible to fix.
163. A related point is that eliminating discrimination sometimes has collateral consequences. For example, addressing the disparate treatment of owning shares in a philanthropic corporation and donating cash to a nonprofit requires abolishing the corporate income tax. If there are benefits to that tax outside the market for altruism, then eliminating this form of discrimination will have as an unintended consequence the loss of those benefits. Therefore, we must add the following condition to our argument against tax discrimination in the market for altruism: If the cost of eliminating a tax break is greater than the inefficiency from the tax discrimination, we should leave the discrimination in place. We do not count lost revenue as a cost of eliminating discrimination because that is more appropriately a cost assigned to the level of subsidy for altruism. If the proper subsidy were no tax break, eliminating discrimination could actually increase revenue.
164. The government also requires accounting firms to sign off on corporate income tax returns and holds those accounting firms liable if the corporate returns are inaccurate. See 26 U.S.C. § 6694 (establishing penalties for understatement of tax liability by tax return preparer). This incentivizes accounting firms to police corporations. The same could be done with green goods.
165. Cf. supra note 130 (describing link between reduced personal income and reduced taxes).
166. It should be noted that some components of the plans below have previously been proposed by scholars and policy advocates. See, e.g., Daniel Halperin, A Charitable Contribution of Appreciated Property and the Realization of Built-in Gains, 56 Tax L. Rev. 1, 3-4 (2002) (finding no persuasive argument for permitting deduction of fair market value of appreciated stock);
167. Joseph Cordes et al., Extending the Charitable Deduction to Nonitemizers: Policy Issues and Options 3 (Urban Inst., Charting Civil Society Series No. 7, 2000), available at http://www.urban.org/url.cfm?ID=310338 (on file with the Columbia Law Review) (arguing for above-the-line deduction for all charitable contributions);
168. see also Staff of J. Comm. on Taxation, 109th Cong., Options to Improve Tax Compliance and Reform Tax Expenditures 293-95 (Comm. Print 2005), available at http://www.house.gov/jct/s-2-05.pdf (on file with the Columbia Law Review) (describing reform rules for charitable deductions). There are other, more normative proposals, that we do not consider.
169. See, e.g., Andrew Chamberlain & Mark Sussman, Charities and Public Goods: The Case for Reforming the Federal Income Tax Deduction for Charitable Gifts, Special Report (Tax Found., Washington, D.C.), Nov. 23, 2005, at 1, 4-8, available at http://www.taxfoundation.org/files/srl37.pdf (on file with the Columbia Law Review) (advocating denial of deduction for donations to charities that do not in fact contribute to the public good). The full set of reforms we suggest, however, has not been proposed before. The reason is that previous scholarship has not grasped the breadth of the market for altruism or seen the full range of inequalities, and thus has not sought to pursue true tax neutrality.
170. To be perfectly nondiscriminatory, the government would have to allow deductions for donations of time, just as it does for donations of money. This is controversial, however, because it is very difficult to verify either the actual number of hours donated or the value of those hours. Individuals have an incentive to exaggerate the amount of donated time and charities have no incentive to correct overestimates. Moreover, it is difficult to value the hours. If a corporate lawyer builds houses for Habitat for Humanity, the value of his contribution is at most the cost to Habitat of hiring a paid worker to do the equivalent work. Indeed, it might be less since the lawyer is probably not as skilled at building houses as the carpenter. The problem, as with measuring the number of hours volunteered, is that the lawyer has an incentive to exaggerate either the tasks performed or the quality of the tasks performed and Habitat has little reason to correct the lawyer. What is more, the government may not have a good estimate of the value of a carpenter's time. If one is undeterred by the risk of fraud, which after all exists already in much self-reporting of in kind donations, one can imagine a solution where the government would rely on self-reports of volunteer hours and tasks so long as they are validated by nonprofit or employer receipts (for volunteer and pro bono work, respectively). The potential for abuse per donation is no worse than that for donations of other illiquid assets such as cars (though the amount of abuse would rise because the number of deductible donations would rise). To deal with the problem of valuing the time donated, the government could simply create, say, ten or fifteen preset categories of jobs - for example, server, carpenter/electrician, administrative, professional services - with each category's wages fixed at the median wage for that category in the nonprofit charity's local Metropolitan Statistical Area. These figures can easily be derived from the Census Bureau's annual Current Population Survey. See Bureau of Labor Statistics, U.S. Dep't of Labor, Labor Force Statistics from the Current Population Survey, Household Data Annual Averages (2007), available at hup://www.bls.gov/cps/tables.htmttweekearn (on file with the Columbia Law Review) (providing median weekly earnings of full-time and salary workers by occupation). The donor would have to get a receipt from a nonprofit stating both the number of hours worked and the task performed. To adjust for the probably lower quality of work by volunteers, the IRS could discount the value of the time donation by a reasonable amount, say twenty-five percent, before allowing a deduction from taxable income. Note, however, the deductible amount would still benefit from the multiplier discussed above to account for the higher tax break currently given to shareholders.
171. Ideally, the producer would have to offer at least one example of a comparable product it did not make. While such a product is less likely to mimic the nonaltruistic components of the green product from that producer, allowing a producer to rely solely on its own comparable product would allow it to manipulate the green receipt by underpricing the nongreen comparable product it made so as to inflate the apparent value of the altruistic component of the green product.
172. StarbucksStore.com, Organic Shade Grown Mexico by Starbucks Coffee, at http://www.starbucksstore.com/products/shprodde.asp?sku=313018 (last visited Jan. 17, 2009) (on file with the Columbia Law Review).
173. StarbucksStore.com, Guatemala Antigua Coffee by Starbucks Coffee, at http://www.starbucksstore.com/products/shprodde.asp?sku=312871 (last visited Jan. 17, 2009) (on file with the Columbia Law Review).
174. See, e.g., Tessa's Organic Coffee, at http://www.freshorganiccoffee.com/ selection.html (last visited Nov. 8, 2008) (on file with the Columbia Law Review).
175. As noted above, the premium may include other elements - such as signaling - that would make the real donation amount less than this difference. See supra note 87. The lack of universal standards in many contexts also makes it difficult to discern what proportion of the premium is genuinely philanthropic. For example, while Starbucks claims to pay above-market prices for most or all of its coffee, most of it is not fair trade certified.
176. See Starbucks Coffee, supra note 78 (stating that the "Fair Trade system ⋯ currently produces about two percent of the world's coffee supply" and that "[t]he majority of the ⋯ coffee Starbucks purchases is grown by farmers outside the system, many of whom are small-holders"). It is consequently impossible to determine exactly how much "greener" Starbucks's shade-grown Mexican coffee is than its Guatemalan or its competitors' Mexican coffees. But these difficulties arise in all charitable giving, so the most efficient approach is probably to ignore them. The IRS could (and should) make these judgments based on the applications, available data, and its experience.
177. An approach that is less costly to corporations - but more costly to the IRS - is to let producers designate products as green and also to designate the amount of altruism contained in any green product, but to subject these assessments to ex post review by the IRS or another government agency. If the penalties for overclaiming along either dimension are set appropriately, this could give producers the same incentives as the ex ante approval process outlined above, while reducing government overhead costs.
178. See generally Internal Revenue Serv., Publication 561: Determining the Value of Donated Property (2007), available at http://www.irs.gov/pub/irs-pdf/ p561.pdf (on file with the Columbia Law Review) (describing valuation and required supporting documentation for donations).
179. See Brooks, Who Really Cares?, supra note 66, at 80-81 (finding that "poor people contribute more of their household incomes than rich people," and both groups contribute more than middle class);
180. Arthur C. Brooks, A Nation of Givers, The American, Mar.-Apr. 2008, at 40, 43 (finding that "low-income working families ⋯ are the most generous group in America, giving away about 4.5 percent of their income on average," compared with "about 2.5 percent among the middle class, and 3 percent among high-income families").
181. Halperin, supra note 134, at 1-2 (describing current donation regime and assessing taxation of gains from appreciated property when donated). This reform works by encouraging donors to sell stock and donate the proceeds, after paying capital gains taxes, as cash.
182. Id.
183. SRI primarily involves applying ethical screens to personal and institutional investments to ensure that funds are directed toward sustainable activities and away from unsustainable ones. Funds can use "negative" screens, meaning they prohibit investment in companies or funds involved in specific activities, such as tobacco production or nuclear power. "Positive" screens, a more recent SRI tool, encourage investments in companies that generate economic activity consistent with sustainability, such as solar power or microfinance. Soc. Inv. Forum, 2005 Report on Socially Responsible Investing Trends in the United States: 10 Year Review 4-5 (2006), available at http://www.socialinvest.org/pdf/research/Trends/ 2005%20Trends%20Report.pdf (on file with the Columbia Law Review) (describing SRI history and strategies).
184. See Soc. Inv. Forum, Socially Responsible Investing Facts, at http://www.socialinvest.org/resources/sriguide/srifacts.cfm (last visited Nov. 8, 2008) (on file with the Columbia Law Review) [hereinafter Soc. Inv. Forum, Investing Facts] (providing overview of SRI).
185. See, e.g., Dow Jones Sustainability Indexes, at http://www. sustainability-indexes.com/(last visited Jan. 16, 2009) ("Dow Jones Sustainability Indexes are the first global indexes tracking the financial performance of the leading sustainability-driven companies worldwide.");
186. FTSE, FTSE4Good Index Series, at http://www.ftse.com/Indices/FTSE4Good- Index-Series/index.jsp (last visited Jan. 16, 2009) (on file with the Columbia Law Review) (stating that index "has been designed to measure the performance of companies that meet globally recognized corporate responsibility standards, and to facilitate investment in those companies").
187. See Soc. Inv. Forum, Investing Facts, supra note 146. Of this, about $180 billion is in socially responsible mutual funds, while the remainder is in individually managed accounts of individuals or institutions.
188. See id.
189. See Christopher Geczy et al., Investing in Socially Responsible Mutual Funds 3 (Oct. 2005) (unpublished manuscript, on file with the Columbia Law Review), available at http://ssrn.com/abstract=416380 ("[T]he SRI constraint imposes substantially higher diversification costs - at least 30 basis points per month."). This finding is consistent with the views of industry experts. A study by the consultancy Mercer finds that over eighty percent of investors reported the belief that SRI would "reduce returns or increase risk" as "very important" or "somewhat important" in their decision not to engage in SRI. Mercer Inv. Consulting, Perspectives on Responsible Investment 6 ex.7 (2006), available at http://www.mercer.com/usrisurvey (on file with the Columbia Law Review).
190. But see Zivin & Small, supra note 32, at 10-15 (arguing that if donation through investment fully offsets private donations that would have otherwise been made, share prices will not be affected by corporate social responsibility). The situation imagined by Zivin and Small is, as they acknowledge, a "somewhat implausible[] corner solution," since substitution is likely to be imperfect.
191. Id. at 13. In reality, then, share prices likely are sensitive to firm policy, and Zivin and Small's model is largely consistent with the empirical findings of Geczy et al., supra.
192. Gary Gardner, Socially Responsible Investing Grows Rapidly, Vital Signs Online (Worldwatch Inst., Wash., D.C.), Nov. 8, 2007, at http://www.worldwatch. org/node/5481 (on file with the Columbia Law Review) (noting socially responsible investment funds "grew more than threefold between 1995 and 2005").
193. Thomas Clarke & Marie de la Rama, The Impact of Socially Responsible Investment upon Corporate Social Responsibility, in Perspectives on Corporate Social Responsibility 161, 163 (David Crother & Lez Rayman-Bacchus eds., 2004).
194. See David B. Montgomery & Catherine A. Ratnus, Corporate Social Responsibility Reputation Effects on MBA Job Choice 10-11 (Stanford Graduate Sch. of Bus., Research Paper No. 1805, 2003), available at http://ssrn.com/ abstract=412124 (on file with the Columbia Law Review) (describing seventeen job choice attributes measured).
195. Id. at 7.
196. See id. (finding MBAs willing to give up $5,500 to work for firms committed to environmental sustainability and $3,700 to work for firms committed to other stakeholders, based on expected compensation packages of $115,000). A 2004 survey of 800 MBAs in North America found that ninety-seven percent would be willing to give up an average of fourteen percent of expected pay to work for socially responsible firms.
197. See Inst. for Global Ethics, Survey of MBA Students Finds Strong Desire for Ethical Employers, Ethics Newsline, Aug. 2, 2004, available at http://www.globalethics.org/newsline/2004/08/02 (on file with the Columbia Law Review).
198. See infra notes 170-173 and accompanying text (estimating total value of volunteer time as between $60 billion and $240 billion).
199. See Indep. Sector, Value of Volunteer Time, at http://independentsector. org/programs/research/volunteer-time.html (last visited Jan. 17, 2009) (on file with the Columbia Law Review) [hereinafter Value of Volunteer Time] (listing dollar value of volunteer hours 1980-2007).
200. According to the Bureau of Labor Statistics, about forty-five percent of volunteers have a college degree, master's degree, doctorate, or other advanced degree, while nearly eighty percent have some college experience. See News Release, Bureau of Labor Statistics, U.S. Dep't of Labor, Volunteering in the United States, 2008, at 2 tbl.A (Jan. 23, 2009) available at http://www.bls.gov/news.release/pdf/volun.pdf (on file with the Columbia Law Review) [hereinafter Bureau of Labor Statistics, Volunteering] (indicating 45.7% of volunteers have bachelor's degree or higher and 34.2% have some college or associate degree).
201. There are over 140 million individuals in the U.S. workforce. See News Release, Bureau of Labor Statistics, U.S. Dep't of Labor, The Employment Situation: December 2008, at 2 tbl.A (Jan. 9, 2009), available at http://www.bls.gov/news.release/pdf/empsit.pdf (on file with the Columbia Law Review) (indicating 144,046,000 workers employed in fourth quarter of 2008). Multiplying this number by one percent and by the wage discount of $10,000 yields the estimated size of this contribution. This estimate is probably conservative. According to the Census Bureau's American Community Survey, about ten percent of the workforce has a graduate or professional degree.
202. See U.S. Census Bureau, 2004 American Community Survey: Selected Social Characteristics (2004), available at http://factfinder.census.gov/servlet/ ADPTable?-bm=y&-state=adp&-qr-name =ACS-2004-EST-G00-DP2&-ds-name= ACS-2004-EST-G00-&-redoLog=true&--caller= geoselect&-geo-id= 01000US&-format=&--lang=en (on file with the Columbia Law Review) (estimating 18,381,134 people with graduate or professional degree). This suggests that more than one percent of the American workforce may be willing to take a wage cut in line with that found in the MBA survey.
203. In our usage, a "green" product may help social causes other than the environment.
204. Kotchen, supra note 95, at 817 (citing 1999 study by Marketing Intelligence Service).
205. See Dale Kurschner, 5 Ways Ethical Business Creates Fatter Profits, Bus. Ethics, Mar.-Apr. 1996, at 20, 21 (citing 1995 study by Cone Communications and Roper Starch Worldwide).
206. See supra notes 78, 137-140 and accompanying text.
207. Memorandum from Michael J. Hiscox, Harvard Univ., to the Conference on Europe and the Mgmt. of Globalization at Princeton Univ., Fair Trade as an Approach to Managing Globalization 7 (Feb. 23, 2007), available at http://www.princeton.edu/~smeunier/Hiscox-Fair%20Trade%20and%20Globalization. pdf (on file with the Columbia Law Review).
208. The (RED) campaign has contributed over $59 million to combat disease in Africa. See Nixon, supra note 108. The lack of transparency about how the funds are raised, how much is spent on advertising, and so on has raised concerns about the campaign.
209. See id.
210. See Lifestyles of Health and Sustainability (LOHAS), LOHAS Background, at http://www.lohas.com/about.html (last visited Jan. 17, 2009) (on file with the Columbia Law Review) (describing "estimated marketplace for goods and services focused on health, the environment, and sustainable living").
211. Some of the goods and services included in this estimate, for example dietary supplements, see id., may not meet our definition of "green." Certainly a large portion do, however.
212. Jerry Garrett, Pick of the Litter: Which Hybrids Are Hot? Which Are Not?, San Diego Union-Trib., May 20, 2006, at L2 (describing how Toyota is considering adding Prius premium to other hybrids);
213. Press Release, Toyota, supra note 88 (indicating 591,600 vehicles sold in North America).
214. Press Release, Giving USA Found., U.S. Charitable Giving Reaches $295.02 Billion in 2006, at 1 (June 25, 2007), available at http://www.givingusa.org/press-releases/gusa/20070625.pdf (on file with the Columbia Law Review).
215. This breaks down as about $23 billion in bequests, $13 billion in corporate donations, and $37 billion in donations from foundations (individual and corporate).
216. Id. at 2.
217. PowerPoint: The Annual Report on Philanthropy for the Year 2006 (Giving USA Found. 2007), available at https://www.givinginstitute.org/secure/ [hereinafter Giving USA 2007] (on file with the Columbia Law Review).
218. Bureau of Labor Statistics, Volunteering, supra note 157, at 1.
219. Id. at 3 (indicating median of fifty-two volunteer hours per person).
220. Value of Volunteer Time, supra note 156.
221. Indep. Sector, Giving and Volunteering in the United States: Key Findings (2001), available at http://www.independentsector.org/PDFs/GV01keyfind.pdf (on file with the Columbia Law Review) (reporting 15.5 billion hours or about 9 million full-time equivalents in 2001 survey).
222. Lester M. Salamon & S. Wojciech Sokolowski, Employment in America's Charities: A Profile, 26 Nonprofit Emp. Bull. 1, 3 (2006), available at http://www.jhu.edu/ccss/research/pdf/Employment%20in%20Americas%20Charities.pdf (on file with the Columbia Law Review).
223. The nonprofit literature reveals mixed results on the question whether the lower wages were the result of a wage discount or lower human capital. See, e.g., Femida Handy & Eliakim Katz, The Wage Differential Between Nonprofit Institutions and Corporations: Getting More by Paying Less?, 26 J. Comp. Econ. 246, 259 (1998) (finding that lower wages are "adopted by nonprofits to generate positive self-selection among [their] managerial staff);
224. Anne E. Preston, The Nonprofit Worker in a For-Profit World, 7 J. Lab. Econ. 438, 447 (1989) (controlling for human capital and other work variables, finding a negative wage differential of twenty percent). There is some evidence suggesting nonprofit employees earn higher wages than for-profit counterparts in some fields. See Salamon & Sokolowski, supra note 174, at 10 (finding for-profits pay about seven percent more on average, but that they pay less in medical and educational fields). As Salamon and Sokolowski point out, there are potentially confounding variables, and simply not enough data to reach a definitive conclusion.
225. See id. There may be explanations for the wage difference in these fields having to do with the particular characteristics of nonprofits in industries like healthcare.
226. This is derived by multiplying the average wages - about $39,000 in 2007, see Soc. Sec. Admin., Wage Statistics for 2007, at http://www.ssa.gov/ cgi-bin/netcomp.cgi? year=2007 (last visited Jan. 23, 2009) (on file with the Columbia Law Review) (indicating average U.S. wage for 2007 of $38,760.95) - by the labor force in the U.S. - 146 million in 2007,
227. see News Release, Bureau of Labor Statistics, U.S. Dep't of Labor, The Employment Situation: December 2007, at 2 tbl.A (Jan. 4, 2008), available at http://www.bls.gov/news. release/archives/empsit-01042008.pdf (on file with the Columbia Law Review) - by the wage differential of 0.6%, which equals about $34 billion.
228. Tax Policy Ctr., Historical Federal Receipt and Outlay Summary 1940-2013 (2008), at http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200 (on file with the Columbia Law Review).
229. The U.S. GDP was about $13 trillion in 2006. Bureau of Econ. Analysis, National Economic Accounts: Current-Dollar and "Real" GDP, at http://www.bea.gov/national/index.htm#gdp (last updated Sept. 26, 2008) (on file with the Columbia Law Review).
230. U.S. Census Bureau, Table 1: National Totals of State and Local Tax Revenue, by Type of Tax, at http://www.census.gov/govs/www/qtax.html (last modified Sept. 26, 2008) (on file with the Columbia Law Review) (listing national totals of state and local government revenue by quarter).
231. Internal Revenue Serv., Data Book 2007, at 3 tbl.1 (Mar. 2008), available at http://www.irs.gov/pub/irs-soi/07databk.pdf (on file with the Columbia Law Review) (indicating approximately $2.4 trillion in 2007 net tax collections and $840 billion in employment taxes).
232. Data360, Number of Government Employees, at http://www.data360.org/dsg. aspx?Data-Set-Group-Id=228 (last visited Jan. 17, 2009) (on file with the Columbia Law Review);
233. see also U.S. Census Bureau, Federal Government Civilian Employment by Function: December 2006 (2006), at http://ftp2.census.gov/govs/apes/06fedfun.pdf (on file with the Columbia Law Review) (indicating 2,720,688 federal employees in December 2006);
234. U.S. Census Bureau, 2006 Public Employment Data: State and Local Governments (2006), at http://ftp2.census.gov/govs/apes/06stlus.txt (on file with the Columbia Law Review) (indicating 16,135,699 full-time equivalent employees).
235. See Dennis Cauchon, Public Jobs See Pay Gains; Government Benefits Outpace Private Sector, USA Today, Feb. 1, 2008, at 1A (noting there are about three million federal workers and twenty million state and local government workers).
236. For a comparison of the benefits, see Laura Morsch, Government Salaries vs. Private Sector Salaries, CNN.com, Oct. 11, 2006, at http://www.cnn.com/2006/ US/Careers/10/11/cb.government/index.html (on file with the Columbia Law Review) (describing benefits of government employment over private sector employment).
237. See id. (noting average wages for attorney, financial manager, economist, microbiologist, architect, accountant, librarian, human resources manager, nurse, tax specialist, and medical technician).
238. Urban Inst., The Nonprofit Sector in Brief: Facts and Figures from the Nonprofit Almanac 2007, at 5 tbl.4 (2007), available at http://www.urban.org/ UploadedPDF/311373-nonprofit-sector.pdf (on file with the Columbia Law Review).
239. Id.
240. Id. at 3-4, tbl.3, fig.2 (noting that total revenue of reporting charities was $1.05 trillion in 2004 and 9% of this revenue came from government grants).
241. See id. (reporting total revenue of reporting charities of $1.05 trillion);
242. supra note 180 and accompanying text (estimating taxes serving public goods to be under $1.6 trillion).
243. Direct corporate giving to charities was about $13 billion, see Press Release, Giving USA Found., supra note 167, at 2, and corporate giving through foundations was about $4 billion, see Found. Ctr., Foundation Growth and Giving Estimates, 2007 Edition 4 (2007), available at http://foundationcenter.org/gainknowledge/research/pdf/fgge07.pdf (on file with the Columbia Law Review).
244. Press Release, Giving USA Found., supra note 167, at 2.
245. See 26 U.S.C. § 170(b)(2) (2006) ("In the case of a corporation ⋯ [t]he total deductions under subsection (a) for any taxable year ⋯ shall not exceed 10 percent of the taxpayer's taxable income."). Legislation proposed in 2003 would have raised this to twenty percent gradually over the next several years.
246. See Indep. Sector, Charitable Giving Act of 2003 (H.R. 7), at http://www.independentsector.org/programs/gr/hr7.html (last updated Dec. 9, 2004) (on file with the Columbia Law Review) (explaining proposed increases in cap on corporate charitable deductions).
247. See Giving USA 2007, supra note 169.
248. See Patagonia, Environmental Grants Program: Growing the Grassroots, at http://www.patagonia.com/usa/patagonia.go?assetid=2927 (last visited Jan. 17, 2009) (on file with the Columbia Law Review) (pledging "at least 1% of sales or 10% of pre-tax profits - whichever is more");
249. Whole Foods Mkt., Community Giving, at http://www.wholefoodsmarket.com/ values/giving.php (last visited Jan. 17, 2009) (on file with the Columbia Law Review) ("Overall, our community giving well exceeds 5% of our total net profits each year.").
250. See Found. Ctr., supra note 189, at 4 ("Estimated giving by corporate foundations grew 6 percent in 2006 to a record $4.2 billion.").
251. See id. at 6 (listing top twenty-five corporate foundations).
252. While we know of no data on the extent of employee matching programs, nearly every major company has a very generous matching program. See, e.g., Gen. Elec. Found., GE Foundation Matching Gifts Program 2, at http://www.ge.com/ files-foundation/pdf/ge-foundation-matching-gifts-overview.pdf (last visited Jan. 17, 2009) (on file with the Columbia Law Review) (matching up to $50,000 per employee per year).
253. See Giving USA 2007, supra note 169.
254. See, e.g., John Carey & Sarah R. Shapiro, Global Warming, Bus. Week, Aug. 16, 2004, at 60 (describing DuPont's sixty-five percent reduction in emissions since 1990, and plan to cut by additional two-thirds);
255. Michelle Conlin, From Plunderer to Protector, Bus. Week, Jul. 19, 2004, at 60 (describing documentary on commercial carpet tile manufacturer Interface's plan to phase out ozone-depleting chemicals);
256. Roger Cowe, Improving Quality of Life and Profits, Fin. Times, Aug. 13, 2002, at 12 (noting Proctor & Gamble's commitment to reduce carbon emissions by two-thirds);
257. Marc Gunther, Tree Huggers, Soy Lovers, and Profits, Fortune, June 23, 2003, at 98 (noting that FedEx converted its entire fleet to hybrid vehicles and UPS converted 1,800 vehicles to alternative fuels);
258. A. Revkin, U.S. Is Pressuring Industries to Cut Greenhouse Gases, N.Y. Times, Jan. 20, 2003, at Al (describing Motorola's pursuit of "voluntary caps and trading schemes in which companies that aggressively cut their emissions acquire pollution credits they can sell to other companies" and Alcoa's plan to cut emissions by twenty-five percent);
259. 2 Reduction, at http://www.gepower.com/corporate/ecomagination-home/ge-position- uscap.htm (last visited Jan. 17, 2009) (on file with the Columbia Law Review) (describing General Electric's commitment to reduction of greenhouse emissions).
260. Telephone interview with Jonathan Adler, supra note 17;
261. Telephone interview with Michael Vandenbergh, supra note 17.
262. See, e.g., Vandenbergh, supra note 84, at 2034 (showing that private contracts are frequently replacing or supplementing traditional government oversight on environmental and other regulatory compliance issues).
263. We exclude volunteering and appreciated securities. These receive separate tax treatment and are discussed below.
264. Donations are taxed differently if they are made at the time of an individual's death. Roughly ten percent of contributions to charity are bequests. Cong. Budget Office, The Estate Tax and Charitable Giving 1-2 (2004). Like the treatment of donations (other than stock or time) during an individual's lifetime, donations at death are deductible from the taxable estate. Because the estate tax schedule differs from the personal income tax schedule (for example, the estate tax schedule currently maxes out with a forty-five percent tax bracket, see Internal Revenue Serv., Instructions for Form 706, at 4 tbl.A (2008), available at http://www.irs.gov/pub/irs-pdf/i706. pdf (on file with the Columbia Law Review), while the personal income tax schedule maxes out with a thirty-five percent tax bracket), donations at death afford a different price discount.
265. See Internal Revenue Serv., SOI Tax Stats - Individual Income Tax Returns Publication 1304 (Complete Report) tbls.1.2 & 2.1 (tax year 2005), available at http://www.irs.gov/taxstats/indtaxstats/article/0,id=134951,00.html (on file with the Columbia Law Review) (reporting that 47,755,427 of 134,372,678 filers itemized deductions).
266. Itemizers account for 80.5% of all income tax revenue raised in 2005.
267. See id. (reporting that itemizers paid $753 billion of the total $935 billion in income tax paid). Altruism is likely a "normal good," that is, one for which demand increases as incomes rise.
268. See supra note 123. If the stock had not risen in value since the taxpayer purchased it, there would be no capital gains tax to begin with and the stock donation would be treated just like an equivalent cash donation.
269. Corporate donations have the additional benefit that they can be depreciated immediately. These donations, however, are capped at ten percent of net income. See 26 U.S.C. § 170(b)(2) (2006). Few corporations hit this threshold, since the average donation is about 1.1% of corporate profits.
270. See Giving USA 2007, supra note 169.
271. See 26 U.S.C. § 162 (establishing deduction for business expenses).
272. See, e.g., Linda Sugin, Theories of the Corporation and the Tax Treatment of Corporate Philanthropy, 41 N.Y.L. Sch. L. Rev. 835, 856-57 (1997) (noting that tax code may privilege corporate giving over shareholder giving, and that this may bias donations in favor of managers' preferences).
273. If the company is taxed at the firm level, this discount is equal to the corporate tax rate, which is nominally thirty-five percent for the largest companies. If the company is able to opt out of Subchapter C, then its income is not taxed at the firm level and it enjoys no discount on the price of altruism. Compare 26 U.S.C. § 11 (defining tax rate on C corporations), with id. § 1361 (defining subchapter S corporations not subject to normal corporate taxes).
274. The capital gains tax rate is scheduled to rise in 2011 to ten percent from the current rate of zero for taxpayers in the fifteen percent personal income tax bracket, and to rise to twenty percent for taxpayers in higher-income brackets. See Jobs and Growth Tax Relief and Reconciliation Act of 2003, Pub. L. No. 108-27, §§ 301, 303, 117 Stat. 752, 758, 764 (temporarily reducing capital gains tax rates);
275. Tax Increase Prevention and Reconciliation Act of 2005, Pub. L. No. 109-222, § 102, 120 Stat. 345, 346 (2006) (to be codified at 26 U.S.C. § 1) (postponing amendment to capital gains section of tax code until 2011).
276. Any company with publicly traded shares is taxed according to subchapter C, that is, pays corporate income taxes. See 26 U.S.C. § 11.
277. See supra notes 160-161 and accompanying text.
278. Certain green goods, such as hybrid cars, are the target of government subsidies, but this treatment is the exception rather than the rule.
279. The company is indifferent between donating a matching amount or paying the employee more. Either way the expense is deductible, assuming the ten percent cap on corporate charitable donations does not bind.
280. There are two caveats to this description of the tax treatment of altruistic employees. First, if the company's shareholders do not dock the altruistic employee's wage by their matching donation or paid volunteer hours, they in effect decide to pay for altruism themselves. In that case it is the shareholder that is paying for part of the employee's purchase and it is the shareholder that receives a tax break. Second, it is difficult for a company to adjust the wage of each individual employee based upon the employee's participation in a work-sponsored charitable program. In general it can only adjust the wages of all employees based on the participation of the average employee. This generates a sort of moral hazard where each individual employee has an incentive to donate or volunteer more than average because there is no cost in terms of lost wage. Indeed, there is a subsidy equal to the after-tax wage rate. To limit this moral hazard, companies have to cap the number amount of matching donations or the amount of pro bono work they permit.