THE FREE-WHEELING FOUNDATIONS

...During the four years 1961 through 1964, the Standard Oil (Indiana) Foundation of Chicago made charitable grants totaling $5,459,967...

...The Ford Foundation may lose $6.7 million and the Helen Hay Whitney Foundation $338,400...

...The older foundations, as a rule, know how to perform their legerdemain with a degree of decorum, but not always...

...For example, would it not be an invaluable asset for an important politician in an important state to have some method by which he could hire a full-time liaison man—and be able to deduct that expense as a charitable item...

...For instance, under present Treasury opinion, a foundation could receive a $100,000 dividend and immediately invest the funds in stock instead of giving it to the causes the foundation is designed to aid...

...For example, during a given year a foundation had dividends of $50,000, capital gains of $10,000, which were reinvested within a reasonable period of time, and cash contributions received of $5,000—for total receipts of $65,000...

...These are impressive, and disquieting, achievements...

...That would be a politician's dream, and one cannot help but wonder to what extent foundations are being used for such purposes...

...Government, in effect, pays a large share of the bill...

...taxpayers through IRS largesse in setting up foundations for almost any purpose and then allowing them to operate more or less on the honor system...

...Now the third year is rounding out, and we still have not received this information from the Treasury...

...One might logically inquire, if Morgan Guaranty feels this way why it is not more disposed to take up the slack...

...How great a share of the receipts of some of these foundations came from the Central Intelligence Agency probably will never be known to the public, or even to most members of the Congress...

...These swollen profits are contrary to the philosophy of some foundation founders...

...This Rockefeller-controlled foundation, during the four years 1961 through 1964, paid out $120,000 in salary to Frank C. Moore, former Lieutenant Governor of New York...

...However, it should not be supposed that just because a foundation operates in a beneficent vacuum that it is without expenses...

...The U.S...

...Thus, the coin has only one face and the foundations cannot help but win...

...He is chairman of both the House Banking and Currency Committee and the Joint Economic Committee and a member of the House Select Committee on Small Business and the Joint Defense Production Committee...

...This is one of the considerable and recurring mysteries that surround some foundations...

...Additionally, during the same period, Moore received $10,000 per year expense account allowance...

...The law says that a foundation shall not have an unreasonable accumulation of income...

...More than two and one half years ago, on July 21, 1964, then Secretary Douglas Dillon testified before our Subcommittee: "The Chairman is quite right in saying that the Treasury does not know how many foundations there are...

...This is happening all the time, by the millions of dollars and with the Treasury's blessing...

...The Treasury's legislative recommendations include the following: Ti A general prohibition on financial transactions between a foundation and its contributors, officers, directors, or trustees...

...The foundation could pretend that it was only $15,000 ahead...

...The crediting of speculative losses to a foundation's books in the same way that grants are credited can only encourage wildcat investments...

...1] A limitation on foundation ownership to less than twenty per cent of the stock of any business...

...much less have they disturbed the foundations with some hard inquiries into investments and expenditures...

...By their very structure, foundations easily lend themselves to a kind of righteous hocus-pocus...

...The three trustees—George F. Hamilton, L. W. Holbrook, and the Union Trust Company—collected "commissions" in the aggregate amount of $40,000 to $43,000 annually, or somewhat more than fifteen per cent of the total annual disbursements for charitable causes...

...Nearly two years earlier—after much prodding by our Subcommittee—the Treasury had submitted reforms to the House Ways and Means Committee and the Senate Finance Committee, which represent only a minimum effort to curb abuses of tax-exempt foundations...

...During the four years 1961 through 1964, they had capital gains (mostly from stock market transactions) of $1.3 billion—compared to the capital gains of $1.4 billion which it took these foundations ten years—1951 through 1960—to accumulate...

...The foundations develop a highly-structured and well-paid bureaucracy of their own...

...Four voluminous studies, coupled with a report of several days' hearings—a total of f,500 pages—have been issued by this Subcommittee...

...H Broadening the base of foundation management after the first twenty-five years of a foundation's life, so that after that time the donor pr related parties could not make up more than twenty-five per cent of the foundation's governing body...

...Well, it did not do especially well in reducing the quantity of government in New York state, and, as the above expenditure notation indicates, it did not have much luck finding other worthy outlets for its money...

...Facts uncovered by the Subcommittee have stirred the Treasury into a flurry of activity with the result that seven of the 575 foundations under study have been assessed $28 million in taxes by the Treasury...

...It was an appeal voiced earlier by Vice President Hubert Humphrey, who suggested that foundations should conduct experimental forays in the war on poverty—forays which Mr...

...Another of the many fields urgently needing the support of private dollars is the field of mental health...

...Since many of the foundations show little or no disposition to police themselves, the most effective and speedy way to reform them—in the public interest—is to pass remedial Federal tax legislation and enforce it diligently...

...And when the Secretary was further asked, "Would you agree that many foundations have unlimited powers to buy, sell, and speculate in stocks, just as if they were private investment corporations of boundless powers with no public duties or responsibilities, and not dependent on public confidence...

...The Government Affairs Foundation, Inc., made no contributions to charity or to education, but it was a busy place (rent $18,360 for four years), nonetheless, laying out $66,348 in "other salaries and wages," $1,994 for travel, $17,752 for that wonderful catch-all, "consultant fees," $1,600 for audit fees, $6,083 for telephone and telegraph, $1,708 for "books and publications," $6,385 for "general expense," $1,360 for "printing and mailing," and so on...

...The creator of the St...

...The Ford Foundation and the Helen Hay Whitney Foundation of New York City were among the "sophisticated investors" caught in the collapse of the Atlantic Acceptance Corporation of Canada in 1965—Canada's biggest financial failure...

...One might inquire why the Morgan Guaranty Trust Company of New York Foundation paid out only $2.2 million in grants and gifts during the eleven years 1954 through 1964 although it had total receipts of $2.9 million...

...The late Dr...

...Expenses claimed by the 575 foundations, including administrative and operating expenses, totaled $499,959,711 during the four-year period embraced by this study—more than ten per cent of the total receipts...

...But the CIA undoubtedly conveyed millions of dollars of the taxpayers' money through foundation pipelines to organizations and individuals in this country and overseas that the CIA counted on to support the agency's objectives...

...The permissive anarchy that surrounds the foundations' use of their capital gains is not unique...

...The other twin, ensconced in a five-bedroom mansion on Lake Oswego, was paid $36,000 as a "caretaker of the house," Collins admitted...

...part of the expenses were paid by the tax-exempt foundation...

...What is less well-known is that there are thousands of these private foundations ranging down to relatively small, family-size operations...

...The Richard King Mellon Foundation's assets were worth $1,000 in 1947 as against $121 million seventeen years later...

...Treasury officials have not done an effective job of refereeing their operations...

...If Limitations on the use of a foundation to maintain family control over a business...

...Genevieve Foundation as to give substance to the statement made by former Internal Revenue Commissioner Mortimer Caplin: "There seems to be almost no limit to what the foundations can do...

...The pressure of the country's antipoverty needs, the nation's health needs, the nation's education, research, and scientific needs, and all other worthwhile causes demand that Congress force the distribution of these funds by law...

...Our investigations have demonstrated a serious need to enforce more strictly existing statutes governing the financial affairs of foundations, and to enact new legislation enabling the Government to regulate them more nearly in the public interest...

...1JA limitation on the period during which a foundation may withhold income from distribution to educational and charitable causes...

...The mental health movement is too dependent on public funds, and likely to remain so...

...The largest of these foundations, such as Ford, Rockefeller, Carnegie, and a score of others, are well known to the public...

...If any of them today are wealthier than at their establishment, it is not because the trustees are not free to spend principal when the occasion rises...

...It is clear that numerous foundations violate the spirit of their charters by hoarding rather than giving...

...For instance, at the University of Miami in Florida there is the Julian S. Eaton Educational Foundation, whose administrators claim to have paid out $150,000 in interest-free loans to needy students...

...The $160,000 paid to Moore during that period represents approximately fifty-seven per cent of the foundation's total expenses of $284,193, and about fifty-two per cent of the $310,469 contributed to the foundation by Governor Rockefeller...

...During the decade 1951 through 1960, $742 million—roughly ten per cent of the total receipts— went into expenses...

...Not that there is a lack of constructive outlets, but there does not seem to be much zeal for finding them...

...Meanwhile, in Oregon, such things were being done through the St...

...It had no expenses and made grants totaling $35,000...

...The urgent need for reform in the whole area studied by our Subcommittee was underscored by President Johnson in his economic report to the Congress on January 26, 1967, when he said he "will urge changes to deal with abuses by tax-exempt private foundations...

...They disburse hundreds of millions of dollars each year for a wide variety of charitable, educational, and other philanthropic causes, and are reputed to have made substantial contributions toward raising the level of health, education, and culture in America and elsewhere in the world...

...How does a foundation run up $31,268 in expenses fulfilling none of the espoused goals in its charter...

...For this the foundations must share a large part of the blame...

...During the four years 1961 through 1964, they took in $4.6 billion compared with receipts of $6.9 billion during the preceding ten years, 1951 through 1960...

...Many foundation executives spend a great deal of time jockeying their assets by trading in the stock market...

...Even Henry T. Heald, the former president of the Ford Foundation, recognized the frozen attitude of many of his colleagues when, on retiring from his post, he called on private foundations to be less hostile to fresh ideas...

...The foundations of America, which as a whole make up one of the most powerful economic and propaganda forces in modern times, are virtually unregulated...

...Moreover, in 1929, Julius Rosen-wald, who established the foundation that carried his name, wrote in the May issue of the Atlantic Monthly, "It is a noteworthy fact, though not as widely known as it should be, that the Rockefeller foundations are not perpetuities...

...Thus, not many months ago, the Morgan Guaranty Trust Company of New York, one of the nation's largest banks, issued a report warning of "the welfare wave of the future" and of "a point beyond which society cannot transfer purchasing power from its productive members to those who do not produce lest it inflict more damage than it cures...

...The conscience of Congress surely must attend promptly to reforms that will make it impossible for these and other tax-free leviathans to engage in speculations with money that should go to help the causes for which the foundations were created...

...Free and tax-free, of course...

...One might also inquire why the Morgan Guaranty Trust Company of New York Charitable Trust paid out only $545,399 during the three-year period 1962 through 1964, although its receipts totaled $1.6 million during that period...

...they also violate the principle of the era upon which their founders established them...

...he again agreed, saying, "I think they generally have unlimited powers to buy and sell, and that would presumably give them the powers to speculate if they so desire...

...One reason for the Treasury's tolerance may be found in the fact that it has established other regulations which make it extremely difficult to police foundation expenditures...

...Because of the growth of this area, I think that is knowledge that we should have, and we are in the process of acquiring it...

...The Rockefeller Foundation today broods over a nest egg of more than $860 million compared with $35.9 million in 1913...

...This leaves the foundation $30,000 ahead, but as matters stand today, neither the $10,000 capital gains nor the $5,000 contributions received would be counted by the Treasury as accumulated income...

...Once a year, boosters of the football team who have paid their $100 annual dues get together for a big blowout...

...some of the newer foundations slip into a form of low comedy...

...To cite a few: The Josephine E. Gordon Foundation of Detroit experienced a 1964 capital loss of nearly $3.9 million...

...Here is a huge amount of income, this capital gains harvest, which should be distributed on a reasonably current basis...

...As the tax-exempt foundations have grown and proliferated, abuses of their privileged status have also grown, to the point that concerns the American taxpayer...

...Now, with the advent of electronic data equipment the Internal Revenue Service is in the process of asking all exempt organizations, which are many hundreds of thousands, for statistical information which will enable classification into foundations, fraternal orders, religious orders, or whatever it is, and they intend to put all this information on a master electronic tape which will be kept up to date currently so we will have that information...

...One of the twins lived in a posh duplex, and spent more than $3,000 on clothes one year...

...At the pace they are scrambling for profits in the Sixties, their receipts will outdo those of the 1950's by one hundred per cent...

...The effect of this privileged gaming with stocks is, of course, that sometimes the foundations lose...

...The aggregate receipts of the 575 foundations under study by the House Small Business Subcommittee on Foundations have increased sharply since the 1950's...

...Because of the existence of this desk army, sizable foundation funds go into "expenses...

...But they care little about that since they are, in effect, using the public's money for stakes...

...The receipts of these foundations for 1961 through 1964 were nearly thirty per cent higher than the combined net operating earnings—$3.6 billion after taxes— of the fifty largest banks in the United States...

...The 1962 capital loss of the Alfred P. Sloan Foundation of New York was $1,147,789, and the J. M. Kaplan Fund of New York reported a 1962 loss of $968,910...

...By and large, the 575 foundations covered in our Subcommittee study have done very well in their market play...

...Yet today the Rockefeller Foundation is twenty-four times larger than it was in 1913...

...Humphrey described as "too hazardous for public agencies" to undertake...

...Not only was the interest to be spent, the principal was too...

...Jack R. Ewalt, Bullard Professor of Psychiatry at Harvard Medical School and superintendent of the Massachusetts Mental Health Center, is one of many who have expressed regret that "such great foundations as the Rockefeller Foundation and the Ford Foundation have withdrawn from major interest in the mental health field, as manifested by financial support...

...There is the beginning of a decay of public confidence in the touted integrity of foundations...

...One of the principal reasons for the mushrooming of foundation funds is the great tax privileges they enjoy...

...Of this benevolence, $2,059,736, or almost thirty-eight per cent, was lateraled to the American Oil Foundation of Chicago, which is controlled by Standard Oil Company of Indiana...

...The generosity of the Federal Government goes further: It not only fails to require foundations to disburse capital gains if they are reinvested within a reasonable period of time, but it also gives them credit for capital losses...

...Should these minimum steps be taken, some of the absurd buccaneering that is permitted foundations may be curbed...

...the Treasury has advised the Small Business Subcommittee that its interpretation of the law makes permissive the foundations' speculations even with dividends or interest—that the Treasury is, in short, perfectly willing for the foundations to reinvest and speculate with income which most normal interpretations of the law would seem to restrict specifically to educational and charitable expenditures...

...Tax-exempt foundations could also conceivably have political uses...

...During our hearings, when Secretary Dillon was asked, "Would you agree that there are an infinite number of ways in which foundation assets or income can be used for the preferment of one set of private persons over another...

...he answered, "I assume there are all sorts of ways that foundation assets could be used or abused...

...Morgan Guaranty owns two foundations—Morgan Guaranty Trust Company of New York Foundation (tax exemption granted in 1954) and Morgan Guaranty Trust Company of New York Charitable Trust (tax exemption granted in 1962...

...Collins' defense of his income tax evasion—for which he was convicted— was that he needed companionship and knew no other way to obtain it...

...Genevieve Foundation, Spencer R. Collins, a millionaire in his late sixties, supported twin sisters through several years of parties and gay living, spending an estimated $100,000 on them...

...Other types of pastimes are supported by U.S...

...For example: Between 1961 and 1964, Governor Nelson A. Rockefeller provided practically all of the funds of the Government Affairs Foundation, Inc., of Albany, New York—a foundation which received $310,469 in gifts (all from Governor Rockefeller) and paid out exactly zero dollars for contributions, grants, scholarships, and other gifts...

...Just how much companionship is being supported in this routine tax-exempt way is not known, since IRS keeps only the loosest check on foundations, but there is no reason to suppose that tax-exempt, high-living friendships are appealing only to the founder of an Oregon foundation and not to founders in New York, Florida, or elsewhere...

...But that will not be completed for about a year...

...the Standard Oil Foundation, Inc., of Chicago, up from zero assets in 1952 to holdings worth almost $49 million in 1964...

...the Ford Motor Company Foundation, up from nothing at its incorporation in 1949 to $38 million assets in 1964...

...The New York Times of April 24, 1953, quoted Governor Rockefeller (one of the original incorporators of the foundation) as stating that the aim of the foundation, which was incorporated on April 25, 1953, would be "to improve quality and reduce quantity of government...

...This friendship was actually paid for in large measure, of course, by the U.S...

...In the preceding ten years— 1951 through 1960—these foundations claimed similar disbursements totaling $3.3 billion or forty-eight per cent of total receipts...

...so the prospect of spending itself out of existence had been before the Rockefeller Foundation from its beginnings...

...Other remarkable expansions include the Mellon-controlled Bollingcn Foundation, of New York City," up from $101,713 assets in 1945 to $5.1 million in 1964...

...Big business and its offspring, the tax-exempt foundation, seem much more concerned about what the Government does with its money than about how they spend their own...

...WRIGHT PATMAN, Texas Democrat, has served in the House of Representatives since 1928...

...taxpayer...

...Between 1961 and 1964, its annual charitable disbursements ranged from $244,000 to $283,000...

...If these were the most spectacular, they were far from being the only losses incurred by foundations in recent years...

...The 575 foundations studied by the Subcommittee claimed they paid out $2.2 billion in gifts, grants, scholarships, and other expenditures during the four-year period 1961 through 1964...

...For purposes of determining the amount of income accumulated by a foundation during a year, the Treasury excludes from income capital gains and contributions received...

...Their increased hoarding and building of untaxed wealth makes warnings such as expressed by Senator Albert Gore of Tennessee—that the proliferation of tax-exempt foundations raises the threat of a dangerous "concentration of wealth and control over the economy"—sound indeed temperate...

...The report of the Morgan Guaranty Trust Company complains of Federal expansion, but if there is any monetary dukedom that has led the way in invidious expansion, it is that of the foundations...

...Another case of the way incidentals sponge up the charitable content was found in the experience of the American Box Board Company Foundation of Grand Rapids, Michigan, which had gross income of $31,635 during its fiscal year 1964 but could do no good with it because "expenses" of $31,268 —including "miscellaneous expenses" of $24,452—ate it up...

...The Subcommittee can point to some notable successes...

...In short, Morgan Guaranty thinks the Federal Government does too much do-gooding...

...And the next year he stated his position even more firmly: "For many years I have been convinced that it is wasteful to tie up money in perpetual trusts and that these trusts are often actually harmful in their influence...

...Investments should be made rigorously subject to whatever statutory rules are needed to protect the public's interest in the assets of foundations...

...Tax laws and Treasury regulations invite, however, the use of capital gains in more selfish ways...

...This organization's primary function is to aid the University of Miami football team by helping recruit prospective players and making loans to needy students," as it so states in one of its mailing pieces...

...The other half of the $30,000 would just disappear from public view...

...The President's recognition of the existence of this distorted tax favoritism and his support of the Subcommittee's work is gratifying...

...both can be thrown into the same bag, shaken up, mixed, and confused until it is impossible to separate income from principal funds...

...One of the oddest of the Treasury oddities is that it does not require foundations to maintain separate accounts for income and principal...

...According to the pliable laws that supposedly regulate foundations, capital gains, for example, not only escape taxation but they also do not have to be given to charitable or educational causes if they are reinvested within a reasonable period of time...

...Hence, the setup is uniquely favorable to a foundation's profiteering by obtaining non-distributable capital gains through investing income which was supposed to have been distributed...

...Quite the contrary...

...But even this amount—which is only forty-eight per cent of their receipts—is probably inflated, for many foundations report "appropriations" instead of actual payments, and later, losing interest in certain projects, cancel all or part of the appropriated funds...

...The present economy makes rising demands on the taxpayer for both external defense and internal improvements, yet the privileged foundations do not share the tax pinch...

...The Treasury does not yet even know how many foundations there are...

...However, strangely enough, capital losses are deducted from income in such determinations...

...As an example of the generosity of foundations with trustees, there is the Alexander & Margaret Stewart Trust of Washington, D.C...

...Max Mason, who headed the Rockefeller Foundation from 1929 to the early !930's, said, in an interview with a magazine writer seven years ago: "Old man Rockefeller did not set up the foundation, or any of his philanthropic enterprises for that matter, with the idea of everlastingness...

...As for Rosenwald's philosophy, he said, "I am opposed to gifts in perpetuity for any purpose...

...Rosenwald's observation, though thirty-eight years old, is as appropriate today as it was then...

...The accountability demanded of foundations is weighted in their favor...

...11 The prohibition of speculative practices by foundations, such as borrowing money for investment purposes...

...Thus, we find the congenial Internal Revenue Service granting tax-exempt status on July 6, 1964, to the Playboy Foundation of Chicago, Illinois, which, according to the Washington Star, contemplates using part of its tax-free funds for "a study of the effect of smut on public morals...