Civil Society in Post-Conflict Situations

Flat Taxes, Santa Claus, and Charity: The Need to Strengthen Civil Society in Mexico

The International Journal
of Not-for-Profit Law

Volume 9, Issue 4, August 2007

Michael D. Layton1

Since the 5th of July the issue of tax reform and its impact on philanthropy and civil society in Mexico has been front-page news in Mexican newspapers. That day one the leading daily newspapers, Reforma, published a story, “Reform Hits Altruism Hard,”2 and for weeks the issue has stayed alive in the press and on the airwaves, revealing important cleavages and misunderstandings about the nature of philanthropy, the role of civil society, and the importance of fiscal incentives among the three major sectors – government, private enterprise, and civil society – as well as the political left.

The administration of President Felipe Calderon is proposing a series of reforms to the tax system with the complementary aims of increasing revenue, facilitating tax compliance while cracking down on informality and tax evasion, and strengthening fiscal federalism. Fiscal reform is an urgent issue for the Mexican government, as its tax collection as a percentage of GDP is one of the lowest in Latin America and nearly a third of its revenue comes from the state oil company, PEMEX. These factors severely limit the ability of the state to address pressing social problems.3 The centerpiece of the fiscal reform package presented by the administration is the Business Activity Flat Tax, widely referred to in Mexico by its Spanish acronym, CETU.4

In a meeting with business leaders shortly after the Reforma article appeared, the head of the Mexican Foundation for Rural Development complained to the President that the new tax did not permit donations to be tax deductible. President Calderon stated that social justice must come before charity as a cardinal virtue and that philanthropic actions were not sufficient to meet the challenge of reducing poverty and inequality in Mexico.5

A few months earlier Carlos Slim, the richest man in Mexico and perhaps the world, made a similar assertion. In an interview that was widely reported, he stated, “Our concept is more to accomplish and solve things, rather than giving; that is, not going around like Santa Claus…. Poverty isn’t solved with donations.”6

In a sense, the words of these two leaders, Mexico’s most powerful political leader and its most important economic leader and philanthropist, can be taken as representative of the opinion of government and the private sector. Both of these assertions reflect a limited understanding of what civil society organizations do, what their aspirations are, and what impact they can have in the promotion of equitable development in Mexico and in the world.

In Mexico the word charity invokes the Biblical injunction to “feed the hungry and clothe the naked.” I believe that to the extent that a modern, democratic state fails to do these things, such that this responsibility falls into the hands of the church and civil society organizations, it is a social injustice. While it is undeniable that traditional social service organizations (referred to in Mexico as asistencialistas) predominate in Mexico, they are not the only members of organized civil society. Nor is the membership of civil society exhausted by the social movements that often block public thoroughfares and governmental offices in the capital.

President Calderon and former President Vincente Fox owe their elections not only to the own political talent and hard work, but also to the creation of the Federal Election Institute (IFE). This institution was created and free and fair elections were brought about in Mexico by civil society organizations like Alianza Cívica, which, together with opposition parties, made it impossible for the authoritarian regime to deny Mexicans the basic right to free and fair elections – which was the motivating force behind the Mexican Revolution in 1910.

But the contribution of organized civil society to Mexico’s process of democratization did not end there. While most Mexicans remember the media reports of how the anti-abortion organization Pro Vida abused public resources by buying luxury items, including lingerie, very few recall how this abuse came to light. First, civil society organizations together with leading academics not only demanded that the federal government become more transparent, but also drafted the legislation that became the Federal Law for Access to Public Information, drawing on international experience and allies.7 Second, these same key actors have used the law to make sure that government actions, in terms of public policy and spending, correspond to their rhetoric and campaign promises. And they have systematically revealed abuses.8

Very few would argue with Mr. Slim’s assertion that poverty cannot be ended by donations. Clearly private enterprise generates employment and wealth, while the state has the capacity to tax businesses and individuals and thereby undertake the kind of massive social programs like Oportunidades in Mexico necessary to reduce poverty in the long run.

But who holds government accountable to living up to its commitments on this front? Who advocates for greater accountability from the public institutions charged with the responsibility of educating Mexico’s children? Where have poverty alleviation innovations, like micro-enterprise, come from? Who has demanded that the private enterprise live up to its rhetoric of being socially responsible by protecting the environment, treating its workers justly, and respecting the rule of law? Too often the private sector sees social responsibility as public relations and a photo opportunity, rather than a means to contribute to the development of the community where it does business.

Civil society organizations play an indispensable role in modern society by inspiring innovation for the public good and by holding public and private institutions accountable for their actions. The statements by the two most politically and economically powerful men in Mexico symbolize the failure of both the private and public sectors to appreciate fully the value and contribution of civil society in bringing about social justice and alleviating poverty. Each of these three sectors has a solemn responsibility and makes a distinct contribution to promoting a more prosperous and just society.

In my view, the President ought to widen his perspective on what civil society has contributed to Mexico’s democratization and development. Then he would see this sector as an important ally worthy of his recognition and the support of his administration, as expressed in the aspiration of the Federal Law to Encourage the Activities of Civil Society Organizations.9

A recent profile in the New York Times said that Carlos Slim likes to boil down his analysis of a business undertaking or the strength of big-league sluggers to a single page, so that all the information most critical to making an investment decision is available at a glance.10 Ironically he made his “Santa Claus” comment shortly after announcing the creation of a $450 million foundation for health research and care.11 Two months later Slim made a $100 million contribution to the Clinton Giustra Sustainable Growth Initiative (CGSGI) in Latin America, an effort to promote sustainable development throughout the developing world, spearheaded by the William J. Clinton Foundation.12 I truly hope that Mr. Slim has applied the same rigorous analysis to his social investments, and that his philanthropic actions enjoy a “social return on investment” equal to that of his private ones.

During this debate a third front has emerged: the political left. Critics of philanthropy on the left often misunderstand the importance of fiscal incentives in creating a culture of giving. Often pointing to the examples of Bill Gates and Warren Buffett, they criticize the lack of philanthropic giving on the part of Mexico’s wealthy, and find in their activities a combination of tax evasion and self-promotion. But these commentators ignore or misrepresent the impact that fiscal incentives have on charitable giving in the United States.13 At present the largest inheritances face an estate tax of 45 percent. When Republicans in the country proposed to abolish what they termed the “death tax,” a Congressional Budget Office analysis revealed that its elimination would undermine this form of giving, which has led to some of the largest endowments and the creation of the most important foundations in the United States.14 Some of the wealthiest and most generous Americans – including Bill Gates and George Soros – led a counter-campaign. During the debate in the 1990s over the adoption of a flat tax and the possible elimination of income tax deductibility of donations, an analysis by Price Waterhouse and Caplin & Drysdale came to a similar conclusion: tax incentives are a key factor in motivating charitable donations in the U.S.15 At the global level there is near universal agreement that providing fiscal incentives to promote donations to public benefit organizations is a best practice.

Only by overcoming the lack of understanding and underestimation of civil society by both political and business leaders can Mexico hope to advance toward a more prosperous and just future. It is clear that civil society organizations in Mexico have a legislative struggle on their hands to promote a legal and fiscal framework more favorable to their activities and financial sustainability; they also have a public relations fight to change perceptions so that political and economic leaders, as well as the political left, better understand the important contributions that organized civil society makes to the social and political development of the nation and the importance of fiscal incentives to promote and fund their activities.


1 Michael D. Layton is the Director of the Philanthropy and Civil Society Project, Instituto Tecnológico Autónomo de México (ITAM).

2 “Golpea reforma altruismo: Dejarán donaciones sin exentar,” Reforma (Mexico City) July 5, 2007.

3The Business Activity Flat Tax (CETU ) Proposal and Its Impact upon Charitable Organizations in Mexico,”

4 Ley de la Contribución Empresarial a Tasa Única (CETU),

5 “Inconforma a FCH queja de filántropos”, Reforma ( Mexico City) July 6, 2007.

6 “Billionaire Pokes Fun at Philanthropy,” Mexico City, March 13, 2007 (Associated Press)

7 Juan Francisco Escobedo, “El caso del Grupo Oaxaca y de la Ley Federal de Acceso a la Información Pública,”, February 2003, Year IV, Vol. 2.

8 Presentation by Alejandro Ortiz, Fundar, Centro de Investigación, “International Workshop on Resources, Citizen Engagement, and Democratic Local Governance,” Porto Alegre, Brazil, 6-9 December 2004.

9 Publsihed in the nation’s Diario Oficial on February 9, 2004 as “Ley Federal de Fomento a Las Actividades Realizadas por Organizaciones de la Sociedad Civil”.

10 Elisabeth Malkin, “New Commitment to Charity by Mexican Phone Tycoon,” New York Times, June 28, 2007.

11 “Billionaire Pokes Fun At Philanthropy,” Mexico City, March 13, 2007 (Associated Press),

12 See Philanthropy News Digest, June 23, 2007, “Clinton Foundation Establishes Sustainable Development Initiative in Latin America,”

13 Enrique del Val Blanco, “¿Filantropía o elusión fiscal?” El Universal, July 12, 2007.

14 Congress of the United States, Congressional Budget Office, “The Estate Tax and Charitable Giving,” July 2004.

15 Price Waterhouse LLP and Caplin & Drysdale, Chartered, “Impact of Tax Restructuring on Tax-Exempt Organizations,” April 28, 1997. Commissioned by the Council on Foundations and Independent Sector.