What should (but won’t) be the last word on the charitable tax deduction

The most powerful argument in this LA Times op-ed piece opposing the charitable tax deduction is that it’s a poor trade-off.  Retired foundation executive Jack Shakely points out that charities have permitted themselves to be shorn of their ability to influence policy and politics in return for a mess of pottage.  Of course the restrictions on charitable participation in the public arena aren’t as draconian as nonprofit executives (and especially Boards) think they are—but the point is that nonprofits understand themselves to be constrained, and rather than bothering with the details remain quiescent politically.

As strong a proponent as I am of the pursuit of individual gifts, in the real world virtually every social service agency needs seriously more government money if it’s going to make any dent in the social problems it faces.  The more social service agencies feel free to advocate for this particular budget bill or that particular provision in a piece of legislation—both prohibited by the current tax-code provisions—the more likely it is that those bills and provisions will pass, which would serve way more of the agencies’ clients than the most blue-sky estimates of their potential for growth in individual giving.

And for someone with foundation cred to say this!  All hail Jack Shakely.

h/t The Nonprofit Quarterly Newswire.

Comments

  1. CharlesWT says

    “[T]he more social service agencies feel free to advocate for this particular budget bill or that particular provision in a piece of legislation—both prohibited by the current tax-code provisions—the more likely it is that those bills and provisions will pass,…”

    So, you’re advocating for more lobbing and special interest legislation?

  2. kathleen says

    There is another reason that charitable contributions should not be tax deductible, and that is that it forces taxpayer support of charities that may not be in the interest of the taxpayers to support. Tax deductions are functionally government subsidies of the charities that receive them and their donors, but without any input from we the people about those allocations of resources.

    Why should Bill Gates be subsidized for his support of one flavor of “public” education over another? Why should donors be subsidized for supporting their particular choice of arts or political causes? Everyone is free to give money to whomever they wish, but why should taxpayers support those choices without having had any input into those choices?

    Meanwhile, those of us who don’t itemize tax deductions get no tax credit at all for our support of food banks or other worthy causes, but we still give what we can; why can’t this be true of all donors?

    Charitable organizations should be free to seek government grants for their enterprises, that would be evaluated based on their merits to the populace at large–the ones voting and paying the taxes. This ‘representation’ in our ‘taxation’ would give everyone a say in what gets civic funding and what doesn’t, obviously a core principle of our government.

    • Tom H. says

      I’m not sure why the argument that some people don’t itemize is an argument against; is there anybody who *can’t* itemize?

      There may be people whose itemized deductions are less than the standard deduction, but we can just reframe that as their being subsidized *not* to contribute to the charity of their choice…

      • kathleen says

        For those of us not receiving government-subsidized mortgages, or not having investment or medical losses, itemization of individual tax returns usually is pointless.

        Why should what I contribute be worth less than what’s contributed by itemizers? If I have a given amount to contribute, tax deductibility will factor in, and my recipients will receive less from me than they otherwise would if I’d been able to make it a tax-deductible gift.

        Meanwhile, how many of those who itemize assign very generous dollar amounts to their in-kind donations of unwanted household goods, or “round up” their church donation amounts? (Every CPA knows the informal IRS limits for undocumented charitable contributions.)

        Linking “charity” with tax savings bastardizes both true charity and the tax system.

        • John G says

          well, there is a principle in the tax deduction for charitable contributions: charitable activity is socially desirable, meaning that any activity that qualifies under the legal definition of ‘charity’ for tax purposes is to be encouraged. It is not up to the government to decide which of the many diverse activities that meet the definition should be supported, so it lets taxpayers decide for it, by making their own donations. The government rewards this decision by contributing the amount that the income would otherwise be taxed (or the marginal tax rate applied to that amount). The government (and all taxpayers, by extension) encourage taxpayers to make such choices on their own.

          That is separate from government decisions to support particular activities for particular reasons beyond that they happen to be charitable.

          One may or may not agree with the principle, but the deduction was created for a purpose.

  3. says

    All the commenters are right, but there are simply not enough government revenues, nor is the public willing to provide enough, to fund the choices Mark would be likely to make. The charitable deduction is unfair but so are government grants. In both cases, either tax subsidies or tax proceeds are directed to private agencies, no matter how narrow their focus, and this is not justified by their non-profit status.

    Individual contributions, as Kathleen says, should be encouraged and derived from voluntary, but unsubsidized contributions. Like many taxpayers, I support the charities of my choice and do so willingly because it’s the right thing to do, despite the fact that by the time the tax code finishes depleting my itemized deuctions, the gifts don’t save me any appreciable taxes. That’s not the motivation for making them anyway.

    There is a role for government, which is performed ably, and that is to support necessary services and agencies that the private sector can’t be relied on to provide – public hospitals, public schools, and certain public welfare agencies. The taxpayers, through their elected representatives, establish and fund these programs.

    I see nothing wrong with non-profits lobbying for such grants, and would support a system where they had that right and we eliminated their tax -free status (and the deductibility of private contributions to them). On the other hand, as a taxpayer, I would oppose most or all of those grants on the principal that they serve special (though perhaps needy) interests rather than the general population of taxpayers. We live in a world of scarce resources and scarcer revenues.

    For legislators, the usual considerations of priorities would be determinative. So they would decide where schools, homeless shelters, medical facilities, museums, research grants, etc. fit in the scale of priorities for taxpayers.