Eliminating the Charitable Deduction: The End of the World as We Know It, and I Feel Fine
Wouldn’t we advance the goals of nonprofit hospitals and schools, and environmental and arts organizations if the government had more to spend on them?
As governments at all levels scramble for resources, the idea of eliminating the charitable deduction from the income tax code has begun to attract support. Many people who work in nonprofits say this would damage the sector, because people would be less inclined to give and those who did give would give less. Let’s assume this is true (though Americans’ passion for voluntary organizations long predates the tax code—Tocqueville, anyone?). Is the health of “the sector” really the relevant concern?
It may be that people will give less to their churches or alma maters or prestige arts organizations if deprived of a tax benefit for doing so. But that money will be in the public treasury, where it will go for health care and education and environmental protection (and even a pittance for the arts). So wouldn’t the goals of nonprofit hospitals and nonprofit schools and environmental nonprofits and arts nonprofits actually be advanced if the government had more to spend on these essential services?
In other words, as with health care, the question isn’t whether people pay; it’s how. You either pay for health care by giving money to an insurance company, or by paying taxes and letting the government insure you. (The latter model, in use in this country only for the aged, produces the greatest efficiencies and greatest satisfaction among patients, families, and caregivers; but of course extending it to the rest of the population would set us on the road to serfdom. Hayek himself endorsed public provision of health care, so what are we arguing about, again?)
Likewise, you pay either way for education and schools and environmental protection and so on; it’s just a matter of which pot you’re anteing up in, the private nonprofit or the public.
So there’s a real discussion to be had about whether the charitable deduction is a good idea for the entire sector, or whether in fact social service and social justice nonprofits–-the ones that struggle the most for philanthropic support–-would be better off without deductions but with a bigger public fisc.
Yes, the money might go for defense, or subsidies for oil companies, or some other boondoggle. It’s our responsibility as citizens to prevent this; tax deductions were not designed to protect us from self-government.
This is another version of the argument I’ve made elsewhere about the generosity of billionaires versus the reinstatement of a significant inheritance tax. (Democrats like myself should make a point of calling it “the inheritance tax,” because that’s the whole point: At the moment, people who work for their money pay income taxes on it while people who inherit their money don’t. Or we could call it “the windfall profits tax,” which is what it is: a tax on the windfall profits of people whose only contribution to society is having picked the right parents. And I speak as a windfall recipient.)
When the government collects inheritance taxes, it can spend the money on things we as a democratic society think important: health and education and social services and, yes, roads and weapons systems, and a bunch of other things about which my opinions are in the minority. If the government doesn’t collect, billionaires’ offspring can spend the money on the things they as potentates think are important, which might be eradicating malaria and endowing charter schools. But they might also spend the money on scholars to produce support for the elimination of public education or the abolition of all regulation, or even pay legislators directly for said elimination and abolition.
The tax code is designed to provide the government with resources to do its job. Its job, among other things, is to provide essential services to citizens who cannot provide those services for themselves; and the more money it collects, the more services it can provide. What’s important is that those services are provided, not that they are provided by the sector that happens to employ me.
So the question here is not, “Is it good for the sector?” but “Is it good for social welfare and social justice?” The answer is not clear-–crunching the numbers would be a huge job for which I’m totally unqualified-–but let’s make sure we’re asking the right question.
Kelly Kleiman, who blogs as The Nonprofiteer, is principal of NFP Consulting, which provides strategic planning, Board development and fundraising advice to charities and philanthropies. She is also a lawyer and freelance journalist whose reportage and essays about social justice, the arts, and woman’s issues have appeared in the Chicago pages of the New York Timesas well as in the Wall Street Journal, Washington Post, Christian Science Monitor and other dailies; in magazines including In These Times and Chicago Philanthropy; in the Alternative Press; on Chicago Public Radio and the BBC; and on websites including The Huffington Post.
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COMMENTS
BY DStoke
ON May 25, 2011 03:36 PM
We need to get serious in this country about reducing spending as the way to get out of our budget deficit and debt problems, not raising taxes to continue to finance our irresponsible management of public funds.
We do need a better way of financing social welfare work and the gov’t/taxes clearly have a role to play but our goal should be to try to create a marketplace of social welfare work in which the best ideas and best service providers attract the resources needed to provide those services. I personally think that that marketplace is more likely to be achieved through private decision making, not by increased central planning. The incentives within the political system are simply not aligned to produce the best for social good and justice, they are aligned to keep people in power. With the resources in the hands of the politicians the funding will move about with the winds of political expediency.
It would seem to me in our modern world of the democratization of information and knowledge through the use of technology that we as a society should be able to identify the most promising ideas and organizations and then guide public money to those operations instead of setting up large bureaucracies with the gov’t as provider. A mix of Google engineering and Wikipedia-esque use of experts checking and balancing one another combined with the ease of gathering finances through taxes would seem like a powerful combination. I’m thinking of something like what Ashoka’s Changemakers did with the G20 this year, create the competition and marketplace of ideas, let the best ideas surface through pubic and expert opinions, do your due diligence and then open the funding mechanism. There are other models as well, the World Bank Development Marketplace, Philanthropedia, or even the potential retooling of the Kiva/GlobalGiving/DonorsChoose type models.
We definitely need innovation in the financing of social welfare but looking to the gov’t to be the model of efficiency and quality customer service is definitely not the answer.
BY Kelly Kleiman
ON May 26, 2011 06:10 PM
First, I disagree with you that the priority is to cut spending on social services. The priority is to provide those services, raising taxes to support them if need be. Taxes can be raised in a number of ways but reducing deductions may be perceived as the simplest and fairest.
Second, I don’t quite understand your suggestion that the “marketplace of ideas” determine what social services to provide, and how, but that tax dollars then be used to pay for them. If citizens pay for something, we’re entitled to choose what that something is. If private parties pay for that same thing, they’re the ones entitled to choose—and I think the provision of social services is a duty all of us share and therefore a duty that should be discharged through our democratically-elected government.
Finally, I remind you that the government actually IS a model of efficiency and quality customer service in the social-service fields it occupies: the Social Security Administration keeps millions of aged, disabled and orphan Americans out of poverty with a minimum of red tape; Medicare enables aged people to receive health care at minimal administrative cost, especially when compared to private insurers; Food Stamps enable poor families to buy adequate groceries with a minimum of stigma or processing cost; the Federal Deposit Insurance Corporation makes sure our money is safe when we put it in the bank; and on and on.
I’m familiar with the right-wing rhetoric that for 30 years has been claiming that government is the problem, but that only persuades me that the right wing is the problem.
BY Marshall Jones
ON May 27, 2011 08:54 AM
Great article. My only concern is leaving the fate of our non-profits and philanthropy in the hands of our government rather than the individuals. When I see what some of our best non-profits are achieving daily, I like the return on my investment. I certainly cannot say the same for our education or health care system. We would all be better served with less government control of our money and allow those who truly care about a cause control the purse.
BY Mark Rubin
ON June 9, 2011 12:48 PM
Provocative thoughts. I’ve seen studies which suggest pretty strongly that the tax deduction does not motivate people to give. I don’t understand the methodology associated with the studies, but the conclusions are pretty clear. (I do wonder about how pure people’s motives are, as well. Maybe the deduction cannot be associated with giving, but that does not mean taking away the deduction won’t affect giving.)
As for spending, whatever money charities have to spend on social needs will never be enough, if our goal is a society full of people whose basic needs are met, who have opportunities to develop, grow and thrive, etc. The scale is simply too great. So, if government had more money and was predisposed to spend it on our society, that would be a good thing. Unfortunately, even now government priorities are skewed in the wrong direction. The waste associated with national defense means jobs for lots of people. The waste in health care means jobs for lots of people. We have a dysfunctional legislative branch and a large minority whose goal is dismantling any aspect of society that does not exalt the individual. So, I worry about giving government more money, when the likeliest result might be more tax cuts for those—me included—who need them least.
All of my comments aside, the issues ought to be discussed, and no one should ever ignore the fact that every deduction, large or small, popular or unpopular, represents a spending choice that the Congress has made, somewhere along the line. All of these choices carry costs with them, and a rational discussion about the choices—nigh on impossible in today’s world—will only help.