Tuesday, July 23, 2013
The Chronicle of Philanthropy reports that a newly formed coalition of religious charities recently went to Washington to persuade U.S. Senators not to eliminate the charitable contributions deduction in the midst of proposing significant federal income tax reforms. The sense of urgency arises from a deadline imposed by Senators Max Baucus (Chairman, Senate Finance Committee) and Orrin Hatch (Ranking Member, Senate Finance Committee), who recently informed other lawmakers that the tax expenditures that will survive their efforts to reform the Internal Revenue Code must demonstrably “(1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.” The recently formed Faith and Giving Coalition made the case to lawmakers that the charitable contributions deduction meets that three-pronged standard. The gist of their case, says the story, is that “charities save the government money by providing social services.”
While many religious charities indeed provide valuable social services, I believe the broader religious community should think twice before making its case to Congress for the continuation of the charitable contributions deduction primarily on the grounds that religious entities provide social services that save the government money. The primary function of most religious charities is not to undertake activities that the state would provide in the absence of the religious entities. Indeed, their primary function is quite the opposite – to provide something that the state cannot provide because of the Establishment Clause. It does not follow, however, that either the charitable contributions deduction or federal income tax exemption is inappropriate because most religious charities do what the state cannot do. As I have written elsewhere, there are fairly strong arguments that federal income tax exemption is appropriate for charities, and a plausible (though less compelling) case for the charitable contributions deduction, apart from a desire to “subsidize” charitable donees through the tax system. This observation does not mean that government should ignore the general social services provided by charities, including religious ones. But it does imply that other policy factors are also relevant in determining how the charitable contributions deduction should fare in tax reform.