Thursday, March 20, 2014
Miranda Perry Fleischer recently provided provocative food for thought regarding the efforts to reform the charitable contribution deduction. In this week's Tax Notes (2014 TNT 54-4) she argues that charitable reform should result in something that really adds to the incentives to assist the poor rather than our own favorite projects. She doesn't argue against the worth of a diverse civil society supportive of MOMA, Harvard and other places most often patronized by people of means. But she does argue that assisting the truly needy should be the central focus of the charitable contribution deduction:
A full discussion of the charitable deduction should also take into account who benefits -- not just who receives the tax benefits from claiming the deduction but who the ultimate charitable beneficiaries are. Once we recognize that most charitable giving, especially by the wealthy, does not assist the poor and disadvantaged, what should we do? First, we should stop using the poor as an excuse for not discussing reforms such as turning the deduction into a credit or instituting a rate cap or AGI floor. To truly evaluate these proposals, we need to recognize which institutions (education, arts, and health organizations) might suffer and determine whether any fiscal savings are worth potential drops in donations to those types of charities. They may not be, but that's a different question from talking about harm to the sector in general or harm to the poor from those proposals.
More ambitiously, we should grant larger tax benefits to contributions to organizations that provide basic needs to the poor. You want to help education? Let's provide more incentives for donations to a tutoring program in a low-income area than we do for donations to your kid's school (which you would probably do anyway). To that end, I propose that donations to organizations that provide basic services to the poor be treated more generously for tax purposes than other donations. Let's say that you donate $ 100 to a soup kitchen. If the deduction remains a deduction, perhaps you are treated as if you had donated $ 200 (thus triggering a government subsidy of $80 instead of $40). If an AGI floor is implemented, perhaps those contributions are not subject to the floor. If the deduction is changed to a credit of, say, 15 percent, maybe you would receive a 30 percent credit for those types of donations.
By emphasizing donations to organizations helping the neediest, we'd be putting our money where our mouths are when it comes to charitable giving. We routinely use charity for the poor not only as a justification for continuing the tax status quo but also to excuse less government aid to the poor. For example, the bipartisan letter to Baucus argued that if the deduction were reformed, "the government would be required to step in and fund those services now being provided through private generosity. Accordingly, preserving the charitable deduction is also prudent as a matter of broad fiscal policy." There are very valid reasons for wanting charity to do more, and government less, when helping the poor. Quite often, charities can find more efficient, more responsive, and more creative ways of assisting the poor than the government can. So let's structure the tax incentives for charitable giving to reflect these values. Perhaps it's an area in which Republicans and Democrats can find common ground.
I second that. But I bet it won't happen and I just want to comment on and dispense with the most likely counterargument. The big boys -- hospitals and universities -- in civil society would never stand for anything that might result in fewer contributions to their own, even if whatever it is increased the amount of charity to the poor. I don't condemn those who would rather contribute to the Museum of Modern Art any more than would Prof. Fleischer. But the arguments against favoring the poor above all else in IRC 170 [or 501(c)(3)] rely on or at least harken to common misinterpretations of Biblical passages: "Man does not live on bread alone," opponents might say while also adding, "the poor will always be with us." Math. 4:4 and Mark 14:7. Religious scholars pretty much agree that those passages are misused to the extent they are thought to elevate every other good thing to the same level as the relief of poverty. Tax policy makers should conclude likewise.