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May 2013 Brief: Volume 20, Number 15

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Let's be more Charitable!

 

by Dr. Donald P. Racheter

 

 

Americans have long been known as a very charitable people. We give more to others than any other national group.[1] As yet another income tax filing deadline has come, it is appropriate to revisit the issue raised in the 17 December 2012 issue of the Wall Street Journal “Should We End the Tax Deduction for Charitable Donations?”[2] Not represented in the pro-con “debate” between Daniel J. Mitchell and Diana Aviv were the positions of expanding the deduction, and replacing it with a credit against gross income so as to encourage all those who currently give, but do not itemize their deductions when filing their tax returns.

 

As Aviv argued:

 

The charitable deduction is unique in that it’s a government incentive to sacrifice on behalf of the commonweal. Unlike incentives to save for retirement or buy a home, it encourages behavior for which a taxpayer gets no direct, personal, tangible benefit.[3]

 

One can also make a good case that charities are much more effective at actually solving social problems and helping those in economic or social distress than are government bureaucracies whose incentive is to “manage” problems rather than solve them so as to perpetuate their reason for existence. As Ms. Aviv put it, “Charities are among the most effective institutions in the country and are getting better. They operate lean and mean because they have to. They are monitored by bureaucracies, donors, their own volunteers, and the communities they serve.”[4]

 

In his portion of the “debate” Mitchell makes a telling point against his own position:

 

To be clear, I feel strongly that the best way to help charities is to boost economic growth, which leaves people with more money to donate. And I think the best way to do that is to replace our current system with a simple and fair flat tax.[5]

 

He goes on to make a very cogent point, but fails to draw the proper conclusion: “Another reason to drop the deduction is that it’s exclusive . . . it gives a break to . . . upper-income households . . .”[6] The reason for that which he is overlooking is that most lower-income households do not find it to their advantage to itemize under our current system. The more appropriate response to that inequity is not to drop the charitable deduction, but rather to make it a credit against one’s gross income before net taxable income is determined. Everyone, not just the rich, should be treated the same for this purpose.

 

And without data on how much non-itemizers have been giving over the years, it is impossible to claim with confidence, as Mitchell tries to do, that charitable giving has remained constant over the years even as tax rates have changed. He also tries to advance the argument that the current deduction, or a credit as is being argued for here, does not and would not affect how much people give. However, the most recent research on this topic by the Indiana University Lilly Family School of Philanthropy established:

 

Americans gave nearly $300 billion to charity in 2011, and 65 percent of Americans give each year. The school’s research also shows that the amount of tax benefits an individual receives from giving tends to affect the amount that a person gives to charity . . . and is an essential component to the creation of a caring and thriving society.[7]

 

Given how many are in need year in and year out, and how many more are in need since the economic downturn in our economy and the slow recovery, let’s make it easy for people to get credit for doing the right thing, to help others instead of themselves. Let’s replace the current deduction for charitable giving, which is only of use to those few who itemize, and allow everyone to take any contributions “off the top” before determining their net income for tax purposes.[8]

 

Endnotes:
[1] “World Giving Index: US Ranked Most Charitable Country On Earth,” 20 December 2011, <http://www.huffingtonpost.com/2011/12/19/world-giving-index-us-ran_n_1159562.html> accessed on 28 January 2013.
[2] Daniel J. Mitchell, “Yes: It Doesn’t Increase Giving,” and Diana Aviv, “No: Nonprofits Are in Dire Need of Funds,” The Wall Street Journal, 17 December 2012, pp. R 1-2.
[3] Ibid., p. R 2.
[4] Ibid.
[5] Ibid., p. R 1.
[6] Ibid.
[7] Eugene R. Tempel, founding Dean of the Indiana University Lilly Family School of Philanthropy, in testimony before the United States House of Representatives Committee on Ways and Means, 12 February 2013,
<http://www.philanthropy.iupui.edu/news/article/dean-tempel-to-testify-before-congress-on-tax-deductions-for-charitable-donations> accessed on 19 April 2013.
[8] Fewer than two in five tax returns claim deductions according to the Tax Foundation: <http://taxfoundation.org/article/most-americans-dont-itemize-their-tax-returns> accessed on 19 April 2013.

 

Dr. Donald P. Racheter is President of Public Interest Institute, Mount Pleasant, Iowa.
Contact him at Public.Interest.Institute@LimitedGovernment.org.

 

Permission to reprint or copy in whole or part is granted, provided a version of this credit line is used:"Reprinted by permission from INSTITUTE BRIEF, a publication of Public Interest Institute." The views expressed in this publication are those of the author and not necessarily those of Public Interest Institute. They are brought to you in the interest of a better-informed citizenry.

   

 

 

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