Taxation is more than a mechanism for raising revenue; it is a system of incentives and disincentives intended to regulate individual and corporate behavior, predicated on the assumption that the primary motive for giving is economic self-interest.
This is the view advanced by Yale economist Robert J. Shiller in a recent essay, ?Taxes Needn?t Discourage Philanthropy,? which appeared in the business section of the New York Times on July 28th.
Looking at the ?big picture? historically, we can see a number of trends that cast doubt on this assumption and which suggest that the charitable deduction may not be as important in motivating giving as conventional wisdom supposes.
Charitable giving, large-scale and small, existed long before the current system of tax incentives. John Harvard and Elihu Yale received no tax relief from the gifts to the colleges named after them. John D. Rockefeller, Andrew Carnegie, and Olivia Sage derived no financial benefit from the millions they gave to charity before the enactment of the federal income tax in 1913. Throughout our history countless citizens have given to support charities, churches, and causes without any expectation of subsidy in the form of deductibility
Long-term data suggest that, since the enactment of the charitable deduction and steeply progressive tax rates in the 1930s, the overall trend in the percentage of individual and household income given to charity has declined, leading historical statistician, Colin B. Burke, to conclude not only ?the nonprofit sector has become much less charitable and voluntary in respect to its overall sources of support,? but also that, ?as measured by individual contributions as a percentage of after-tax (disposable) income, Americans became less generous? in the course of the twentieth century.
Further, the current tax regime may have actually distorted motives for giving, with the parsimonious scrambling for tax savings displacing more expansively generous expressive motives.
Most giving in terms of number and amount of donations comes from non-itemizers ? tax payers who cannot use the charitable deduction and who do not receive any tax benefits for their generosity. Studies of giving show that the wealthiest taxpayers, who benefit from the deduction, and the poorest, who do not, give roughly the same percentages of household income, In line with this, data show that the wealthiest states should be the most charitable, since their citizens have the most to gain financially from philanthropic giving. In fact, the poorest states are far more generous than the wealthy ones despite the inability of most of their citizens to claim the charitable deduction.
In fact, religious demography appears to a far more powerful motivator of giving than tax savings: The populations of most generous states have more religious adherents, most of them evangelicals, than the least generous. Theologically conservative groups like the Mormons and Assemblies of God give far more Roman Catholics or liberal Protestants, both as religious and secular donors.
Finally, we need to consider the relative importance of donations as a proportion of total nonprofit revenues. While donations comprised nearly 40% of nonprofit revenues in 1943, by 1992 the percentage had fallen to less than 25%. Today, it is estimated to be about 12%. Under the circumstances, it is not unreasonable to ask whether the cost of the tax expenditures represented by the charitable deduction are justifiable in the light of the diminishing significance of donations as a proportion of the sector?s revenues.
Ultimately, the continuation of the charitable deduction loophole calls attention to the inherent unfairness of the present tax system. The deduction which subsidizes charitable giving is available only to wealthy itemizers rather than to the vast majority of non-itemizing donors. This inequity is compounded by the Citizens United decision, which serves to further amplify the voice of wealthy individuals and corporations.
As the New York Times?s Stephanie Strom suggested in her December 2009 article, ?Grab Bag of Charities Grows, along with U.S. Tax Breaks,? the IRS?s increasingly lax and expansive standards for awarding charitable tax-exemption raises the question of whether the deduction continues to serve the redistributional purposes originally intended by policymakers.
When anything can qualify as a charity as long as it is not, as the lawyers put it, ?illegal, impossible, or impracticable,? does the deduction really continue either to stimulate giving or to provide public genuine benefit?
Source: http://hausercenter.org/npnews/?p=5057
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