In Defense of Taxes—Even If They Might Cut into Charitable Giving

Taxes

In recent weeks, nonprofit organizations mobilized against the threat that Congress would limit tax deductions for charitable gifts. Because charitable deductions provide an incentive for giving, many nonprofit leaders fear that scaling them back will make it harder to raise money. Following the “fiscal cliff” negotiations, the charitable deduction remains more or less intact – at least for now. As we consider the broader implications of tax reform and government spending and gear up for legislative fights to come, I am concerned that many of my nonprofit colleagues are overreacting or – even worse – responding to the wrong threat.

First, a few facts about charitable giving. Seventy percent of American households contribute to nonprofits. Only one-third of taxpayers itemize their deductions. In other words, a majority of donors currently get no tax benefit from their giving, and yet they continue to give. If the charitable deduction is reduced, experts project that donations will decline by one to three percent, hardly worthy of the panic we see in the nonprofit community. Why can’t we accept this loss and say, “We are willing to do our part” – especially if increased revenue helps to protect government programs that serve our nonprofit clients and customers?

The larger issue is the demonization of government and the culture of tax avoidance. For the past thirty years, we’ve heard the insistent drumbeat of the argument that government is bad, and therefore paying taxes is a waste of money. A recent vice presidential candidate called taxes “unpatriotic.” I prefer the perspective of Supreme Court Justice Oliver Wendell Holmes, who said, “Taxes are the price we pay for a civilized society.” While many nonprofit networks were mounting an all-out campaign to preserve the charitable deduction, a handful of important voices – including author Kim Klein and Aaron Dorfman of the National Committee for Responsive Philanthropy – were offering more nuanced messages, in the spirit of Justice Holmes, about tax policy, equity, and democracy.

Nonprofit leaders, who are daily healing the sick, caring for the needy, protecting the environment, serving our spiritual needs, enriching our communities with arts and culture, and so on, need to talk more about what we buy with our tax dollars. We buy not only a safety net for the poor and dignity for the elderly, but also roads, bridges, courts, parks, public safety, public schools, public airwaves, regulations that protect our food, water, air, workers, drivers, other species, etc. Government is not “them.” It is us. It’s how we express our common values and create shared rules and expectations. These things enrich our lives, so it’s appropriate to support them with our taxes. Furthermore, those who vigorously avoid paying taxes continue to use government services while shifting the costs to others. At the very least, this is unfair. Under some circumstances, it’s criminal.

Let me be clear: healthy skepticism about government behavior is a fine thing. We can and should argue about the specific ways our government spends money – too much on pointless wars, in my opinion – and we must hold our elected officials accountable for their decisions. Furthermore, there is no shame in claiming legitimate deductions. Congress and our state legislatures create tax breaks, including the charitable deduction, as a way of implementing public policy. A few years ago, while legislators debated the state budget, I marched in front of the statehouse carrying a sign reading, “I will pay more taxes.” Dozens of my Vermont neighbors joined the rally to make the same point: government serves the common good and paying taxes is a patriotic and necessary act.

Nonprofit leaders can and should take the lead in delivering this message. The current debates about government spending and fiscal policy offer a great opportunity to say, “We are willing to risk a small decrease in charitable donations to strengthen the common good.”


 

Andy Robinson is an author, consultant, and trainer based in Vermont.

  • Terry Fernsler

    Hear, hear, Andy Robinson! We should also remind dogmatic capitalists that paying taxes supports this economy, because government buying is done on a far greater level than any other consumer.

    While maybe not as important as Kim Klein and Aaron Dorfman, Third Sector Radio USA has been urging the nonprofit sector to be good corporate citizens by risking a small decrease in charitable donations and looking at the big picture of service to our communities.

  • Kelly Kleiman

    Here, here. Particularly as it becomes apparent that the wealthiest among us are using their private philanthropy to dictate public policy (see the Broad Foundation’s gifts to New Jersey and the William Penn Foundation’s gifts to Philadelphia, each conditioned on the sacrifice of public decision-making). The only way to assure that public decisions are made by the public is for the public to pay for them, and if that reduces enormous donations with enormous strings attached to them, so be it.

  • Lisa Hassenstab

    Thank you, thank you, thank you! You have articulated my concern and frustration about the approach that has been taken by the nonprofit sector regarding this issue. While I recognize not all nonprofits partner with government entities, organizations like mine have seen revenue drop significantly because of falling tax revenue available to provide for critical human services. The limited impact on giving from a change in charitable deduction is so minor compared to the impact the sector COULD have in messaging about taxes and stewardship of public dollars by nonprofit organizations. I look forward to the day when major players in the sector can come together around that kind of support.

  • Sandra Simmons

    You make a good argument for taxation in the cause of public good. It would be great if we could count on the increased taxes going to meet social needs. There is no guarantee of that and the loss of income from charitable deductions could seriously put a lot of nonprofits at risk.
    Even if people don’t itemize and claim a charitable tax deduction, just the fact it is deductible, gives credibility to the recipient and induces some people to give.
    It is a complex issue. The majority of charitable donations do not go to the programs addressing the most pressing needs in our communities. When United Way started allowing donors to direct their gifts to specific charities, some organizations received more than they requested while others suffered losses in a reliable source of revenue.
    I still believe we can make a case for the charitable deduction. Compared with the other personal deductions being targeted for elimination, the charitable deduction provides a benefit to the community, not just the donor. It creates a public/private partnership and leverages tax dollars that otherwise support many social programs. I see it as a win/win.

  • rick cohen

    Well put as always, Kelly. I agree wholeheartedly–and I’m quite concerned about the Broad/WmPenn dynamics.

  • Frank Monti, CPA

    With few exceptions, there are few things that big government does well. It continually amazes me that people who fear big business and point to its evils happily embrace bigger and bigger government. Reducing taxes is the only way to reduce the size and reach of government. Where is the outcry against state and loval governments taking away pension benefits from retirees because the governments failed to fund the plans they created?
    Have more faith in your fellow citizens and be more skeptical of big government. Prior to the government taking over what were previously only charitable activities, these needs were addressed without the degree of inefficiency and corruption that exists in many federal programs today.

  • Andy Robinson

    Agreed, it’s a complex issue and your raise legitimate points. In response: As nonprofits, we need to do a better job of advocating for our needs and our communities with the relevant government bodies. We have the power to shift public policy — let’s use that power for something more substantive and ambitious than protecting the charitable deduction.

  • Kelly Kleiman

    “There are few things that big government does well”? Actually, there are many things big government does well: national defense, keeping old people from poverty through Social Security, providing excellent health insurance at low cost for senior citizens through Medicare, keeping people from starving through Food Stamps, maintaining the Interstate highway system, providing prompt expert disaster relief through FEMA, decontaminating air and water through the Environmental Protection Agency, keeping fingers out of our food through the Food and Drug Administration, assuring equal access to education, housing and public accommodation for all citizens including women, non-whites and people with disabilities, and on and on. I have plenty of faith in my fellow citizens, which is why I propose that our jointly selected, democratically elected government be responsible for maintaining the well-being of all.

  • Andy Robinson

    Frank, we have more in common than you realize: When you say, “Have more faith in your fellow citizens,” I would say, “I trust that my fellow citizens will keep donating even without the charitable deduction” — because it’s the right thing to do and because we don’t need government policy to incentivize it. So if you’re making the argument against “big government” that picks winners and losers — a popular conservative refrain — then you need to argue against all selective tax breaks, including the charitable deduction.

    For more on this subject, here’s a piece from Kim Klein:
    http://www.nonprofitquarterly.org/index.php?option=com_content&view=article&id=9106:the-charitable-deduction-must-go&catid=246:special-to-npq&Itemid=1071

  • Simone Joyaux

    Great comments about a question of importance: “How big a deal is it really, the tax deductibility of charitable gifts?” We know that the charitable deduction is not the biggest reason anyone gives. We know that the charitable deduction does have some impact for big donors and big gifts.

    Maybe the real concern is our society’s approach to taxation: tax relief rather than Justice Holmes’ approach “Taxes are the price we pay for a civilized society.” The U.S. talks too much about tax relief and too little about a civilized society. Because government can – and does – provide more than a military. Many of us believe that government can and should do more than it does now to ensure that civilized society.

    Maybe the real concern is our society’s approach to the nonprofit sector and the partnership with this sector. Sometimes our society doesn’t seem to appreciate the nonprofit sector – and our governments introduce bad laws that harm the nonprofit sector.

    And maybe a big concern is that the nonprofit sector doesn’t always advocate and lobby for good public policy. Sector boards and workers don’t want to offend donors. Sector organizations are afraid of risking their tax status.

    Maybe the nonprofit sector needs to speak out more: For good tax policy and for the tax benefits that can help produce a civilized society. For equitable treatment in a true democracy … and that includes higher tax rates for those who are more affluent (and that includes me, for example)…and payment in lieu of taxes for mega nonprofits that benefit from local fire and police…and, yes, a different structure for the tax deductibility of gifts.

  • Lou

    Mr. Robinson has leftwing views based on his article, stating that only up to 3% will be affected by the socialist movement in congress, even if that were true, which is not, billions of dollars are at stake considering that very wealthy people give most of the money to non profits. Jobs will be lost and some non profits will eventually close if even the 3% were a realistic number.

  • George DuPont

    This idiotic support of a government grab of non-profits funding is so Socialist that it is almost a joke, if it was not so very serious. When the Chairman O team met with lead non-profits, they were told – “Don’t worry about any loss in donations, we (the Federal Government) will make it up to you!” Yes, with more government control and interference!
    I am on the board of a large international not-for-profit… and from our financial report, almost 95% of our Major Donations are fully itemized… perhaps the little $100 donations are not, but the $50,000.00 ones most certainly are. This shows a typical unrealistic and biased position from the government.
    It is Not About Taxes, it is about Spending! This current administration is on a crystal meth spending high, trillions and trillions and no sign of slowing down… that is why they want to do away with non-profit deductions and also do away with interest deductions on home loans. Well, that one would shut down the housing industry instantly… and that is what this administrations wants to do, so they can provide free housing along with free food and free phones! They want the 47% to go to 51% on the dole, so they can be Emperor for Life!
    Andy Robinson may be a nice guy, but he is a misguided socialist in his thinking. He is a lap-dog of Chairman O.
    And he is very wrong!

  • Alison Serey

    So, is Andy Robinson saying that the government can do a better job than non-profit organizations in providing programs to the disadvantaged? And/or that non-profits should do more with less? Non-profits exist to strengthen the common good for heaven’s sake! My recommendation to Mr. Robinson: Go to work for a non-profit for a few years and then go back and read your article.

  • Alison Serey

    Thank you, Sandra!

  • cpdaly

    Absolutely appalling article.

  • Andy Robinson

    Hi Alison — I worked for nonprofits for 15 years. For the last 17 years, I have consulted with and trained more than a thousand nonprofits. 95% of my clients are nonprofit organizations — many of them small, grassroots groups.

    In general, I encourage clients to avoid government funding if they can — it’s unpredictable and the paperwork is onerous. But the reality remains that many social service agencies rely more on government funding than private donations. If government money were totally removed, they would have a hard time making up the difference with charitable gifts. The organizations that suffered most during the recent recession were ones that relied on government grants; those that raised the majority of their money from philanthropy and earned income tended to come through in better shape.

    (For more on where nonprofits get their funding, see “The Nonprofit Economy” published by the Nonprofit Quarterly. It’s eye-opening.)

    I believe it was Thomas Jefferson — the original small-government guy — who said that we get the government we deserve. If you perceive the government to be ineffective, inefficient, or corrupt, it is your responsibility — our collective responsibility — to make it serve our communities more effectively. Because, like nonprofits, it is also government’s role to strengthen the common good.