Is It Time to End the Tax Deduction for Charitable Contributions?

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January 8, 2015;Commonweal

In an opinion piece posted on the Commonweal website, Fran Quigley makes a very articulate and compelling argument that America should do away with the tax deduction for making charitable contributions and replace it with real and effective social welfare programs that are managed by the government. Commonweal describes itself as “Catholic. Independent. Opinionated.” And this piece certainly lives up to that billing.

Quigley makes the argument that nonprofit organizations are in fact managed by very well meaning people who do some rather good work but are very bad at making the systemic changes required to truly stop a problem rather than simply put a Band-Aid on it. For example, she notes that after the devastating earthquake in Haiti, tax-deductible contributions poured in from all over America. Quigley estimates that nearly fifty percent of American households donated to that cause. However, in all the years that have passed since then, the positive impact does not seem to have lived up to the investment. Instead, it is another case of competing interests working without any coordinated effort.

The idea of making a charitable contribution is by now ingrained in the psyche of most Americans. We give very generously as a nation in comparison with other countries and we quite rightly pat ourselves on the back about it. But, as Quigley points out, America has a higher level of poverty than most other developed nations, and, as we all know by now, the gap between the haves and have-nots is widening. How could that be if we are giving so much money to the cause?

Quigley points out that other nations invest in social programs at a higher rate than the United States. Whereas 20 percent of our budget goes to social programs, in other countries it is as high as 24 or 25 percent. The United Kingdom, even after the severe cutbacks under Thatcherism, still spends 24 percent of its gross domestic product on social welfare programs.

What if we stopped the tax deduction associated with charitable contributions? It is estimated that the government would suddenly have an additional $51.6 billion to spend. That could go a long way toward establishing well-coordinated and meaningful responses to the ills of our society, Quigley argues. It is also quite possible that people would continue donating to nonprofit organizations, as some studies indicate people are more likely to donate because they want to give back than because of the tax deduction. That means that small, innovative organizations can continue to do their work and explore new and better ways of making a difference, which can later be adopted and replicated by the government agencies.

Quigley argues that the system now in place creates a hierarchy of need: Those who have enough make donations, while those who do not have enough receive the benefits of that generosity, putting them in a secondary or lower position in the transaction. They are in essence told that they have less to give than the richer person. Philanthropists now have assumed the right and responsibility of deciding where their largesse should be invested to benefit the greater good—in their opinion.

On the other hand, a robust, government-managed social welfare system could represent an investment we all make, anonymously, to ensure equitable access to the benefits our country has to offer, including jobs. Society as a whole has the right and responsibility of determining where the greatest needs are and how to address them.

It is an interesting argument. Quigley addresses only briefly one of the issues that arise, which is that the nonprofit sector is not just about need; it is also about quality of life, which can be defined in so many ways. It is about ensuring high quality education is available to people young and old. It is about ensuring that we have a deep and meaningful cultural base to our society that both entertains and challenges. Further, it is about building a sense of community, that we are all in this together, that we each have something to offer, and that we all are responsible for each other. We choose to help because we want to, not because the government tells us to.

One final issue to address is that of government efficiency. The federal response to disasters like Hurricanes Katrina and Sandy do not demonstrate that FEMA is any better at responding than a series of nonprofits. This proposal would also put a lot of decision-making in the hands of the elected officials in Washington and, as polls continue to show, this country’s confidence in the ability of our elected officials to get anything at all done is at an all-time low. So maybe the choice of giving to a nonprofit social welfare safety net or a government-led safety net is six of one, half a dozen of the other.—Rob Meiksins

  • sam iam

    Or better still transfer the 50 billion from other government spending like defense

  • Anne Springer

    I think it’s a good thing that private citizens decide where to place their largesse. Otherwise, some charitable causes would ALWAYS find themselves lacking. Would the government ever be able to put significant resources toward animal welfare if people were still in need? Would they always favor children above elders? I think that those of us who are involved in certain charities would be completely unable to fulfill our missions without the support of people who have just a slightly different take than the majority about what they want to support. Plus, I do think there’s a segment of the population that would not give as much if they couldn’t depend on the deduction at year’s end. Not that that is OK, but it just is. If the government stopped padding the nests of those with only their own self-interest at stake, and started legitimately thinking of what’s best for the nation, perhaps we wouldn’t even be having this discussion.

  • michael

    Quigley’s child-like faith in government provision of services is quaint. Ask any poor person who has to deal with a government bureaucracy in order to get anything basic like heating assistance and they’ll describe for you the bureaucratic nightmare it is to be reliant upon government. God help the needy if there is no nonprofit sector is replaced completely by the state.

  • Ben

    Or, let people still direct their giving and clean up govt waste before asking for more money.

  • Sharon

    I think the point that seems to be missing is that both strong government support for core social safety net programs is required as is the philanthropic giving of individuals and corporations. Neither can do meet the need alone for a number of reasons some which are captured in previous comments.

  • Denise Barkhurst

    Does it have to be either/or? Could we not have a system in which charitable contributions are given “weighted” tax deductions based on whether or not the organization that is donated to is working to solve social problems that cost the government money? For example, a donation to a Food Bank or a juvenile delinquency prevention program is eligible for a tax deduction as opposed to a donation to the local Symphony which would get a lower deduction or none at all.