Why We Need Tax Deductions for Charitable Donations

It seems absurd, at this late date, to have to defend the obvious merits of of tax deductions for charitable donations, which have provided important incentives for individuals to support institutions and organizations that enrich our quality of life in myriad ways.
But NY Times reporter Stephanie Strom apparently doesn’t get it, despite her years of covering the nonprofit beat. Now, thanks to her front-page article in Thursday’s NY Times, doubts will be raised in minds across the country.
When I first responded to Strom’s article, I didn’t have the time to give this astonishing piece of slanted reporting the detailed critique it deserves. What I don’t understand is why others have not rushed into this fray: As of this writing on Sunday, the constituents for charitable deductions—both the recipients and the donors—have not been heard from in the Times’ letters to the editor. Perhaps the paper is gathering the responses for one airing. Or perhaps the proponents are afraid to assume a high profile in this Grassley Era of nonprofit witchhunting.
Strom knows what kinds of tax deductible donations she likes—those that “alleviate the suffering of society’s least fortunate and therefore promote greater equality, taking some of the burden off government.” She looks with favor on the Salvation Army, Habitat for Humanity and America’s Second Harvest for their efforts “to help the poor in this country”
But arguing that “Americans are at best ambivalent about using tax dollars in such assistance,” she looks askance at grants to help the poor in other countries. She also casts cold prose on tax deductible benefactions for cultural institutions, hospitals and stem cell research.
Strom, as an “objective” reporter, doesn’t directly express her opinions in the article. But she makes a single philanthropist, Eli Broad, bear almost the entire weight of making the case for charitable deductions, while she draws upon a host of critics to argue the other side.
It appears that no comments at all were sought from recipients of tax deductible donations, who, if asked, might have described how their worthy organizations would be hobbled without them.
It may well be the case, as Strom observers, that the majority of Americans, if asked, wouldn’t favor direct tax-dollar allocations for particular categories of recipients—art museums, for example.
But that’s precisely the point: In our pluralistic society, we need a wide network of funding sources, interlocked in a public/private partnership that meets the society’s varied needs and priorities. If the charitable deduction were eliminated, so would be a major incentive for making donations. The impacted organizations would retrench or fold, unless the government took up the slack. Do we really want to greatly increase our tax burden and to centralize so much control in the hands of bureaucrats?
Just as many Americans are “ambivalent,” as Strom says, about the work of certain nonprofits that benefit from deductible donations, so are we ambivalent about certain activities directly funded with our tax dollars through government allocations. That doesn’t mean those activities shouldn’t be funded; different segments of society see society’s needs differently.
And it’s a distortion to say, as Strom does, that charitable deductions mean that “in essence, the public is letting private individuals decide how to allocate money on their behalf.” There are, in fact, clear government-established requirements that must be met by organizations to qualify for tax deductible largesse. The question of which organizations get such benefits is not left merely to individual whim, but is subject to stringent guidelines.
Yes, there have been abuses, and those abuses should be corrected. But the bottom line is that charitable deductions are a good deal not just for the donors but, even more so, for the general public. Strom misleadingly notes that “the charitable deduction cost the government $40 billion in lost tax revenue last year.”
What she doesn’t note is how much our taxes would have to rise to make up for the loss of private donations that would be caused by curtailing charitable deductions.
Strom begins her article by asserting:
For every three dollars they [charitable donors] give away, the federal government typically gives up a dollar or more in tax revenue, because of the charitable tax deduction and by not collecting estate taxes.
I would turn that argument around: For every dollar a donor gets in tax relief for his largesse, the public typically gets three dollars of benefit.
At least Strom’s article may have improved the fortunes of one artist, if not the arts: Sean Scully landed a painting on Page One—photographed as an attractive backdrop for collector Broad.