Must charitable giving be tax deductible to be sustainable?

Lately I’ve been thinking about how to encourage charitable giving without evoking the tax deductibility of gifts as a benefit.  Why? As government looks for ways to balance its books, both revenue and tax code simplification proposals are being widely debated among policymakers and the press.  Among these are proposals to terminate both the mortgage interest deduction and the charitable gift deduction.  For example, an article in last week’s New York Times by University of Chicago economist Richard Thaler (“It’s Time to Rethink the Charity Deduction”) outlined the benefits of ending the charitable deduction as part of series of policy changes that he believes would make our tax system more equitable.  An earlier Times’ story (“Nonprofits Fear Losing Tax Benefit”) cited an estimate of the “tax cost” of the charitable deduction as between $237 billion between 2009 and 2013 and reported on ways the tax code might change based on recommendations of three different “blue ribbon” policy panels.

Would ending the deductibility of charitable gifts have an immediate chilling effect on individual philanthropy?  Perhaps not, although this will be hotly argued, and I admit I don’t relish the opportunity to find out first-hand, particularly in an already turbulent fund-raising environment!   But I believe donors’ primary motivation for support is belief in an organization’s mission, respect for its results, and trust in its stewardship of resources.  The deductibility of a gift is an ancillary benefit, not a primary one. 

Still, our own behavior can affect how donors’ perceptions are shaped, based on how we seek, value, use, and report on their gifts. For example, I cringe when I see cultural nonprofits over-emphasize “perks” when a particular gift level is reached (i.e. for a gift of a particular size, we will provide you with a variety of personal benefits).  This approach risks turning a gift into a transaction; the quid pro quo is not the good work the organization will do with the donor’s gift, but rather the individual benefit to the contributor. 

Tax deduction or none, I think the best way to encourage donors to contribute is to consistently describe the community benefit of our work, to ask donors to join in helping us make our communities more interesting, more inspiring, and more energizing places to live because of the arts.   We can help donors understand that without individual support most cultural organizations would fail in short order, as earned income coupled with government, foundation, and corporate support is insufficient to sustain a robust cultural sector.

We may get a chance to see what it’s like to raise money in a dramatically changed tax policy environment.  Thinking about how we should position ourselves for this change – now – can strengthen our case for support and help prepare for uncertainty regarding the future deductibility of charitable gifts.