What is this wonderful book we call a tax code—the collection of rules that provide for how individuals and businesses pay income (and other taxes) and interact with the Internal Revenue Service? Except for seasoned tax professionals, mention of the tax code generally induces some combination of fear, loathing, and incomprehension. Politicians generally refer to the tax code as too complex and constantly in need of reform for the good of all Americans.
But the tax code is more than a collection of technical rules. It is also a collection of policy choices about behaviors that legislators want to encourage (such as home ownership, charitable giving, and tax credits for certain investment) and discourage (such as penalties for fraud and non-payment of taxes, and limitations on certain deductions). More broadly, it is an attempt to interact with the economy and society through technical rules. As such, it is a valuable window into the United States—a nation’s values, priorities, and aspirations.
The tax code, although a collection of technical rules, is constantly evolving, and civil society is part of this interactive process. The tax code is rooted in current social issues, because more often than not tax writers are responding to what is happening in the real world. At the same time, tax policy affects future behavior in ways that are sometimes intentional, sometimes less so. It is a rare case where legislation is so forward-looking that it can accurately predict the future. It is also true that legislation can do unintended damage. But that should not be the end of the story. It is merely the beginning, as civil society reacts to the changes and a new generation of tax writers makes adjustments to reflect the new realities.
For example, one of the provisions included in the first tax code (in 1916) was a deduction for charitable gifts. It has been present in the tax code since then, even with significant changes over the years. Why is this important? Because charitable gifts are one of the clearest expressions of private action in the service of public good. I want to be clear that there are many others—volunteering time, for example—but the transfer of money from one person to another is the type of activity the tax code understands.
The charitable deduction was not included as a novel idea policymakers thought would make for an interesting experiment. It was a reflection of the importance of activities that were already well established in the United States. That is, it acknowledged the existence of a civil society and recognized the importance of including charitable giving in this new thing called the tax code—the new rules to govern how to compute and pay income tax.
The deduction for charitable contributions is now only one of many provisions in the tax code that supports civil society. There are provisions that encourage different types of exempt organizations for different purposes, special rules that focus on business income unrelated to an organization’s exempt purpose, and specific rules for different types of charitable donations (such as food inventory and conservation easements). These are just a few examples of the levers available for influencing the shape and scope of civil society. While many policymakers (and staff) are smart, focused, and interested in creating policies that support civil society, the variety of provisions are beyond their collective imaginations.
What happens, then, if we begin to view changes to the tax code as undermining civil society, whether intended or unintended? First, it is important to realize that, so far in US history, there has never been a “last” tax bill. Any tax bill is only the most recent tax bill; there is always another one for new proposals and changes to existing proposals. Second, civil society is not isolated—it changes over time as other areas of society change. The tax code is often a reflection of broader societal changes and policy priorities that may not always properly take into account the needs and contributions of civil society. These changes can be frustrating, but it is also an opportunity for innovation.
Over the last 15 years, the people and institutions that operate in civil society have adapted to demands to do more, in different ways, and with different resources than before. Civil society should be built on this spirit of innovation, properly viewing change as an opportunity, understanding the macro issues and recognizing how civil society fits within the larger picture—and then helping policymakers see the same thing. Despite the political noise in Washington, DC, there are dedicated and serious people who are interested in good policy, and their need for information is nearly unlimited. Engaging with and educating these policymakers can help ensure that the next tax bill focuses on civil society.
My point is that the tax code is important, but civil society should be the dominant influence on it, and not the other way around. Just like the business community, those who engage in civil society by creating organizations, and devoting their time and money to private action for the public good, should take the lead in defining how this area of the economy fits into the broader policy choices represented in the tax code.
Civil society is not unique to the United States. But, the creativity, diversity, and scope of American civil society is distinct, and the tax code has long reflected its unique character. That is not going to change, but the people and institutions that define civil society must remain engaged with policymakers and embrace the opportunities that change provides.