Eliminating the Charitable Deduction: The End of the World as We Know It, and I Feel Fine

As governments at all levels scramble for resources, the idea of eliminating the charitable deduction from the income tax code has begun to attract support. Many people who work in nonprofits say this would damage the sector, because people would be less inclined to give and those who did give would give less. Let’s assume this is true (though Americans’ passion for voluntary organizations long predates the tax code—Tocqueville, anyone?). Is the health of “the sector” really the relevant concern?

It may be that people will give less to their churches or alma maters or prestige arts organizations if deprived of a tax benefit for doing so. But that money will be in the public treasury, where it will go for health care and education and environmental protection (and even a pittance for the arts). So wouldn’t the goals of nonprofit hospitals and nonprofit schools and environmental nonprofits and arts nonprofits actually be advanced if the government had more to spend on these essential services?

In other words, as with health care, the question isn’t whether people pay; it’s how. You either pay for health care by giving money to an insurance company, or by paying taxes and letting the government insure you. (The latter model, in use in this country only for the aged, produces the greatest efficiencies and greatest satisfaction among patients, families, and caregivers; but of course extending it to the rest of the population would set us on the road to serfdom. Hayek himself endorsed public provision of health care, so what are we arguing about, again?)

Likewise, you pay either way for education and schools and environmental protection and so on; it’s just a matter of which pot you’re anteing up in, the private nonprofit or the public.

So there’s a real discussion to be had about whether the charitable deduction is a good idea for the entire sector, or whether in fact social service and social justice nonprofits–-the ones that struggle the most for philanthropic support–-would be better off without deductions but with a bigger public fisc.

Yes, the money might go for defense, or subsidies for oil companies, or some other boondoggle. It’s our responsibility as citizens to prevent this; tax deductions were not designed to protect us from self-government.

This is another version of the argument I’ve made elsewhere about the generosity of billionaires versus the reinstatement of a significant inheritance tax. (Democrats like myself should make a point of calling it “the inheritance tax,” because that’s the whole point: At the moment, people who work for their money pay income taxes on it while people who inherit their money don’t. Or we could call it “the windfall profits tax,” which is what it is: a tax on the windfall profits of people whose only contribution to society is having picked the right parents. And I speak as a windfall recipient.)

When the government collects inheritance taxes, it can spend the money on things we as a democratic society think important: health and education and social services and, yes, roads and weapons systems, and a bunch of other things about which my opinions are in the minority. If the government doesn’t collect, billionaires’ offspring can spend the money on the things they as potentates think are important, which might be eradicating malaria and endowing charter schools. But they might also spend the money on scholars to produce support for the elimination of public education or the abolition of all regulation, or even pay legislators directly for said elimination and abolition.

The tax code is designed to provide the government with resources to do its job. Its job, among other things, is to provide essential services to citizens who cannot provide those services for themselves; and the more money it collects, the more services it can provide. What’s important is that those services are provided, not that they are provided by the sector that happens to employ me.

So the question here is not, “Is it good for the sector?” but “Is it good for social welfare and social justice?” The answer is not clear-–crunching the numbers would be a huge job for which I’m totally unqualified-–but let’s make sure we’re asking the right question.

Read more stories by Kelly Kleiman.