Should Charitable Contributions Be Tax Deductible?

The New York Times published an op-ed piece titled “When Rich Give, We Pay.” It’s a pathetic and ill-conceived attempt to make a case against the deductibility of charitable donations.

In 2017 Americans gave $410.02 billion to schools and colleges, hospitals, cultural organizations and museums, medical research and many other institutions that greatly improve the quality of our lives. The benefit of this charity is incalculable. Many students receive scholarships, health care is improved, art is preserved and curated and diseases are diagnosed and cured thanks to donations by generous Americans.

The kindness of so many is a treasure not duplicated anywhere else in the world. And, in many cases, the money donated decreases stress on our society and government, which are intent on supporting education, medicine, science and the arts.

I was taken aback by the strange proposal by the authors of the aforementioned article that affluent donors should lose the deductibility of their gifts that help so many. Then again progressives never give up in their quest to extract more money from the most successful in our country even it the proposals are inherently unproductive.

And, it’s stunning that the amount of money donated last year, a new record, is not even recognized for what it is, subsidization of the federal government. If these gifts were not made, Americans would look to the government to fund the numerous eleemosynary activities alluded to earlier.

When an American donates money to a qualified donee and itemizes deductions, he or she receives a tax benefit equal to the amount granted times the donor’s tax rate. [Note: For expediency I will only speak to the impact of giving on federal income taxes.] So if a person donates $1 million to a hospital or a college or to medial science, he or she receives a tax benefit of $300 thousand, assuming the individual has an effective tax rate of 30%. The highest individual tax rates can be up to 37%.

This means that the qualified donee gets $1 million, with no tax liability and the donor effectively pays $700 thousand out of pocket, including the tax benefit. It is true that the federal government will lose $300 thousand, but the resultant benefits to the donee’s beneficiaries could be far more important than this.

If the money is used to finance medical research, lives will be saved. If the money is used for scholarships, more students will become productive, independent members of our society.

Robin Hood, a charitable organization, raises millions annually from its very enthusiastic supporters. The mission of Robin Hood is to aid the needy in the New York metropolitan area. Is the good that this organization does in feeding, clothing, sheltering and educating the downtrodden worth more than the loss of tax revenues from deductible gifts? I think so. Does anyone really believe that million dollar donations are a merely a ploy to reduce taxes?

I’m puzzled why the Times would publish such a misguided piece. The naivety of the authors is best represented by their call on donors to voluntarily give up tax deductions arising from their gifts. The authors then compounded their misunderstanding by suggesting that donors are less qualified than the government to apply their donations. Why would donors give up the right to use their donations in a way that meets their specific focus? And to the federal government, no less? How well is our government doing managing its finances? Consider the out of control deficit.

It would be folly to take a chance that the generosity of so many would not be affected by the elimination of charitable deductions. Over $400 billion are at stake.

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