Charitable tax deductions are easy to defend. Who doesn't like the idea of rewarding people who give to their church, their community or some other worthy cause? It is an extremely difficult issue to touch politically, because nobody wants to be against rewarding charitable people.
There are a bunch of problems with that line of thinking, but I’ll offer one in particular. Charitable tax deductions aren't there to benefit generous people. They are there to benefit rich people.
See, there are really only three groups who give money to charity. The first includes those who don’t benefit from charitable tax donations. That means almost everyone who is poor, doesn't own a house, gives less than $10,000 or doesn't bother to itemize their tax returns. So, basically, most of us.
The second group includes genuinely generous people who have money. They give no matter what: they are driven by passion and conviction, whether that means supporting local art or faithfully tithing to the church. To them, charitable tax deductions are a nice way to reduce losses, but that fact does not make or break the giving impulse. In fact, giving in line with their passions may not meet the criteria for the deduction and they can easily “lose” as a result.
Finally there are those who have lots of money and lots of accountants to do their taxes. This group loves charitable tax deductions because by “giving,” they put themselves in a lower tax bracket and actually save money. In other words, their generosity is really just a tool for greed.
Now, let’s say you run a faith-based nonprofit that depends on charitable giving. The government proposes reducing charitable tax deductions for the rich, as has been discussed as part of President Barack Obama's jobs bill. You immediately join with other nonprofits, hire a lobbyist and encourage everyone you know to fight the proposal. Why?
This is the uncomfortable part. You’re not worried about money from the first group; their giving is unaffected. You’re not worried about giving from the second group; their passion drives them and they give regardless. No, you know that as soon as those deductions reduce, so will your contributions from rich people who want to get richer. You defend them because it is the only way you can defend yourself and your work. You rely on their self-service.
I raise this issue for a few reasons. First, it highlights a common hazard for Christians dabbling in politics: things are almost never as black and white as they seem. This is not to say goodness and altruism cannot exist in politics, because they can. But it is a very good reason for Christians to exercise great care in their interactions with politics, because often vice uses the language of virtue to cover its tracks.
Second, it reminds us to consider our own giving habits. Greed is present in all of us, whether we have means to benefit from a charitable tax deduction or not. Even as I complain about the games rich people play to save money, I am reminded of the times that I “forgot” to bring my checkbook to church; or the ways I overestimate my own generosity so I can give less; or the things I do to serve myself in the name of the church.
Finally, exposing the greedy use of a government perk reminds us that nowhere on Earth will we find pure, untainted generosity. The only true generosity was displayed when the Father gave his one and only Son to die on a cross that we might be reconciled to Him, despite our rebellion and filth and unworthiness. Through Jesus we are made new and we are called to participate in proclaiming His gospel throughout the world.
Now that’s a gift worth giving.
(Photo courtesy of iStockphoto.)
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Comments (17)
I'm pretty sure there are still better ways for the truly rich to save money on taxes.
I had the wonderful life experience of working for a large charity when I was younger. The main thing I learned about the large donors was they seemed to fall in two groups, the "Karma Hogs" and the "camera shy". The Karma Hogs were generally good people but had budgeted their giving as part of their strategic business plan for their life and wanted people to know they were successful enough to share their wealth with the less well off. To receive their donations we often needed to set up a photo op and later make sure they were included in a lunch or Gala. My favourites were the camera shy who showed up with coffee for the staff and a check for the charity, wearing old jeans and no pretence. I don't know if either of these two groups will be affected too much by changes to tax rates as the motivation I saw was mostly self-actualization and altruism.
Also, the standard deduction is there because it is assumed most people will donate something, or have some sort of deductions. If you don't go over the standard deduction amount, you are actually receiving MORE credit than was due you, and if you go over, you receive the exact amount, with no free bonuses.
As far as I know, bringing yourself into a lower tax bracket via charitable contributions doesn't lower your tax for ALL your income, only for the income falling above a certain threshold. So, I think rich people still end up with less money by donating, not more. Perhaps there's some rule I don't know about, but this is what I've always read.
Plus, the poor are often the ones who benefit the most from charities.
But that isn't necessarily so. Donations to high-culture organizations—which, even if they're supposedly for the benefit of all society, don't ever seem to concern themselves with the poor people who can't afford a tuxedo for the opera—are also tax-deductible.
I think that would be a good compromise, to be honest: A donation is only tax-deductible if the organization to which it's being donated can demonstrate, each and every tax year, that a substantial percentage (at least 50% would be a starting point, but I'd put it at 75% or more) of their funding is directly benefitting people whose annual household income is below 150% of the poverty line.
So there's my compromise: if you're wealthy and you want to get something back on your taxes with a donation, it's not going to be so you can get a lifetime membership to the opera and hobnob with your wealthy friends; it's going to have to go to something that helps people who don't have wealth.
There may be a few wealthy people using complex legal strategies to exploit the tax system and line their own pockets, but your article is a sadly cynical indictment of the majority of faithful and generous givers across the country.
I am a Christian attorney working directly in the area you are commenting on and I have had the privilege of working with hundreds of generous families that have used the tax deductions they receive to give more. I have seen many gifts increased significantly through good planning, with little or no benefit the giver financially.
Further, the statement, “This group loves charitable tax deductions because by “giving,” they put themselves in a lower tax bracket and actually save money. In other words, their generosity is really just a tool for greed” shows little if any understanding of how income tax brackets are applied. It is like saying “borrowing money to buy a house is a good deal because you get a deduction for the interest you pay on the mortgage.” No financially astute person gives away a dollar for the purpose of getting 25 or 35 cents back, and that is exactly how deductions work. Deductions only apply to the money given away. They do not impact the rest of your income.
Charitable deductions are also not any where near as easy to exploit as you imply. In fact, in most instances, people lining there own pockets with charitable deductions are guilty of breaking the law. Lowering the deduction will not stop a few cheats from cheating. It will simply lower the return for the majority of givers that are actually giving money to charity, for charitable purposes, and will leave them with less money to plan and give with.
It is that second group you allude to early on your article that will get hurt. The group that would give no matter what, but due to these proposed changes, will have substantially less to give. My professional experience is that the second group is vastly larger than the third, and the third probably doesn’t even exist in the way you think that it does. Your treatment of this issue seems either too short to be intellectually honest and balanced or grossly uninformed. It underscores the wisdom of your warning later on: “…[I]t highlights a common hazard for Christians dabbling in politics: things are almost never as black and white as they seem.”
As a previous poster noted, its hardly a problem to say that the tax deduction itself benefits the rich more than the poor. The only reasons this is true is because the deduction tracks the rate you pay. Thus if you only pay tax at a 10% rate it obviously doesn't help you as much as if you pay at a 40% rate; however, no sane individual would want to pay higher taxes just so deductions help them more. Furthermore, as noted, if someone is not itemizing their deductions, this is only because the standard deduction gives them more benefit.
In the second category of those with pure motivation, it is not true to say giving would remain constant even without the charitable tax deduction. Say for example I make 140k a year and am taxed at a 30% marginal rate for any income over 83k (an approximation of the actual US federal tax brackets) and need 110k of income (you can feel free to critique my hypothetical standard of living). With the charitable tax deduction, I can give 39K to a church and it effectively only costs me 30k (I pay 39k in cash, but save 9k in taxes that I would otherwise have to pay). Without the charitable tax deduction, I can only give 30k. Thus, for the person in category 2, the charitable deduction doesn't help me personally, I'm still going to give as much as I can, but it does dramatically help the recieving church/organization because they are now receiving 30% more from the same individuals.
I'm not convinced the third category exists like you say it does. To be sure, there are many wrong reasons people give to charity, but actually saving money or making money is not one of them. The charitable tax deduction never makes it profitable to give money to charity, it only makes it more affordable based on your federal tax rate. Thus even if someone is paying 35% tax for income over 380k, any cash he gives to charity still costs him 65% of its face value. Again, this doesn't mean someone giving 1 million dollars in cash to a charity is doing it for the right reasons, but even in optimal circumstances for the taxpayer, giving that 1 million dollars still cost him 650k.
Finally, in regards to the interaction between faith and politics, I think it is interesting to note how you critique the charitable tax deduction as being somehow greedy. Rather, the Internal Revenue Code and precedent interpreting it requires that any tax deduction be made from "detached and disinterested generosity." Furthermore, there are specific doctrines in place to sniff out quid pro quo type transactions where someone donates to a charity and receives some benefit in return. The point is, as you note in your first implication, the law does have moral elements, and it can be ambiguous. However in this case, the charitable tax deduction is by all appearances a mechanism whereby the government intentionally gives up revenue it is entitled to in order to promote generous giving to charities. Sure there are discrepancies and some individuals who manage to manipulate this system; however, the very text of the deduction intends to prevent these abuses.
As a former orchestra employee (in the office, not as a musician), I wrote more grants than I could count for our educational concert series, musicians-in-the-schools programs, free public concerts, and many other programs that benefitted the whole community. Many of our musicians came from poor families and used music to escape from poverty - not through their income, but as a source of joy and delight. Many of them also regularly played for free at local churches and community events.
BTW, you might want to check out some of the free concerts wherever you live. Then you'd learn that very, very few people wear tuxedos to the opera.
Certainly there are a small number of people in the third group, but the tactics they must use are far more complex (e.g., creating foundations and then making fractional donations of assets to the foundation).
More germane is the question of whether government should or should not subsidize charitable giving. It does so largely on the grounds that such giving provides public goods that taxes might otherwise provide. Not all (such as James, below) would agree that the use donations serve satisfies this requirement.
js
Also, why not take this the other way and incentivize more economic classes to give?
Friends,
Thank you for calling me out on some of these points. Basically, I wrote a much longer article and had to cut significant portions out of the article to make it fit. This included two key paragraphs. One on the use of tax shelters and other forms of abuse, as well as a link to an article describing how often “charitable giving” among the top brackets includes organizations that hardly need charity. The other was on the way the charitable tax deduction benefits people in higher tax brackets more than those in lower ones.
In trying to cut the article to the right size and summarize my thoughts, I made some gross misstatements... the worst of which was to make it sound like I thought a person could give money and get more money back from deductions than they gave! I did not mean that at all, but there my words are in black and white and I agree that that is how it reads. I feel terrible about that.
Further, while putting the article together I gave too much weight in my mind to articles and anecdotes that I have read or heard from friends in business, tax accounting, and political circles. Abuse certainly exists, but I didn’t have good statistics on it and I should have clarified that.
In my mind was this thought: many things in politics and in our lives are different than they appear on the surface, and we have to be careful about those things. Again, I am sorry for any confusion and appreciate the feedback.
Ben