Nearing year-end, charities pick up the pace soliciting donations for their good works. Donors accept the fact there will be a few more requests in their mail, with language conveying some urgency, and that the telephone will ring with that last-minute nudge to say “yes” and to write a check.
That is because the tax year is coming to an end, and for many taxpayers their financial giving reduces their taxable income. It is an incentive that nonprofits want to take advantage of.
The United States is alone in the world in all that private giving supports. All types of social services, art and education at many levels, both private colleges and, increasingly, public colleges, and local recreational programs. And Thanksgiving and Christmas meals. There are thousands of examples, large and small.
Some of the organizations and their missions are cutting edge, created with more alacrity and imagination than a government program could muster. Think of organizations that protect land and habitat in relatively small geographical areas. Others do supplement government efforts, perhaps to provide a component tailored to specific local needs.
And while we want to be sure to include giving to churches and religious institutions to fund their humanitarian works, which is large, in that category other parts of the world may well exceed the percentages of income donated in the United States. Tradition varies by religion and by place, and, add to that, there are many options for giving available in this country.
As Washington negotiators work to better balance government revenue with spending, should philanthropy’s deductability be protected? Eliminating or capping the financial incentive for giving would add to tax revenue.
Plenty of people would argue that projects funded by private giving are more targeted, more effective, than are much larger government undertakings. Better to give that money directly, than to send it to Washington to have it returned somewhat diminished, they would say.
Others would point out that often financial support accompanies personal involvement, that donors are also contributing a few hours a week, or a month, at the nonprofits that appeal to them. Tax deductibility acts as a cement, of sorts.
Knowing how great the mismatch is between federal spending and the revenues that support it – for every $3 that is spent, $1 is borrowed – we are reluctant to take anything off the table. To bring the mix into better balance, substantial additional revenue is needed along with significant adjustments to spending and entitlements. There is no single fix. Raising taxes on the wealthy is not sufficient.
The mortgage deduction helps a family buy a larger house, while being able to deduct state and local taxes leaves a taxpayer with more money in the bank. To gain a deduction for charitable giving, a donor must do something for someone else. That sets that deduction apart from the rest.
In the next days and weeks, we will know more about how Washington negotiators intend to simplify the tax code to raise more revenue. The deduction for charitable giving could easily be a part of that.