Traditionally minded Christians often lament that the Christmas season, which once began on December 25 and lasted for many days if not weeks, now barely limps along as far as sundown on the 25th. They appear to have found surprising allies in our nation’s nonprofit sector. The carols may have vanished from the stores by the 26th, but our inboxes are piled high with tidings of the Season of Giving right up through New Year’s Eve.
Whether we were scrambling in recent weeks to maximize our 2019 tax deduction for charitable giving or were simply irritated by the deluge of email fundraising appeals, we might all take a moment before tax season to reexamine this deduction and its intended purpose. As a recent congressional report shows, the deduction is falling short of achieving the ends for which it was designed.
We think of the federal charitable-giving deduction in terms of the Tocquevillian image of America as a nation of doers — citizens whose collective and voluntary efforts provide countless public services that no government could perform as well or as cheaply. We let Americans write off the income that they spend on these charitable services, for we assume that a dollar spent in this way tends to yield at least as much public benefit as we would have received from an extra ten to 37 cents in taxes. We imagine that the charitable tax deduction shows the public value we put on individual Americans’ choices to donate to their local church, soup kitchen, or YMCA.
But it is no accident that the end-of-the-year pleas in your inbox are unlikely to have come from your local church, soup kitchen, or YMCA. In reality, the charitable deduction benefits only those who itemize their deductions, which means overwhelmingly the upper middle and upper classes (thanks in part to the expansion of the standard deduction in the 2017 tax reform). In 2018, the top 20 percent of filers received 91.5 percent of the benefits of the charitable deduction, although in 2017 they had accounted for only 68 percent of total federal income tax paid and only 63 percent of total charitable donations, according to the Tax Policy Center. By unfairly privileging the charitable donations of the wealthy, our current charitable deduction also privileges the charitable causes favored by the wealthy, which turn out to be rather different from the causes favored by the rest of Americans.
All this is the subject of “Reforming the Charitable Deduction,” a recent report by Robert Bellafiore, of Senator Mike Lee’s Social Capital Project at the Joint Economic Committee (where, disclosure, I briefly served last year while on academic leave). The first in a long series of JEC policy papers for the 116th Congress, this report should be held up to young conservatives as a model for how to tackle our nation’s post-2016 challenges without getting bogged down in abstract theoretical debates.
According to a study cited in the JEC report, working- and middle-class Americans give their charitable donations overwhelmingly to religious institutions and charities that meet the basic needs of the poor. Households making less than $100,000 in 2002 dollars provided a full 59 percent of total national donations to religious institutions and 49 percent of total donations to basic-needs charities. But the wealthiest households (those making over $200,000 in 2005 dollars) tend to donate to a shinier set of causes: Half their donations went to higher education, private K–12 schools, the arts, medical research, hospitals, and hospital foundations. These are worthy causes, but it is not clear why our tax code should so disproportionately favor them at the expense of the institutions closest to the daily lives of the poor and the working class.
If anything, we might wish for a tax deduction that showed some awareness of the different types of donations that are characteristic of these different charitable causes. Every check written to a hospital foundation will be well receipted and may even earn recognition in a printed program read by fellow donors. But soup kitchens, churches, and other working-class charities rely heavily on generous donations of individuals’ time. That volunteerism benefits donors as well as recipients, fostering community better than even the finest annual donors’ banquet. Yet it receives neither a receipt nor a write-off. If the resulting inequity in tax treatment between working-class and upper-class charities is unavoidable, we could at least try not to exacerbate it.
It is all to the good that wealthier Americans continue to provide generous support to the kinds of charitable causes that attract wealthier Americans. But a charitable deduction skewed to these causes is not well designed for its purpose. Churches and soup kitchens offer at least as great a value to the American taxpayer as do colleges and concert halls, and arguably a greater one. When the poor do not receive basic social services from private sources, they will certainly have to turn to public sources. And as Tim Carney argues in his book Alienated America, religious institutions are now the primary source of social capital for Americans who cannot afford to live in upscale neighborhoods: Where religious institutions fold for lack of funds, a host of social pathologies take their place. By contrast, while the well-to-do expand their growing monopoly on our nation’s store of social capital, the current charitable deduction disproportionately benefits the nonprofits that help them do so: universities, private schools, museums, orchestras.
The JEC report lays out a few possible ways to remedy this inequity. The most promising seems to be the elimination of the charitable deduction entirely and its replacement with a tax credit equal to, say, 25 percent of charitable donations that exceed 1 percent of adjusted gross income. That would make the tax benefit for charitable donations immediately available to non-itemizers. It would also put working-class charities on something more like a level playing field with upper-class charities.
The report suggests that the new charitable donations incentivized by such a change would probably exceed the loss in federal revenue. If that does not satisfy deficit hawks (and perhaps it should not), we could presumably add any number of possible offsets to make the change revenue-neutral. For example, if the change were coupled with a minuscule rate increase for one or two upper tax brackets, it could become a simple shift of the tax burden from charitable givers to non-givers.
Those who have been following recent debates on the right about the limits of markets, the purpose of government, and the nature of liberty will notice that this proposal has virtually nothing to do with any of them. Like any good policy, it can appeal to a broad coalition of (often contradictory) material interests and philosophical preferences. Religious conservatives will love to see anything that benefits churches. Libertarians and small-government conservatives should welcome a tax break targeted at the voluntary institutions crowded out by the welfare state — institutions that will have to be strengthened if our welfare programs are ever to be scaled back. Communitarians on both right and left will be glad to incentivize local, individually controlled, democratized giving, over against elite giving to well-heeled and distant causes. Populists will enjoy trimming down what is currently a large tax break for the wealthy, and they may even take a certain pleasure in causing headaches for university presidents and art-museum curators. Many voters with little interest in political philosophy will simply think it sounds fair and American to treat all givers equally.
Naturally, philosophical differences will still shape the way that different members of the conservative coalition would implement this policy reform. The version that I have just summarized is shaped by my own social conservatism. Other conservatives, stirred more by the wish for a flatter tax system, might prefer another of the policy options mentioned in the JEC report: Instead of replacing the deduction with a credit, we could simply move it “above the line” (i.e., make it available to non-itemizers), so that the amount saved remained tied to the filer’s marginal tax rate. Still other conservatives, more concerned with shrinking the size of government, might want to link charitable-deduction reform to welfare cuts rather than to my proposed upper-bracket rate bump.
These debates are worth having, but no one will think they are worth splitting the conservative coalition over. That coalition, consisting of ideologically disparate groups that nonetheless find themselves on roughly the same side of most practical questions, is strengthened when conservatives think and debate together creatively about concrete policy challenges. It is weakened when they engage in ideological turf wars.
The JEC report exemplifies the serious, practical thinking that the conservative movement needs as an alternative to those turf wars. First, one finds a problem in our existing legal framework — a problem that can be recognized easily by think-tankers and ordinary voters alike. Then one does one’s homework, crunching the relevant numbers to show the scope and nature of that problem. Then one proposes a moderate remedy — or in this case, a menu of possible moderate remedies — that can attract support from a politically viable coalition. At no point does one treat policy as the proving ground for some contested philosophical theory, or as a radio tower from which to broadcast virtue signals to one or another camp within the conservative movement, or as a shibboleth by which to separate the sheep from the goats within that movement.
Expect more well-researched, ideologically cross-cutting policy proposals like this from the JEC’s Social Capital Project in the coming year. Young conservatives interested in improving their country would do well to take their cue from this talented staff of problem-solvers rather than from whoever may be drafting the latest Twitter screed about the Nature of Markets. From combating the drug epidemic to improving our postsecondary vocational education, from easing the housing crunch to enhancing our military readiness, our policy challenges demand attention from conservatives prepared to set aside the satisfactions of theory for the very different satisfactions of practice.
In the meantime, should anyone be concerned that conservatives lack sufficient opportunities to engage with the Western tradition’s deepest reflections on the theory and nature of politics: I teach in one of several graduate programs in political philosophy that would gladly accept your donations. In fact, if you happen to be an itemizer in a bracket over 25 percent, you may want to get those donations in before policymakers start reading this JEC report.
This article appears as “To Fix the Charitable-Giving Deduction” in the February 10, 2020, print edition of National Review.