The Uncharitable Charities
Republican tax writers preserved the deduction for charitable donations in the reform that President Trump signed last week, but no economic mistake goes unpunished. Despite this political favor for charities, the philanthropy lobby is still trashing the tax bill.
“The tax code is now poised to de-incentivize the heart of civic action in America,” Dan Cardinali, president of Independent Sector, a left-leaning lobby for philanthropic outfits, told the Washington Post. “It’s deeply disturbing.” The Post story includes a Festivus-worthy list of grievances from some not-so-charitable charities, including the Catholic bishops and United Way.
The gripe is that the new law will reduce the incentive for charitable giving by the middle class because it nearly doubles the standard deduction to $24,000 for joint filers. Because fewer filers will itemize their deductions, the charities fear that fewer Americans will be able to take advantage of the deduction for charity and therefore fewer will give.
The gripers point to a May 2017 study commissioned by the Independent Sector finding that doubling the standard deduction and cutting the top marginal tax rate could reduce charitable giving from $4.9 billion and $13.1 billion, or by 1.7% to 4.6%. Charities say they will now have to rely more on donations from the wealthy. They even lobbied Republicans to create a new and separate deduction for charity for those taking the standard deduction (which Republicans wisely rejected).
The word for this is ungenerous. These nonprofits want to keep millions of Americans filing more complicated tax forms and paying higher tax rates. They also sell Americans short by assuming that most donate mainly because of the tax break, rather than because they believe in a cause or want to share their blessings with others. How little they respect their donors.
Republicans could have lowered tax rates further if they had killed the charitable deduction, and that would have been the right economic decision. Americans don’t need a tax break to give to charities, which should be able to sell themselves on their merits. Congress also retained the death tax and the ability of the rich to shelter their income in personal foundations that also give to charitable causes.
The truth is that Americans will donate more if they have more money. And they will have more money if tax reform, including lower rates and simplification, helps the economy and produces broader prosperity. The 1980s were a boom time for charitable giving precisely because so much wealth was created. Like so many on the political left, the charity lobby doesn’t understand that before Americans can give away private wealth they first have to create it.