Americans have long been known as a very charitable people. According to the World Giving Index, we give more to others than any other national group. As yet another national and state income-tax filing deadline has come, it is appropriate to revisit the issue raised in the 17 December 2012 issue of the Wall Street Journal "Should We End the Tax Deduction for Charitable Donations?" As one of the article's authors stated, "The charitable deduction is unique in that it's a government incentive to sacrifice on behalf of the commonweal. Unlike incentives to save for retirement or buy a home, it encourages behavior for which a taxpayer gets no direct, personal, tangible benefit."
One can also make a good case that charities are much more effective at actually solving social problems and helping those in economic or social distress than are government bureaucracies whose incentive is to "manage" problems rather than solve them so as to perpetuate their reason for existence. As this same author argued "Charities are among the most effective institutions in the country and are getting better. They operate lean and mean because they have to. They are monitored by bureaucracies, donors, their own volunteers, and the communities they serve."
On the other hand, it is often suggested the Charitable Deduction be dropped because it is mostly of benefit to the well-to-do. The reason for that is that most lower-income households do not find it to their advantage to itemize under our current system. The more appropriate response to that inequity is not to drop the charitable deduction, but rather to make it a credit against one's gross income before net taxable income is determined. Everyone, not just the rich, should be treated the same for this purpose.
And without data on how much non-itemizers have been giving over the years, it is impossible to claim with confidence that charitable giving has remained constant over the years even as tax rates have changed. The most recent research on this topic by the Indiana University Lilly Family School of Philanthropy established that "Americans gave nearly $300 billion to charity in 2011, and 65 percent of Americans give each year. The school's research also shows that the amount of tax benefits an individual receives from giving tends to affect the amount that a person gives to charity . . . and is an essential component to the creation of a caring and thriving society."
Given how many are in need year in and year out, and how many more are in need since the economic downturn in our economy and the slow recovery, let's make it easy for people to get credit for doing the right thing, to help others instead of themselves. Let's replace the current deduction for charitable giving, which is only of use to those few who itemize, and allow everyone to take any charitable contributions "off the top" before determining their net income for tax purposes.
The views expressed in this column are those of the author and not necessarily those of the Public Interest Institute. They are brought to you in the interest of a better informed citizenry.
Donald P. Racheter is President of the Public Interest Institute in Mount Pleasant.