Charity deductions: the goose that laid the golden egg?
As shopkeepers know, the season of gift-giving is upon us. It's also the time for another sort of giving - to the universities, relief organizations, symphonies, day-care centers, and other groups that make up the nation's nonprofit sector. According to figures from the American Association of Fund-Raising Counsel, philanthropies received nearly $65 billion in 1983 from charitable donors. Much of it, apparently, comes in during this season, as individuals and companies hasten to claim charitable deductions before the tax year closes.Skip to next paragraph
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So there is a certain Scrooge-like perversity in the Treasury Department's choice of this season to unveil its proposals for income-tax reform. Scrooge-like, because the reforms take level aim at one of the noblest human impulses - toward charitable giving - by attacking tax incentives that have been in place since 1913. Scrooge-like, because the reforms appear to be saying ''Bah , humbug!'' to one of the most salient qualities of the American experience: the volunteer spirit of private-sector philanthropy, a spirit that distinguishes this nation from its more state-centered counterparts.
How significant are the proposed changes for the nonprofits? They constitute what Bob Smucker of Independent Sector, the Washington-based umbrella group for philanthropic and volunteer organizations, describes as ''a quadruple whammy - you're hit from four different sides.''
On one side would come (if the measures were adopted) the repeal of a 1981 law that allows all taxpayers to take charitable deductions - including the two-thirds who currently do not itemize their tax returns. From another side would come an inevitable consequence of tax simplification: a reduction in the numbers of those who needed to itemize. Taken together, these two points would both increase the number of non-itemizers and take away their right to deduct. Serious? Yes indeed: The Treasury itself predicts a $2.7 billion saving in the 1987 fiscal year from these moves alone.
From Side 3 would come a change in the way gifts of property are appraised, netting the Treasury some $211 million. But the real blow would come from Side 4: a proposal to limit charitable deductions to amounts that exceed 2 percent of the taxpayer's income. Result: If you showed an adjusted gross income of $30, 000, you would need to give away $600 before you could begin to claim any charitable deductions.
But perhaps that won't matter much, since low-income individuals don't give much anyway, right? Wrong. The Treasury sees an even bigger saving here, totaling $4.2 billion in 1987. No wonder: Some 33 percent of all charitable contributions comes from individuals whose income is under $20,000 a year - and 85 percent comes from those below $50,000.
Well, so what? So philanthropies stand to lose what may be as much as $10 billion a year in contributions. Why are the nonprofits so important, anyway?
The standard argument, still valid, points to the role of nonprofits as providers of services which, although socially desirable, are provided neither by government nor the private sector. Filling that vacuum are churches, art museums, shelters for the homeless, groups channeling private contributions toward famine relief in Africa, and hosts of others.
Another argument concerns the role of nonprofits as advocates of and stimulants for change - a role that comes into focus when one examines the historical role of volunteer groups in furthering such causes as woman suffrage or civil rights.
There is, however, another argument for nonprofits which ought to be particularly appealing to a conservative administration. Without tracing a cause-and-effect relationship, one can observe that, as the influence of family and church has declined in this century, the number of nonprofits has increased. These days, they fill a much-needed void in providing services - day care for children and care for the elderly are but two of the more obvious - that were once routinely provided by homes and churches.
One can well decry the decline in family and church and urge its reversal. Until it is reversed, however, there will be a need for the services these institutions once provided. For that, there are two roads forward. One is what might be called the European way: Increase the involvement of the state at every level. The other seems more distinctly American: Use the influence of the state to encourage, through tax incentives, such an outpouring of generosity from the citizens that the state does not have to get so deeply involved.
That some European nations now seem to be madly backpedaling from such highly expensive government involvement should tell us something: that a small saving for the US Treasury might become a huge mistake for the nation. America's present charitable tax-deduction system - the envy of many Europeans - works extraordinarily well. Do we really want to tinker with it?