Tax breaks for wealthy donors: Schools struggle, while the rich fund golf tourneys
Tax deductions for charitable giving mean the rich can fund their pet causes while the government loses vital tax revenue. This loophole effectively takes the public good out of the hands of voter-elected representatives and subjects it to the whims of wealthy donors.
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Hard economic times call for targeted spending rather than a patchwork of organizations with overlapping goals and gaping holes. “Look to the Stars” is an online database of more than 2,400 celebrities and a list of their favorite causes and the charities they support. The list of more than 1,600 charities spans the spectrum of causes from AIDS to animals. From the charitable whims of these celebrities, it is hard to assess what America’s urgent national priorities really are, or should be. With 138 different charities on the list devoted to AIDS work, one has to wonder if a competing, disorganized network of institutions is an efficient, dependable structure for getting vital services out to those who need them.Skip to next paragraph
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Ending loophole for the rich
In early 2009, the Obama administration tried limiting charitable tax deductions to pay for health-care reform, reducing the deduction from 35 cents to 28 cents per dollar for couples with more than $250,000 in income. Even though the measure would have raised billions in crucial revenue over the next 10 years, both Democrats and Republicans slammed it.
Newt Gingrich, former Speaker of the House, was among those who opposed President Obama’s proposal to reduce the deduction for wealthiest donors. “[C]omparatively small but abundant charitable institutions are providing services that some politicians feel rightfully belong to the federal government,” he wrote in 2009. “By diminishing churches and charities, the administration fulfills a self-preserving objective of consolidating federal power by creating more taxpayer-funded programs to provide the services churches and charities are currently providing.”
Yet government is still involved. Government grants are central to many charities’ funding. And about 65 percent of revenue for public charities comes from program-service revenues, which includes government fees, contracts, and earmarks. Program-service revenue in 2007 was three times the total revenue from contributions, gifts, and grants, reports the National Center for Charitable Statistics.
Let government ensure the public good
Congress dodges its duty to levy taxes in a uniform way to provide for the nation’s general welfare and make tough decisions on health and other public goods. Instead, it lets wealthy donors make the choices in how to fund the public good. So the billionaire founder of Facebook, Mark Zuckerberg, gives $100 million to Newark Public Schools, while other districts struggle. No matter how worthy a charitable cause is, the public good cannot be left to the preferences of wealthy donors whose charitable giving is encouraged by a tax deduction.
An open public process, prioritizing projects based on needs, would provide more efficient funding than relying on the whims of a few. Individuals passionate for a particular cause or innovation (or those thrilled to see their family names on a museum, clinic, or university hall) would still give – and should.
Two years from now, Congress will have the chance once again to decide on extending tax breaks for the wealthy. And maybe they’ll come to their senses – that the health of a democratic nation’s people is strengthened by services ensured by tax revenue, rather than the fashions of largesse. Congress must reclaim vital tax revenue by reducing the rate that the wealthy can deduct charitable giving from 35 to 28 percent. This lets Congress prioritize our nation’s needs and fairly meet them. Until then, our society relies on a scatter-shot approach.
Susan Froetschel writes for YaleGlobal Online and is the author of Royal Escape.