Bruce Kesler sent us this post:
.
Is the charity tax-deduction excessive?
The question is almost never raised whether our tax deduction for charity is excessive. Whatever our religious faith, all agree that charity is a high personal and societal calling and deserves government support. Republicans and Democrats agree, in supporting President Bush’s faith-based organizations in its delivery (although Barack Obama would restrict their ability to exclude hiring outside their doctrine, requiring they act secular instead).
However, much described in the tax regulations as charity is not. Scriptures refer to helping the unfortunate and being neighborly and loving. The preferred methods provide means to recipients to support themselves. This concept of charity has been broadened by advocates of non-profit organizations, and by liberal interpretations of scripture, to include virtually anything that one can say is of any possible societal benefit, no matter how narrow, cost-ineffective, more self-serving than serving others, or even a veil for partisan politics.
Some conservatives argue against narrowing the tax code. They, justifiably, see our income and assets as our own, not the government’s, and want to keep as much as possible outside the government’s control. Further, they see individual choices as both morally and practically preferable, more cost-effective, better measured, more adaptive, and more focused than government. They are correct.
However, that view is too narrow. Most of our government spending is retirement and medical entitlements and aid, followed by defense and policing. Under even the most grandiose and hopeful of reforms proposed, or of foreign or domestic peace desired, the growth of these may only be slowed, but will rise. There is increasing, and probable, pressures to increase income taxes.
Few, anymore, argue that high taxes do not depress economic growth, or disagree that economic growth increases personal incomes for most. Thus, other sources of government funding must be considered. Few disagree that budgets are increasingly stretched among even the middle-class for current needs as well as most having an insecure retirement. No scriptural injunction says one should sacrifice one’s family for others beyond reasonable.
The best estimate of the size of the charitable deduction is about $306 billion in 2007. Non-profit organizations have amassed over $13 trillion in assets. Contributions have outpaced inflation, and over the past decade the number of non-profit organizations has increased over 36%. The largest increase, over 86%, is in what are called Private Foundations – those having the most direction over expenditures by the donor. As both generosity and seeking tax-deductions have increased among the more affluent, the majority of all individual charity contributions come from the upper 10% of households.
Among better managed non-profits there is broad support for the increased scrutiny of non-profits’ governance, whether accounting, overhead, executive compensation, fraud, or percentage of assets used. The new IRS 940 filing collects more of this information, to guide legislators and donors. Those non-profits focused on aiding the needy argue that non-profits’ spending should be more focused on the needy and not other ends.
The tax code generally provides a limit of 50% of income on cash deductions and 30% on appreciated long-term securities or property. It’s not as if the concept of limits is new.
IRS assets and authority to screen gross abuses is considered inadequate. IRS targeted funding for this purpose should be greatly increased.
Further, and most controversial, the definitions of the scope of organizations allowed for tax-deductible donations needs to be narrowed. Examples: Partisan political “education” non-profits should be more restricted from governmental “subsidy.” The huge increases in non-deductible contributions to political campaigns evinces that those with strong partisan and policy objectives will continue to give. All donors should be public information, as many are foreign seeking to affect our domestic politics. Non-profits, like hospitals that do not provide more care for the needy than for-profit hospitals, should not be favored by lower tax costs, especially when their executives are extremely well-paid. Erecting monuments and structures that are of little use or visitation is excessive, particularly in the face of more pressing personal and societal needs.
Especially when ordinary citizens are so economically pressed, and expected to be more so by both economics and taxes, the proper tax treatment of tax-deductible non-profits should also be on the table for consideration and tightening.
Our blog friend Bruce Kesler owns a financial planning and employee benefits consulting firm in Encinitas, CA. Kesler’s blog posts are widely circulated, and his columns have appeared in the New York Times, Los Angeles Times, San Diego Union-Tribune, Washington Examiner, Editor & Publisher, Augusta Free Press, and elsewhere.
