Reihan Salam discusses some ideas for reforming the charitable deduction. In particular, why let rich people have all the fun? You could make it a credit rather than a deduction.
I need to think more about this whole issue. My initial inclination, years ago, was to take a very hard line against any attack on the charitable deduction. If you think about it in terms of government vs. the rest of civil society, then I prefer the other institutions of civil society.
More recently, however, I have begun to question the idea of assigning privileged status to non-profit organizations. I think of profitable organizations as sustainable and accountable for delivering results to customers. In contrast, non-profits are not sustainable (at least on a market basis) and are accountable only for making donors feel good.
Or consider General Motors. GM received a lot of money from the government in 2008, because it had become a non-profit. Should it have been eligible for charitable donations as well?
Many non-profits are no less dependent than GM on direct government support. They compete for government grants. Why is government largess bestowed on non-profits more ethical than the largess it bestows on profit-seeking enterprises?If a for-profit could turn a government grant into better results at lower cost than a non-profit, should the non-profit still get the grant?
When I get my thoughts sorted out, I will probably turn them into an essay.
In Canada, it has been a credit for at least a decade.
A problem with charitable deductions is that it is focused on organizational structure and not actions. If I invite and feed a poor person in my house on Thanksgiving, the tax deduction is not available. If I donate food or money to a food bank or church that feeds the same person on Thanksgiving, I get a deduction.
I get a deduction for giving money to the Red Cross, but do not get a deduction for donating blood to the Red Cross.
If I grocery shop or cook a meal for a needy, ill senior in my neighborhood, no deduction, If I donate to a community organization that has volunteers who do the same thing, I get a deduction.
Charitable deductions are a disincentive to community and social responsibility.
When there is suffering, such as the Haiti earthquake, do we need a tax deduction to motivate us to send money, food, and other items? Of course not.
Let’s eliminate the charitable deduction. If the government takes too much money from us so that we cannot donate as much as we would like to charities, let’s fight for lower taxes and not more deductions.
Your point about structure is spot on! A deduction (or credit) is a subsidy (so we get more charity, which is nice) but access to that subsidy requires organizations to meet the unavoidably bureaucratic rules of the subsidizer. The outcome may result in less effective output than if there were no subsidy at all, in addition to any number of adverse unintended consequences such as an increase in the relative cost of directly touching someone’s life.
I agree with your reluctance to assign priviliged status to non-profits.
In theory, a key difference with charitable contributions is that the donor gets nothing substantive in return for the tax-deductible contribution. I suspect the rules on this get bent a lot.
Structuring such a setup for profitable ventures seems unlikely to work, unless, like GM, they are losing money. In that case, maybe a tax-deductible contribution is worth more than equity, in some circumstances?
I am happy to read that you are thinking about this question again. I still (see http://econlog.econlib.org/archives/2006/11/taxes_vs_philan_1.html ) think that non-profits don’t deserve subsidies any more than for-profits, and still think the tax code is incapable of distinguishing truly pro-social charities from rackets, but at least at first glance I would favor replacing charitable deductions with credits, so as to give filers who take the standard-deduction some of the same subsidy to “donate” that Schedule A filers get.
Why have any income taxes? Or sales tax? Or tariffs? How about we limit the federal government to a tax on taxes. State & local governments would tax and the federal government would set a percent rate the would collect of taxes collected. Then only other government bodies would have to deal with the federal tax man, there would be a push to localize government spending, and areas that had low taxation would subsidize the federal government least.