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Addition by Deduction

By Brian L. Cronin, Contributing Writer

I would like some of your money. Not all of it, not even the majority of it—but some of it would be nice. Worried about giving too much away? Well, you can never really give too much.

In fact, once I declare myself a 501(3)(c) organization, the United States government will match a portion of your gift. For instance, assuming a 35 percent marginal tax bracket, if you send me $1,000, the IRS will deduct $350 from your tax bill. I should point out, however, that you need to hurry because your deduction opportunity may not last.

In fact, President Obama has proposed limiting the charity tax break to 28 percent next year for those currently deducting 35. At the same time, voices in and out of Washington have called for axing the deduction in the name broader tax reform. The heart of the debate encompasses a papery mess of black and red budget columns, along with our conceptions of government, charity, and the rightful size of my wallet. Beneath all of that lies a worthwhile piece of a tax code so often detested, a piece worth preserving.

To begin with, a confusing slew of numbers: 300 billion, 50 billion, seven billion, two percent, ten percent, 16 percent.  Now, a deep breath and some digestion. 300 billion marks the approximate annual dollar amount of donations in the United States. Estimates place the sum deducted at about 50 billion dollars, from which Mr. Obama’s proposal subtracts about seven billion. (Only 35 percent of tax returns itemize deductions, instead of the standard deduction that ignores charity, so total donations dwarf $50 billion.)The 50 billion figure leaves charity deductions at little more than two percent of yearly government revenue. That limited price-tag, naturally, cannot itself justify a practice (at risk of okaying every $50 billion proposal that comes along), but neither does it brand the tax break as “unsustainable” in the face of reform.

The price does become significant, however, for charities themselves. Harvard University economist Martin S. Feldstein explains accordingly: “a substantial body of economic research shows that, on average, each 10 percent reduction in the cost of giving raises the amount [an eligible] person gives by about 10 percent.” In total, the tax deduction translates to about 16 percent of the $300 billion in annual giving. To the cancer research fund and the Make-a-Wish branch and the low-budget malaria-net disburser, 16 percent more giving matters. In the end, it may make all the difference.

But curbing the deduction, if not necessary, may offer pluses uncounted in those bland budgetary numbers. You might ask, should the U.S. subsidize private charity at all? You might likewise think: Why, instead of bolstering Social Security and its cousins, rely on the rusted whims of noblesse oblige? Surely, a government safety net has its place, but charity’s advantage lies in the organic energy of private forces, in their dependence on results, not the ossifying crowns of political favor. Private charity, despite ostensible foibles (e.g., reliability), consists of investors who can adapt and react to hold those charities reliable.

This goes beyond questions of relative efficiencies: Charities offer more. More variety, more focus, more acuity. In 2009, the IRS counted 1,238,201 non-profits, a number that speaks for itself. And robust quality matches that quantity. Fears of charity funneled to pet favorites of the rich and religious seem to call for government intervention, but the numbers (you can never have a big enough swirl of numbers) play out otherwise. Only 24 of Forbes Magazine’s 200 largest charities fall under “cultural” or “religious” (often very committed to the needy, too). Another nine are media-related, but those are radio stations. Public ones.

On the political spectrum’s other side, however, private charity faces its critics. Instead, some exhort, let money float along market tides and currents. End every distortion. Eyes swivel to Steve Jobs, who has eschewed philanthropy and yet enriched the world with innovation. Even his more charitable counterpart, Bill Gates, surely bettered global welfare much more while creating his own wealth and commendably handing it away.

As a general rule, that line of thinking makes sense. But much of charities’ laudable efforts—from food programs to biomedical research to my own fictional 501(3)(c)—need help matching their costs. And, moreover, triangulating nicely between efficiency and equity, tax-break charity has do-gooders evaluate a wide field to home in on winning programs. Private forces allocate funds (some of which, without the break, would be public) and hold charities accountable. A “welfare-market” of sorts, open-sourced but supported. A rare but worthwhile creature.

And still, there is something more. As we turn to the deduction itself, looking beyond my pecuniary hopes and the string of numbers and market philosophies, we can glimpse that other facet. The charity tax deduction says something. It says something about who we are as a society. It says that we can value something as a nation. It says that rising above a greyscale, amoral mush of competing national interests, we can orient ourselves. With it, we value charity as a good truly worthy of incentive and reward, not coercion. And if we can accept some meek act—donation to charity—some more than personal preference, then that says something about us. It says something good.

Brian L. Cronin ’15 lives in Wigglesworth Hall.

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