How Both Public Tax Reform and Private Sector Initiatives Can Strengthen Charities

This post originally appeared in TaxVox.

In the March and April 2017 print editions of the Chronicle of Philanthropy, I proposed both a public and a private sector initiative for strengthening charities. These included improved tax policies as well as steps charities could take independently of any legislation. These initiatives aim to increase charitable giving of income, wealth, and time.

My organizing principle was simple: First, make tax subsidies more effective and efficient. Second, improve the way charities market themselves. Neither Congress nor the charitable sector has ever approached either task in a comprehensive way. The articles are here and here, with permission of the Chronicle.

Here, briefly, are my suggestions:

What government can do:

  • Allow all taxpayers—even current non-itemizers—to claim a deduction for contributions above some minimum amount.
  • Extend the deduction to gifts made by April 15 or filing of one’s tax return—similar to the extended contribution date for Individual Retirement Account contributions– rather than December 31 of the previous calendar year.
  • Create a better donation-reporting system to IRS to reduce tax non-compliance, with a reward of an extra deduction for those donations; the improved tax compliance should more than pay for the extra reward.
  • Make it easier for individuals to make donations from their IRA accounts.
  • Reduce and simplify the excise tax on foundations.
  • Encourage charitable bequests, especially if the estate tax is cut or repealed.

What charities can do, independently from government:

  • Create a national campaign to promote giving, such as:
    • Tell simple but powerful human-interest stories extolling generous people.
    • Help donors identify worthy programs by promoting access to useful sources of information on each charity.
    • Encourage people to give to charity when they settle disputes.
  • Help people understand better their potential to give out of wealth, not just income, and to leave lasting legacies:
    • Run endowment campaigns.
    • Encourage wealth advisers to promote charitable giving.

Today charities feel under siege. They fear they are about to lose direct government support if Congress cuts domestic spending that funds the specific programs they run. And they worry that lawmakers will trim tax benefits for charitable giving by individuals and firms. Their concerns are legitimate but, in truth, over the many decades I have worked with charities on public policy issues, their advocacy has nearly always felt defensive.

Charities can easily become collateral damage from policies that are not aimed directly at them. Congress won’t decide broad issues such as size of government, tax rates, limits on tax incentives, or the share of revenues that should come from income taxes (the only tax where there is a charitable deduction) solely or primarily based on their effect on the charitable sector.

Thus charities must think longer-term as the nation is struggles to define a modern set of public policies and societal goals relevant to 21st century needs and opportunities. My suggestions are intended to extend well beyond any current political battle, no matter which party controls government at any point. Their goal is to strengthen the charitable sector, by improving both government incentives and the outreach and self-examination by non-profits themselves.

Fighting to maintain the status quo is not a strategic option. Nor should every charity expect to come out unscathed in this rapidly changing environment. But the US is facing important choices as it decides the direction and size of government in the Trump era. That debate ought to include a broad look at charities in this new environment and whether that includes strengthening, though reforming, the role of charities in American life.


2 Comments on “How Both Public Tax Reform and Private Sector Initiatives Can Strengthen Charities”

  1. Michael Bindner says:

    I would end the inheritance tax, but would include cash payouts from estates and sales of inherited assets as income, but would only tax income above $50,000 for single filers and $100,000 for joint filers. Everyone would pay a VAT and businesses would pay a subtraction VAT (net business receipts tax – a VAT with deductions). The latter would be able to make charitable contributions according to the wishes of its employees, possibly including funding big ticket items like organized charities (Catholic Charities, Lutheran Social Services), charter schools (including religious ones) or for doing such work itself (like adult literacy for employees or their families) for a dollar for dollar increase on their state level subtraction VAT and a lesser credit for the federal. The higher the credits, the more funding is shifted from governmental to private sources. A libertarian socialist solution to charity.

  2. Chip Watkins says:

    Extending the deadline for deducting gifts to April 15 provides a weak one-time benefit and introduces another complexity into the Internal Revenue Code. Kill it.


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