It seems that President Obama favors reducing the tax deduction for charitable donations. I can understand the appeal of the superficial “fairness” that results from eliminating the greater deduction available to those with greater incomes, but it doesn’t take into account that those people also pay a higher percentage of their income in taxes. Because they pay taxes at a higher percentage rate, they should get a higher deduction rate to offset their higher base rate and to provide a truly comparable benefit. The inevitable result of this, however, will certainly be less charitable giving.
Now, to be sure, I agree, in theory, with the President’s comment that, “if it’s really a charitable contribution…that that shouldn’t be the determining factor as to whether you’re giving that $100 to the homeless shelter down the street.” This is completely true as far as it goes. But it doesn’t fully address reality. The fact is that a decent number of “charitable contributions” are only undertaken to achieve a tax write-off. In fact, that’s really the point behind the deduction for charitable giving; to coerce donations to organizations that help the community. It is all well and good to want to believe that these donations are made out of the goodness of people’s hearts, but that isn’t fully realistic. We can wish that it were, Heaven knows that I wish it were, but I seem to remember my grandmother telling me something about how, “wishing doesn’t make it so.”
So, the end result here will be a reduction in charitable giving. That much seems unarguable. That said, despite my pithy headline, I will reserve judgement on this idea. Obama correctly states that the best thing he can do to help charities is to get the economy moving again, and if this reduction of the charitable giving deduction helps to prevent even greater budget deficits, then it may be a net good. But I’m skeptical, and inclined to think that this won’t end as well as our President hopes.