Why Philanthropy Is Worth Defending in the Tax Code

Why Philanthropy Is Worth Defending in the Tax Code
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Reduced charitable giving by middle-class families—on a scale of tens of billions of dollars—could be an unintended consequence of a Republican tax reform plan that reduces itemizing of deductions.

That change would exacerbate other forces ranging from declining American religious participation to deferral of marriage, childbearing, and home-owning that have depressed the rate of private giving in the U.S. from 66 percent of all households in 2000 to 55 percent in the latest year.

Any further contraction in donating could debilitate America’s voluntary sector—which remains our most inventive way of addressing social problems, and which is vastly more efficient, effective, and personal than government bureaucracies.

With this danger beginning to sink in on Capitol Hill, the chairman of the Republican Study Committee, Rep. Mark Walker, has proposed folding a bold countermeasure into the tax template now before Congress. It would allow all Americans to deduct their charitable contributions, not just the typically upper-income earners who itemize. House Ways and Means Committee Chairman Kevin Brady has expressed sympathy for similar ideas in the past.

What do history and recent practice have to say about the utility of voluntary philanthropic activity? I’ve recently published evidence showing that charitable giving is crucial to American success in a variety of ways, and that active measures to increase it are necessary. With urgent challenges visible in our communities, and government in stalemate, we ought to be encouraging more charitable problem solving, not truncating it as a side effect of tax reform.

The potent ability of donors and volunteers to untangle knotty public problems has been demonstrated repeatedly, even in areas we tend to think of as wholly governmental responsibilities. During World War II the development of radar was languishing until a private donor (the great-grandfather of Netflix founder Reed Hastings) jump-started both the basic research and practical production of working radar sets. Many valuable social reforms in America have also been driven by charitable giving and action. Public support for the abolition of slavery was methodically built by donors such as Arthur and Lewis Tappan. The campaigning that significantly cut alcohol use per person over the last century was powered by private donors. So was much of our recent success in reducing smoking and drunk driving.

The most effective education innovation of the last generation—charter schooling—took off only because donors and social entrepreneurs created 7,000 new schools, training the teachers and principals who run them, and acquiring the buildings where they operate. Private givers paid for impressive new curricula, new ways of integrating technology into learning, and new ways of assessing instructors. The net result has been success for millions of low-income students, who at good charter schools now succeed and go on to college and successful work at the same rates as middle-class children. Black and Latino children are twice as likely to do math on grade level if they attend charters rather than conventional schools, according to the latest results in New York City. Philanthropically seeded charters do all this for 72 percent of the cost of conventional public schools.

Medical research is another area where philanthropy is driving a vastly disproportionate share of breakthroughs today. The field of biomedical engineering was willed into existence (against initial government and academic resistance) by foresighted donors like Uncas Whitaker, James Clark, Charles Feeney, and the Meinig family. Today it is one of the fastest growing and most exciting branches of medical science, producing triumphs like bionic limbs, lab-grown organs, widespread joint replacement, and laser surgery.

There are deep needs in contemporary America that cry out for imaginative charitable responses: battling the deadly plague of heroin and other opiates, bolstering family intactness, transitioning released prisoners into new lives, making medical care more humane, helping blue-collar workers succeed in an information economy, taking fresh approaches to homelessness, acculturating immigrants into citizens, softening racial abrasions.

All of these lend themselves to broad, grassroots, charitable solutions. Rather than waiting for elusive political agreements, lumbering legislation, unpopular taxes, and state mandates from bloated bureaucracies, philanthropic problem solving can improve our nation now.

Tax reform is a grand opportunity to accelerate bottom-up fixes for our social ills. Today, American families donate 2 percent of GDP to charities—about $400 billion annually. Making the charitable deduction universal for all Americans could help increase charitable cash donations closer to a goal of 3 percent of GDP. That would mean $600 billion injected into philanthropic invention and action every single year. This would do worlds of good to make us a stronger, healthier, and happier nation.

Karl Zinsmeister, a vice president at The Philanthropy Roundtable, is author of The Almanac of American Philanthropy, which has been issued in an updated 2017 compact edition.

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