October 22, 2010 | Read Time: 3 minutes
A discussion of how tax incentives affect charitable giving turned heated during a session at the Independent Sector meeting on Thursday, as audience members weighed whether a gift to a university provides as much benefit to society as a gift to a soup kitchen.
Rob Reich, an associate professor of political science at Stanford University, kicked off the session on a provocative note by questioning whether tax deductions for giving were even necessary. Mr. Reich, the author of a paper called “A Failure of Philanthropy: American Charity Shortchanges the Poor and Public Policy Is Partly to Blame,” noted that people volunteered and gave money to charity long before tax breaks came into being in the 1920s. “It is our current era that is totally anomalous,” he said.
He suggested changing the federal tax code to give a tax credit, rather than a deduction, for charitable gifts so that low-income people receive as much financial incentive for their giving as wealthy people do. He also said the government should provide greater tax incentives for gifts to charities that primarily serve people living in poverty.
“It is fairly easy to imagine policies that would be better than the current blunt policies we have,” Mr. Reich said.
The debate about incentives is not just an academic question. President Obama has proposed reducing deductions for wealthy people, and some members of Congress, such as Sen. Charles E. Grassley, senior Republican on the Senate Finance Committee, have raised questions about whether certain types of organizations, including nonprofit hospitals, are providing enough social benefits that they deserve favorable treatment under the tax code.
Others on the panel argued that it’s the wrong time to consider rolling back broad incentives for giving.
Henry L. Berman, acting chief executive of the Association of Small Foundations, described the idea of the government or the Internal Revenue Service rating which charities are worthy of deductions as “a chilling thought.” He also said it was the wrong time for such a debate, with state budgets in turmoil and charities in great need of private support.
“The government is sending the wrong message to the American people,” Mr. Berman said.
Sr. Georgette Lehmuth, president of the National Catholic Development Congress, said that while the mega-wealthy may not be greatly motivated by deductions, upper middle-income couples that just step over the $250,000 threshold cited by President Obama are often inspired by the chance to save money on taxes.
“Tax advisers tell us that these folks look at the sudden shock of being in a new tax bracket and it does introduce them to the idea of being philanthropic,” she said.
A member of the audience, Michell Speight, director of programs at the Dyson Foundation, applauded the idea of differentiating among types of charities based on their service to low-income people.
“There’s a big difference between a Stanford and a soup kitchen,” she said. “We don’t want to talk about that in this sector, but we have to.”
That led to a brief but heated back-and-forth with Patrick Rooney, executive director of the Center on Philanthropy at Indiana University, who defended universities for providing scholarships to low-income students and investing in impoverished neighborhoods near their campuses.
