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Bruce Bisping, Star Tribune

Why tax deduction for charitable donations count

  • Article by: Sarah Caruso and Jon Pratt
  • August 26, 2013 - 8:36 AM

Mike Meyers’ Aug. 18 commentary (“How taxpayers give away fistfuls of dollars”) offered a glimpse into a wide-ranging set of largely incongruous issues related to charitable giving. Meyers’ soup-to-nuts viewpoint chastises advocacy and arts organizations, AARP, churches, the Gates Foundation, hospitals, the NRA, lobbyists and many others by delivering a broad-stroke critique of all nonprofits — the diverse organizations whose very purpose is to meet a range of community needs rather than make a profit for shareholders.

Allow us to offer some clarity about the rationale for the charitable tax deduction and the important policy considerations that would be wise for our nation and state to address.

Our nation’s nonprofit sector is uniquely American and democratic. The pluralism Americans enjoy is ever-present in their support of nonprofits, an aspect of our society recognized and upheld since the French philosopher Alexis de Tocqueville’s 19th-century observations about what makes this country unique. We don’t have a national choir, a single government formula for feeding the hungry or a one-size-fits-all plan for youth programs.

Like business, the nonprofit sector promotes choice, local initiative, entrepreneurism and varied options to meet diverse needs. Also, like business, we rely on members of the public voting with their wallets — making a choice to use the money that they have earned to support the nonprofits they know and believe in and that fit their view of a healthy and just society.

So why should a tax deduction be given to an individual who chooses to use their personal resources to make a charitable contribution? The answer lies in our nation’s approach to addressing community needs.

The ability to meet a wide range of community needs relies on the strength of local nonprofits and their ability to attract and retain community support. The nonprofit sector is uniquely positioned to address multiple social-service needs. Envision a three-legged stool with one leg representing public and foundation dollars, the second leg as support from the corporate social responsibility of the business sector, and the third leg as individual donations to nonprofits. Human-service agencies that have these three legs perform well and can maintain a clear focus on the needs of clients they serve. Why, then, would we consider cutting off one of the legs of these well-functioning organizations, causing them to fall?

Our nation’s approach to addressing community needs is, at its core, based on the principles of individual choice and generosity, which the government supports through the charitable tax deduction. A combination of resources support the financial well-being of these organizations, allowing them to serve ongoing needs, remain innovative and be responsive to emerging needs. Chief among them for decades has been voluntary contributions made by community members who care and contribute and intend the maximum benefit — for themselves and the organizations to which they contribute — from their generosity.

For nearly 100 years, the federal government has provided a tax deduction to donors — a demonstration of one of our country’s deeply held priorities. An annual $54 billion is dedicated to encouraging individual, local choice in the services that will be provided in our communities. While impressive, the amount of community support that it leverages is even greater.

According to Charity Navigator, in 2012 generous Americans contributed more than $312 billion in support of nonprofit organizations, the institutions that they believe in, that they recognize in their communities as fitting their vision of a strong society. For the cost of the charitable deduction, Americans make six times that in contributions to the causes they care about. We recognize this as a very respectable return on investment. A 2010 study by Indiana University’s Center on Philanthropy indicates that a reduction in the charitable tax deduction would lead to a reduction in overall giving. Is it worth saving a modest amount of government spending if it might lead to a reduction in the respectable 6 to 1 return on investment that it brings to the community? We think not.

The nation is facing serious tax reform questions, and in recent years appropriate scrutiny has been applied to state tax expenditures. Reducing or eliminating the deduction to save the government money is penny-wise and pound-foolish. Developing changes that assume only the wealthy make charitable contributions is uninformed. Creating a modernized system that encourages increased giving and makes the benefit truly available to all Americans, both itemizers and nonitemizers, would be a step in the right direction to strengthen our uniquely American approach to addressing community needs.

Meyers’ missive is dramatic and simplistic. Changing the tax code is nuanced and complex. We support a thoughtful approach to strengthening charitable giving and personal choice.

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Sarah Caruso is president and chief executive officer of Greater Twin Cities United Way. Jon Pratt is executive director of the Minnesota Council of Nonprofits.

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