Should the Government Subsidize Charitable Donations?

In the United States, the IRS allows you to claim a tax deduction on your income tax for significant charitable donations, among many other expenses, to 501(c)(3) nonprofit organizations.  The government has good intentions for this, but is this really an efficient way of incentivizing donating to nonprofits?

The first thing that needs to be understood is how tax deductibility works.  A tax deduction is a reduction in the amount of income that is able to be taxed.  There are two types of deductions in the US: above the line and below the line deductions.  In this case, only below the line deductions are relevant.  In below the line deductions, you can either choose to have a standard deduction or an itemized deduction.  In a standard deduction, the government deducts between about $5,000 to about $12,000 from your income tax, depending on what your filing status is.  An itemized deduction is when you decide to itemize, or list which deductions you qualify for.  Among these deductions are deductions based on donations to charities.  People itemize their deductions when the sum of their itemized deductions exceeds their standard deduction.  If this is true, then it makes more sense to itemize your deductions because more of your income will be deductible.

A subsidy is a sum of money that the government grants to a business so that the price of a commodity or service it has can remain low or competitive.  By making charitable donations tax deductible, the government is effectively subsidizing donations by giving people a return on their donations through their taxes instead of using that money on its own expenses.  Therefore, charitable donations are subsidized by the government.

Many proponents of the subsidy argue that it is necessary because it is an incentive for people to donate to nonprofits.  The government provides subsidies for nonprofits because they can provide a greater public good than that which the government could provide on its own.  The United States is ranked one of the top donors to nonprofits in the world, and many nonprofits such as churches, universities, and social groups rely heavily on these donors.  If there is no incentive, people will donate less and nonprofits will suffer financially.

Due to the fact that donating to charities is a selfless deed, some would argue that it does not count as a personal expenditure and thus should not be taxable.  The government should only tax money that is meant to be consumed by individuals, and should reimburse money spend on the public good via taxes. 

Despite having many benefits to it, the tax subsidy on charitable donations also has many troubling issues.  As a tax subsidy, deductions on charitable giving are in effect using taxpayer dollars in the sense that the government, through these deductions, loses tax revenue it could have otherwise used on its citizens.  Taxpayer dollars are sometimes used on charities that don’t benefit all citizens, unlike money the government uses would.  In the book Giving Well, the authors point out that government subsidies of charitable donations to churches only benefit members of those churches, not society as a whole; this would seem unfair given that all taxpayers contribute to the subsidy.  By the same logic, government subsidies towards donations to Planned Parenthood and its support for abortion rights is unfair to pro-life Catholics.  Due to this dilemma, some would argue that a tax subsidy on charitable donations is unfair to taxpayers and should not exist.

Another issue to point out is that of plutocratic bias in the tax subsidy.  The way the tax code is written out, it only makes sense to itemize if the total amount of deductions exceeds your standard deduction.  The total amount of itemizable deductions tends to be higher in wealthy people than in the less wealthy, so it is usually the wealthier citizens who itemize.  Thus, it is usually the wealthy who are compensated for their charitable donations (which is one of the deductions that can be itemized).  The wealthy tend to donate to different types of organizations than the middle or lower classes do.  For example, they are more likely to give to the arts, whereas lower income people are more likely to give to poverty prevention organizations.  Thus, the government tax subsidy is biased towards what the wealthy want instead of what the population as a whole wants—a plutocratic bias.

Regardless of the benefits and issues in the government subsidy of charitable donations, what should matter most to the donor is impacting their community through their donation.  In the end, it is our selfless contributions to charities that matter the most.

Illingworth, Patricia M. L., Thomas Pogge, and Leif Wenar. Giving Well: The Ethics of Philanthropy. Oxford: Oxford UP, 2011. Print.

Wicker, Alden. "How Itemizing Your Deductions Could Save You Thousands." LearnVest. 17 Jan. 2012. Web. 30 Mar. 2016.