The federal income tax code is saddled with inefficient exemptions, deductions and credits. Streamlining them is an important policy goal, and Senator Max Baucus and Congressman Dave Camp, the respective Chairmen of the two tax writing committees in Congress, are in the process of working through an overhaul of the tax code to lower rates and remove distortionary deductions.
Tax simplification is a universal goal, but it has thus far been elusive because what seems a special interest carve-out to many can seem to others the promotion of a valid public policy goal. One example is the deduction for charitable contributions. A group of over two hundred economists published an open letter to Congress as a full page ad in Politico on Thursday, April 25, arguing for the uniqueness of the charitable deduction, which is pasted below.
An Open Letter from Economists on the Charitable Deduction
As Congress and the Administration deliberate fundamental tax reform, a variety of voices will fairly claim their tax situation is unique, deserving of special treatment. However, only the charitable deduction can make this case without reservation or equivocation. It truly is unique in purpose and consequence, and should be retained in any income tax reform.
For every other tax incentive, the tax benefit follows some action or aspect relating directly to and benefitting the taxpayer. A donor making a charitable deduction, in contrast, benefits neither the taxpayer nor the receiving institution, but rather the population that institution serves, whether unwed mothers, the environment, education, or religious engagement.
The social safety net comprises strands from government at all levels interwoven with services provided by national philanthropic organizations like the Red Cross, and local organizations addressing local needs. As a society we reap tremendous benefits in cost and effectiveness by relying extensively on these private institutions. Parsimonious with their resources, their efforts are often leveraged many times over by dedicated, unpaid volunteers inspired to support their communities in ways and to a degree federal programs cannot hope to match. One needn’t disparage federal social safety net programs to acknowledge the tremendous advantages to society, and the important budgetary savings, from relying on volunteer-driven, private, philanthropic organizations across the country. These organizations and volunteers would not achieve the same kind of success without the charitable deduction and the generous support of philanthropic Americans.
A charitable donation is a selfless act. It is also an economic act, transferring resources from the donor to those in need. And according to the Joint Committee on Taxation last year individuals gave away almost $218 billion. As the resources no longer remain with the donor, it would be illogical to tax the donor on those resources as though they remained the donor’s property. As Congress advances fundamental tax reform, as professional economists we urge all negotiating parties to preserve the charitable deduction as a proper, beneficial, and socially cost-effective feature of the federal individual income tax and contributor to a civil society.
Respectfully,
Rudy Penner
Former Director, CBO
Edward C. Prescott
Nobel Laureate in Economics
Arizona State U.
J.D. Foster
Heritage Foundation
John Greenhut
Texas A&M U.-Commerce
Tyler Cowen
George Mason U.
Kenneth Elzinga
U. of Virginia
Earl L. Grinols
Baylor University
Steve Gardner
Baylor University
Joseph A. McKinney
Baylor University
Tom Nisbett
The Nisbett Group
David E. Mills
U. of Virginia
John Ruggiero
U. of Dayton
Adel S Z Abadeer
Calvin College
Kenneth Carow
Indiana University
Sanjai Bhagat
U. of Colorado
Roger B. Porter
Harvard University
James VanderHoff
Rutgers-Newark
Dennis Halcoussis
Cal. State U. Northridge
Richard E. Just
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Frank Egan
Trinity College
C. Barry Pfitzner
Randolph-Macon College
Michael P. Niemira
Int’l Council of Shopping Centers
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Calvert Investment Counsel
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Green Acres Technology
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George Langelett
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Ronald W. Jones
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Southern Illinois U.
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