“Wouldn’t it be better for the human spirit and for the soul of this nation to encourage people to accept more responsibility to care for one another, rather than leaving those tasks to paid bureaucrats?”
Ronald Reagan astutely posed this rhetorical question in 1982.
Sadly, Washington today is on a path contrary to President Reagan’s wisdom, moving in the opposite direction with tax policies whose consequences threaten to diminish charitable contributions in order to fatten the federal purse.
The first errant step has already been taken. The “fiscal cliff” deal rushed through at the beginning of the year includes a provision known as the Pease limitation, which diminishes the total value of itemized deductions a taxpayer can claim. Included within the Pease limitation is the deduction for charitable contributions. Further efforts to cap or otherwise limit deductions — and even to eliminate the charitable deduction altogether — are being discussed.
There is no question that taxes affect behavior. Witness golfer Phil Mickelson’s public musings about moving from high-tax California to a lower-tax place. Mickelson is not alone. Tiger Woods understandably moved from California to Florida years ago. It is well known that many people choose to move and retire to Florida or Texas precisely because they have no state income taxes. A good number of music artists prefer living in Tennessee or Nevada to living in California, since these states do not impose an income tax.
The latest census revealed that California, for the first time since it joined the Union in 1850, is not growing faster than the rest of the United States. The fast-growing states today are generally in the South and Mountain West. People are moving to these states because they are finding more job opportunities. To be successful, big and small enterprises decide to locate, invest or expand in business-friendly locations where the cost of operation is competitively lower. Tax burdens, energy costs, right-to-work laws, and a skilled workforce matter in business decisions and thus affect job and population growth.
The logical lesson is: tax policy promotes or inhibits both behavior and movement of capital. That is what makes recent and threatened tax-law changes that diminish the deductibility of charitable contributions so unsettling. Many charities rely on major donors, the very people who have the means to contribute $50,000 to $100,000 or more for cancer research, a world-class laboratory for university students, or a new interpretive center for the home of our nation’s first president. Yet in their zeal to “tax the rich,” Washington politicians are threatening to starve the charities that help our neediest citizens and enrich our lives and culture.
Americans are a generous people, contributing over $300 billion annually to charitable causes — over 75 percent from individuals. The charitable deduction in the tax code has encouraged Americans of financial means to help their fellow citizens and support nonprofit philanthropic efforts in higher education, medicine, religious-based rehab centers, the arts, and even the historic preservation of treasured presidential homes and historic sites.