In his 1835 masterpiece, Democracy in America, Alexis de
Tocqueville, reported on his observations of the American scene
after an extensive tour of the new Republic. One of his most
profound insights had to do with the genius of Americans in the
formation of institutions that mediate between large, distant
government and the solitary, insular individual:
Americans of all ages, all conditions, and all dispositions
constantly form associations. They have not only commercial and
manufacturing companies, in which all take part, but
associations of a thousand other kinds, religious, moral
serious, futile, general or restricted, enormous or diminutive.
The Americans make associations to give entertainments, to
found seminaries, to build inns, to construct churches, to
diffuse books, to send missionaries to the antipodes; in this
manner they found hospitals, prisons, and schools. If it is
proposed to inculcate some truth or to foster some feeling by
the encouragement of a great example, they form a society.
Whenever at the head of some new undertaking you see the
government in France, or a man of rank in England, in the
United States you will be sure to find an association.
Americans in the 20th and 21st centuries will recognize this
phenomenon whether it be in their own participation in the
American Lung Association, Lion's Club, PTO, Red Cross, Salvation
Army or the Nature Conservancy (TNC).
Indeed, the TNC is the largest land conservancy or trust in the
world. It is also emblematic of a tremendous movement in the
United States today. According to the Land Trust Alliance, the
land trust movement doubled in size between 2000 and 2005, in
both number of organizations and acres of land protected. Today,
private philanthropic dollars protect an area 16 and a half times
the size of Yellowstone National Park.
Unfortunately, the Obama administration is on the brink of
un-doing this private sector success story, along with even more
important work done by educational, religious, health, cultural
and social welfare organizations dependent on private
philanthropy.
Writing in Wednesday's Washington Post ("A
Deduction From Charity"), Martin Feldstein, the estimable
professor of economics at Harvard and president emeritus of the
National Bureau of Economic Research, described the magnitude of
the change proposed in President Obama's plan to limit the tax
deductibility of charitable contributions.
Basically, the proposal will "effectively transfer more than $7
billion a year from the nation's charitable institutions to the
federal government."
Moreover, the high-income taxpayers who are the supposed target
of this measure "are likely to cut their charitable giving by as
much as the increase in their tax bills, which would, ironically,
leave their remaining income and personal consumption unchanged."
The Center on Philanthropy at Indiana University
predicts a decline in giving of 2.1 percent, with donations
by the highest-income households reducing their giving by 4.8
percent or $3.87 billion.
"In effect, the change would be a tax on the charities, reducing
their receipts by a dollar for every dollar of extra revenue the
government collects," says a mystified Professor Feldstein. "I
suspect that the administration officials who drafted this
proposal did not understand that it would have this perverse
effect."
Neither does President Obama. In his press conference this week,
he claimed, "I mean, if you look at the evidence -- there's very
little evidence that this has a significant impact on charitable
giving."
The new tax change would apply to those undeserving married
couples earning more than $250,000 (and single people earning
more than $200,000). You know who you are.
As Feldstein explains, a high-end earner paying a 35 percent
marginal tax rate now lowers his or her tax bill by 35 cents on
every dollar contributed to a charitable organization. Evidently,
the economic literature indicates that, on average, every 10
percent reduction in the cost of giving raises the amount that a
person gives by about an equal percentage. So, again, the high
earner increases his or her donation by 35 percent, given a 35
percent deduction.
The kill-joys at the White House and Treasury would limit the
amount the high-income earners can deduct to 28 percent. "This
raises the cost per dollar of giving from 65 cents to 72 cents"
or 10.8 percent, thereby reducing total giving by such donors by
nearly 10 percent.
Feldstein plays around with the numbers to show how this all
works out in practice to the detriment of the prospective charity
that is dependent on voluntary donations. He calculates that by
2011, the year the Obama administration plans to implement this
new tax rule, private giving would decline by more than $7
billion. And this is on top of the losses sustained by most
charities due to a collapsing stock portfolio.
Feldstein, a world-class economist sticks to his knitting -- to a
fault. He does not raise the fundamental philosophic question
that should also be part of this debate over the tax code and
private charity. Specifically, how do we as a nation weigh the
balance between a free and independent society and culture versus
an ever-growing, interventionist government that now intrudes
into every aspect of private existence and, most notably, the
economy?
Tocqueville prized America's preference for voluntary
associations because it provided a balance, a corrective to
overweening government and allowed for the attainment of common
goals through the collaboration and hard work of private
individuals, families, and communities, free to pursue their own
vision of the good life. Government was a necessary, but hardly
sufficient condition for the good life.
(Mr. Mehan serves on the board of the
Potomac
Conservancy. The views expressed in this article are entirely
his own and not those of the Conservancy.)
topics:
Charitable Giving
