TOP STORY: CHARITIES: Charities worry that flat tax would slash donations

c. 1996 Religion News Service WASHINGTON (RNS)-The candidacy of Steve Forbes may be limping but the proposal that propelled him forward in the GOP presidential field-the flat tax-is alive and well and striking fear into the hearts of charitable groups that depend on tax-deductible donations. If there should ever be a flat tax, charities wonder, […]

c. 1996 Religion News Service

WASHINGTON (RNS)-The candidacy of Steve Forbes may be limping but the proposal that propelled him forward in the GOP presidential field-the flat tax-is alive and well and striking fear into the hearts of charitable groups that depend on tax-deductible donations.

If there should ever be a flat tax, charities wonder, will there be a place on the famous super-simple postcard for listing and deducting money you’ve given to charity?


The firmest flat-tax advocates say: Drop it. Forbes himself says Americans don’t need an incentive to be generous. House Majority Leader Dick Armey, R-Texas, says it’s very simple: If people have more money, they’ll give more money.

The charitable deduction is nearly as old as the tax code, and close to many hearts, as an encouragement to the better angels of our nature. Charities and nonprofit organizations are extremely concerned that Forbes or Armey, or anybody, is even considering getting rid of deductions for charitable gifts. They fear the powerful urge to simplify the tax code will mean they lose their big givers, just as they’re scrambling because of cuts in government spending on welfare or the arts.

Even at the Salvation Army, famous for collecting small donations by way of their familiar street-corner kettles (for which few if any donors get a receipt to present to the Internal Revenue Service), leaders are worried. They say the Army would have great difficulty maintaining its 10,000 facilities for the poor without large gifts from people in the 39 percent tax brackets for whom a deduction is a big deal.

Colleges and cultural institutions like orchestras, museums and dance companies say they’d be struggling without the charitable tax deduction.

“It really could be devastating for small private colleges,” said Neal Berte, president of Birmingham Southern, a small liberal arts college in Alabama, who estimated he’d lose between a quarter and a third of his alumni donors. “It’s wishful thinking to say that persons would be equally motivated, and I’ve even seen some say, more motivated, if they could give just because they wanted to.”

At the Mark Morris Dance Group in New York, development director Michael Osso said, “I’m very nervous about the possibility of no deduction. The $50 donors don’t give for the tax deduction. But for the people who give $500,000-and there are only a few of them, and we need every one to survive-it’s going to matter a lot.”

Many charity leaders noted it was particularly disturbing that the discussion should take place when charities are being asked to do more.


“It’s ironic,” said B’nai B’rith executive Stanley Berman, “That at the same time the ball is being passed to us, our ability to carry the ball, we fear, is going to be limited.”

Pure no-deduction advocates like Forbes and Armey admit that we might see a short-term reduction in giving to churches, colleges and arts groups. But in the long run, they argue, the economy would surge and most Americans would have so much more income that giving would more than recover.

In contrast, a Price Waterhouse report recently commissioned by Independent Sector, an organization of 800 nonprofit groups, estimated that if the charitable deduction were eliminated, total giving by people who normally take the deduction would drop by nearly a third.

Look at the recent past, Armey told his congressional colleagues: “During the 1980s, the so-called `decade of greed,’ charitable giving went up even as the value of the tax break declined dramatically.”

Alvin Rabushka, the Hoover Institution political scientist whose book, with economist Robert E. Hall, “The Flat Tax,’ energized the whole discussion, wrote of that decade, “From 1980 to 1989, total contributions increased from $49 billion to $107 billion.” What drove that, he said, was that “real incomes rose for seven years in a row.

“This sort of evidence,” Rabushka said, “is the last thing people at the nonprofits pay attention to. The emotional impression that they will be harmed by reduced giving overwhelms the statistical evidence of the past 30 years.”


“Only 23 percent of taxpayers take the charitable deduction,” Rabushka said, “We’re not talking about the end of civilization here.”

Virginia Hodgkinson, vice president of research for Independent Sector and author of “Giving and Volunteering in the United States,” agreed that the total amount of charitable giving did go up in the 1980s, but not by much, once inflation was factored in. A more significant indicator, she said, was that the average percentage of income given in 1980 was close to 7 percent, but it had dropped to 4.3 percent in 1993.

It’s true there were a lot more millionaires around at the end of the 1980s. But though there were more seven figure incomes by the end of the decade, each itemizing household had reduced its level of generosity.

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Armey and Forbes and the nonprofit groups do agree on one principle: Americans don’t give to charity merely for the tax breaks. But the charitable deduction does strongly influence the amount given. For example, Hodgkinson said, in 1980 when top tax rates were about 70 percent, taxpayers with incomes of $1 million or more contributed an average of $207,000 to charity per return. In 1993, when top rates had fallen to about 40 percent, reducing the incentive to take a charitable tax deduction, giving by that wealthy group dropped to an average of $108,900, a decrease of 53 percent in inflation-adjusted figures.

Projecting into the future, Price Waterhouse predicted that only a small portion of this additional income, if any, would go to charitable donations. As the accounting firm put it, “The majority would be spent on consumption alternatives.”

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Armey brought the discussion down to a few specific charitable groups when he wrote his congressional colleagues, “If you want to help churches, synagogues, the Boy Scouts and the Salvation Army, help your constituents earn high incomes that will make it possible for them to fund these worthy causes.”


But the groups Armey mentioned aren’t rushing to agree. The Rev. J. Brent Walker, general counsel with the Baptist Joint Committee of Public Affairs, said that although the Baptist church had no formal position on the flat tax, “My hunch is that taking away the deduction will depress giving levels to churches.”

The deduction, Hall said, is definitely an inducement to giving. “It is in my life,” he added, “and for almost everyone I know.”

“It’s a matter of simple fairness,” Walker said. “People should not be taxed on money they voluntarily give away to help others.”

At the Jewish social service organization B’nai B’rith, Stanley Berman, director of fiscal operations, said that the idea that Americans with fatter after-tax wallets would give more is, “A nice theory, but I can’t say we buy it.”

Certainly most people give for philanthropic reasons, Berman said, “But I think even the $25 donor thinks in his own mind, `AND it’s tax deductible.”

Robert Stevens, treasurer for the Pacific Northwest Annual Conference of the United Methodist Church, said “The faithful members of the local church are going to tithe whether the government thinks it’s a good idea or not.”


However, Stevens added, “Where Armey is totally off base is in not acknowledging that a lot of discretionary giving by persons of resources will go away, and not realizing that churches will become the victims of that.”

MJP END CASEY

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