Must charitable giving be tax deductible to be sustainable?

Lately I’ve been thinking about how to encourage charitable giving without evoking the tax deductibility of gifts as a benefit.  Why? As government looks for ways to balance its books, both revenue and tax code simplification proposals are being widely debated among policymakers and the press.  Among these are proposals to terminate both the mortgage interest deduction and the charitable gift deduction.  For example, an article in last week’s New York Times by University of Chicago economist Richard Thaler (“It’s Time to Rethink the Charity Deduction”) outlined the benefits of ending the charitable deduction as part of series of policy changes that he believes would make our tax system more equitable.  An earlier Times’ story (“Nonprofits Fear Losing Tax Benefit”) cited an estimate of the “tax cost” of the charitable deduction as between $237 billion between 2009 and 2013 and reported on ways the tax code might change based on recommendations of three different “blue ribbon” policy panels.

Would ending the deductibility of charitable gifts have an immediate chilling effect on individual philanthropy?  Perhaps not, although this will be hotly argued, and I admit I don’t relish the opportunity to find out first-hand, particularly in an already turbulent fund-raising environment!   But I believe donors’ primary motivation for support is belief in an organization’s mission, respect for its results, and trust in its stewardship of resources.  The deductibility of a gift is an ancillary benefit, not a primary one. 

Still, our own behavior can affect how donors’ perceptions are shaped, based on how we seek, value, use, and report on their gifts. For example, I cringe when I see cultural nonprofits over-emphasize “perks” when a particular gift level is reached (i.e. for a gift of a particular size, we will provide you with a variety of personal benefits).  This approach risks turning a gift into a transaction; the quid pro quo is not the good work the organization will do with the donor’s gift, but rather the individual benefit to the contributor. 

Tax deduction or none, I think the best way to encourage donors to contribute is to consistently describe the community benefit of our work, to ask donors to join in helping us make our communities more interesting, more inspiring, and more energizing places to live because of the arts.   We can help donors understand that without individual support most cultural organizations would fail in short order, as earned income coupled with government, foundation, and corporate support is insufficient to sustain a robust cultural sector.

We may get a chance to see what it’s like to raise money in a dramatically changed tax policy environment.  Thinking about how we should position ourselves for this change – now – can strengthen our case for support and help prepare for uncertainty regarding the future deductibility of charitable gifts.

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  1. says

    Nice piece, Sarah. Just to add a couple of notes about “perks:” First of course the value of such rewards has to be subtracted from the amount the donor gets as a tax-deduction. So by emphasizing the prizes we reduce both the potency of our own appeal and the return to the donor. Plus, these things waste valuable time. I have seen a whole development department waylaid in a fund raising campaign by a long discussion about whether the premium should be a tote bag or a a dog leash with the logo on it. I’ve never believed that premiums drive donations in any meaningful way–to assume they do is to miss an important opportunity to promote your cause. Not only that, but you leave yourself unprepared in the event that tax-deductibility does disappear. Let’s get it together before the day comes that we will all have to depend only on appeals to the intrinsic value of our work.

  2. says

    I take out a number of memberships every year to various museums and performing art groups (either because I support them or like the benefits) – but they do not add up (along with other deductions) to more than the standard deduction. I imagine that there are many other folks in the same situation.

    • Kristin says

      I agree. I too make a bundle of donations that don’t add up to the standard deduction for my taxes – so claiming them is inconsequential. Even knowing this, I continue to donate because I value the services my favorite non-profits provide to the community and to myself.

  3. H.E. Henderson says

    Actually, the “benefits” offered often deter me from giving to the organization in the first place. If they are spending my money on trinkets instead of on the mission that attracted me in the first place, I give elsewhere. It is interesting to me that no organization has EVER asked me why I stopped giving, or responded to my (unsolicited) feedback about it.

  4. Rafael de Acha says

    Very insightful piece and perhaps the fist time I hear this particular viewpoint on this thorny subject. I ran a non-profit theater for twenty years and gradually shaped our policy on rewarding contributors. We ended up with a simplified alpha listing in the printed programs and lobby displays with no categories dictated by size of gift. It was in fact as a gift that we treated all contributions, regardless of size. We expressed our thanks verbally and in writing. Once in a while we held some sort of special event to fete our donors and included all of them – the old couple that gave $25 and the foundation head who secured $25,000 for the organization. And, as you so clearly explain in your article, the results were good-will, loyalty to the organization and faith and support in and of its mission. I look forward to more from you, Sarah. Best regards.


  5. says

    As far as I am concerned charities that pitch tax deductibility are not worthy of support. They are part of the undemocratic decision-making process in which one dollar equals one vote and the rich get to decide how both public and private resources will be directed. Most Americans do not itemize deductions. The poor give a larger percentage of their incomes — and their time– to charity than the upper 10% does, and the “widows mite” which they give is not deductible and represents real sacrifice. Fat cat “Charities” are major players in the (unconscious?) conspiracy to concentrate power and access within that upper 10%, who do not listen to the citizens on the bottom and cannot imagine their lives. How can they judge what is really a contribution to the Common Good? What good is a half-million dollar organ transplant to the segment of the population– a huge and growing segment– who cannot afford the food, shelter, care and drugs necessary to preserve the life of the recipient post-operation?
    How can the underclass tell their stories and make their real needs, spiritual and material, known? Our information is filtered though media that are dependent on advertising and aimed at the eyes of those who can buy the goods and services that generate profits for the sponsors.
    Fifty years ago it was possible for a person who earned minimum wage– as I did: I was happy to work at non-stressful day jobs and pour my precious hours of focused attention into art– to live in near-poverty and be culturally rich. I visited free museums and concerts and lectures, and though I could only afford the supplies for drawing and watercolor there was free instruction. There was actually High Culture on television! I performed with free community choruses and orchestras. My college degrees, earned part time in state schools, cost less than the textbooks for a single semester in a state college cost now. I had no real health costs. The public library, with a branch a few blocks away, offered freely all the books that Harvard or MIT used to teach the well-off and well-born and the scholarship geniuses. MIT’s actual courses are now on line, and available freely if someone has access to Broadband. But how many brilliant kids who are being raised in poverty know this? Or could take advantage of it if they did know?
    If I were Czar, I would begin to move towards a better world not just by ending the deduction for contributions but by taking away the tax-exempt status of any institution that pays its employees or administrators more than 7 times the minimum wage. Let us honor those who are truly charitable and promote virtue as its own reward. Guess what? It really is! Opting out of “money is how we keep score” and figuring out what is really and intrinsically valuable would make us, collectively, much happier.

  6. Ken Tabachnick says

    Thanks for posing these excellent questions and thoughts. There is an additional aspect for us to consider, however, in discussion the tax deduction.

    We, unlike the rest of the industrialized world, do not believe in centralized governmental support of the arts. Like the rest of our economy, we support individual decision making, leaving it to a donor to direct charitable giving and support where he or she believes it is most impactful. Despite the position often presented that our government does not support the arts, the truth is that there is dramatic government support of the arts through the tax deduction, but it is not centrally distributed or controlled.

    In light of this underlying, but unspoken policy position, it is essential to maintain the tax deduction for charitable giving; without it, there would be absolutely no government support for the arts, which is unthinkable in an advanced industrialized society such as ours.

  7. says

    I whole-heartedly agree with moving away from “benefits” to donate or join a theatre organization. But we do have a whole list of benefits related more to access rather than tangible items including backstage tours and viewing of rehearsals and a “lounge” area they can gather before the show or during intermission for coffee or lemonade. These gatherings actually provide a lot of “face-time” with donors (formerly called “members” which we are gradually changing) to build relationships. The downside is that it does become somewhat more transactional than philanthropic, ie., “what can I get for a bigger gift?” type of discussion. We are attempting to move toward more language in both verbal and written to emphasize mission fulfillment rather than just the individual production being presented. Michael Kaiser’s book “The Art of the Turnaround” is a great resource to rethink arts management and the important role philanthropy at all levels must play.

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