Vastine Stabler makes a case that changing the tax code to reduce the the top rate of deduction for charitable giving from 35% to 28% will have an enormous impact on giving to the arts:
It may be shocking to learn that the level of federal support for the arts in the United States is most likely the highest in the world. To understand why you need to know how non-profit arts are funded in the United States. Approximately 50% of the financial support for the arts comes from earned income and another 10 % comes from non-federal government support. The final 40% of arts funding comes from private donations. It is this 40% where the US government makes its true impact on the arts. Depending on the donor’s tax bracket, up to 35% of individual donations are funds diverted from the US Treasury to the arts through tax deductions. This amounts to a multi-billion dollar investment by the federal government each year. While many are unaware of the largess of Uncle Sam via these deductions, the fact has not escaped our current administration.
He makes the point that support for the arts in the US is “incentivized” giving. That is, the government helps to reward the private sector for supporting charities. If you buy in to this reasoning, then changing the incentive to give will make a big impact:
Currently, someone who is in the 35% tax bracket can deduct 35% of their donations to officially designated non-profits. In the current
bill the most donors can deduct is 28%. This differential will make
monumental changes to the giving patterns of our largest donors.
President Obama addressed the issue at his press conference Tuesday night:
QUESTION: Are you reconsidering your plan to cut the [deduction for charitable contributions]?
OBAMA: No…I think it’s the right thing to do, we’ve got to make some difficult choices….What we’ve said is: Let’s go back to the rate that existed under Ronald Reagan. People are still going to be able to make charitable contributions. It just means, if you give $100 and you’re in this tax bracket, at a certain point, instead of being able to write off 36% or 39%, you’re writing off 28%. Now, if it’s really a charitable contribution, I’m assuming that that shouldn’t be the determining factor as to whether you’re giving that $100 to the homeless shelter down the street…. I think it is a realistic way for us to raise some revenue from people who’ve benefited enormously over the last several years. It’s not going to cripple them. They’ll still be well-to-do….
QUESTION: It’s not the well-to-do people. It’s the charities. Given what you’ve just said, are you confident the charities are wrong when they contend that this would discourage giving?
OBAMA: Yes, I am. I mean, if you look at the evidence, there’s very little evidence that this has a significant impact on charitable giving. I’ll tell you what has a significant impact on charitable giving, is a financial crisis and an economy that’s contracting. And so the most important thing that I can do for charitable giving is to fix the economy, to get banks lending again, to get businesses opening their doors again, to get people back to work again. Then I think charities will do just fine.
On the issue of overall fairness, this argument make sense, but from a practical matter the question is what percentage of charitable contributions are motivated by the tax break and how much of a motivation that extra seven percent is.