The American spirit is one of charitable giving, for which givers receive a tax break. But that tax break is coming under scrutiny this year as lawmakers brainstorm solutions to get our country out of debt. Putting a cap on charitable giving tax deductions is on the table as a possible compromise, something that Earle I. Mack warns could have dire consequences in his op-ed for The Hill.
The deduction was designed to encourage the wealthy to give away some of their money for the better of society, and many rich Americans have since jumped on the philanthropic bandwagon. Each year, the top 2% of taxpayers donate over $100 billion to charitable organizations and institutions. The majority of these givers do so because they feel it’s the right thing to do. But the tax deduction sometimes provides that extra little push out the door.
Nonprofits and foundations have a total of almost $13 million employees, according to Independent Sector studies. Mack cites the fact that these institutions also bring in about 5.5% of the GDP, get assistance from over 62 million volunteers, and spend about $1.9 trillion every year. If we cap the charitable giving tax deduction, what sort of effect will that have on these organizations and, in turn, our economy?
According to Earle Mack, we could seriously compromise the growth of the economy. He predicts that a cap on the tax deduction will encourage less charitable giving and encourage more selfishness among the rich. Independent Sector reports say that, without the deduction, giving will decrease dramatically—up to 36%. That’s a loss of about $7 billion each year.
From there, the issue gets even more complex. Fewer donations mean that potential projects won’t be able to happen—buildings won’t be built, museums won’t expand, and employees to serve those locations won’t be hired. Jobs will be lost and our economy’s slow growth will become even slower.
Earle Mack proposes instead a 2% tax increase for the rich, elimination of loopholes and depreciation allowances for luxury items, and capping mortgage and medical deductions for top earners. He just wants charitable giving tax deductions to remain untouched.