Capital Commentary is the weekly current-affairs publication of CPJ, written to encourage the pursuit of public justice.

Charity Tax Deduction: Important for Many Charities, Vital for Others

Stanley Carlson-Thies


April 26, 2013

By Stanley Carlson-Thies

An earlier version of this article was published in the Institutional Religious Freedom Alliance eNewsletter for Faith-Based Organizations on March 1, 2013. 

Thanks to the federal government's continuing huge debt crisis and the deep polarization about solutions (mainly more revenues vs. mainly less spending), Washington policymakers keep casting covetous eyes at the federal tax deduction for taxpayers who give to charitable organizations and who itemize their deductions. No matter that the protracted recession has meant more and more people showing up at charities for shelter, food, and other services even while the recession has made it harder to raise the donations needed to pay for those services.

The House Committee on Ways and Means recently held a hearing on the charity tax deduction, which revealed two very important dimensions of the issue that have gotten little public notice. (Thanks to Rhett Butler, government affairs director of the Association of Gospel Rescue Missions for this information.)

1.  Some charities are more dependent than others on donation income. 

Discussions of shrinking or ending the charity tax and the resultant effects on giving, and thus on charities, assume that all charities depend equally on private donations to fund their work. That is clearly not the case. Some charities rely mainly on a combination of government funding and income from sales, special events, or fees for services provided. In these cases, they are less dependent on charitable contributions and therefore less dependent on the incentive to give that the federal tax deduction provides.

On the other hand, gospel rescue missions are a prime example of charities that depend heavily on charitable contributions. John Ashmen, President of the Association of Gospel Rescue Missions, testified:  

[M]issions are not fee-for-services entities, so they are extremely dependent on the generosity of private donors to care for the poor and homeless. To say that another way, private donations do not supplement the income that rescue missions receive; they are the primary source of their income. 

Rescue missions have for years counted on the current charitable deduction as an effective incentive for donors to give. And they dread what might happen if that incentive is reduced. And let me add that very few rescue missions accept government aid because they desire to protect their religious identities--which, in most cases, is what motivates their deep desire to serve.

[Furthermore,] because rescue missions rely so heavily on private giving, they are especially vulnerable to even small drops in charitable contributions--and every drop impacts services… [R]escue missions are just as vulnerable as the people they serve.

Rhett Butler of AGRM notes that experts on the charitable deduction tend to assume that any reduction to giving caused by a change in the tax deduction will be moderated by other income sources. Clearly that logic ignores the situation of these gospel rescue missions and also that of many other nonprofit organizations.

2. Some legislators want to define what constitutes authentic charity. 

The hearing also reveals the danger of the growing trend among some activists and legislators to redefine what constitutes a true charity, i.e. the kind of organization and action that "deserve" government encouragement through the charity tax deduction. Some want to reserve the deduction for gifts to organizations that serve low-income and minority communities instead of allowing symphonies, houses of worship, and other kinds of good works also to receive tax-deductible gifts. Others want to make it a requirement of charitable status that the organization serves and employs specified percentages of racial and sexual minorities. In either case, charities would lose the tax incentive to give to them because their missions and methods would not qualify under the new definitions of charity championed by particular activists.

The Bible says that the love of money is the root of many evils. In this case, legislators seeking a solution to our huge national debt are potentially harming many organizations dedicated to public service and the welfare of the poor and the disenfranchised.  

- Stanley Carlson-Thies is president and founder of the Institutional Religious Freedom Alliance. He served on the “Reform of the Office” task force of President Obama's Advisory Council on Faith-Based and Neighborhood Partnerships and on the founding staff of President George W. Bush's White House Office of Faith-Based and Community Initiatives.  He also serves as a Fellow of the Center for Public Justice.

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