On April 6, 1917, President Woodrow Wilson and Congress declared war on Germany. With the same declaration they created the War Chest and the first charitable tax deduction that allowed individuals to make gifts to help with the war effort and shore up the few institutions whose support would be affected by the war.
That decision did not affect many people at the time as fewer than 10 percent of Americans paid taxes, and the top rate was 7 percent. The cost to the government was relatively small as there were few nonprofit organizations and as a way to keep the war from putting an end to those institutions, the charitable tax deduction was effective.
And now, a little more than one hundred years and several wars later what began as an accommodation to an emergency has become part of the bedrock of both a philanthropic culture and the overall economy. With the growth of non-profit organizations, voluntarism and the spirit of charity have become hallmarks of America. The creation of schools, churches and the great institutions that shape us today has been made possible by the consistent growth of giving by millions.
In recent years there have been a variety of efforts to allow greater standard deductions and reduce the number of people filing itemized returns. Some make the argument that the changes over time will so reduce giving as to threaten the survival of non-profits. The year after the latest reform in 2017 giving did, in fact, decline but only by 1.7% from the prior year with most of that from smaller donations.
Others argue the opposite as charitable giving has remained at close to 2 percent of personal income year after year regardless of the changes in the tax rates for itemizing charitable giving. Moreover, giving by foundations and corporations has increased.
Charity is not going away but there are other changes.
While I understand the value of creative instruments for legitimately reducing taxes, I am meeting more and more people whose first question about a gift (no matter the size) is whether or not it is tax-deductible. This troubles me.
There is a growing industry of extremely sophisticated professionals who have taken charity, compassion, caring, duty and – yes – obligation to a community and encouraged people to think primarily about tax considerations as the motivation for giving. The satisfaction is not so much in the gift as it is in beating the system. Being clever is a higher compliment than being charitable while gaming the government has become an even larger part of the incentive for giving.
The phrase “every gift is tax-deductible” is on each nonprofit piece that goes out to potential donors and is also featured prominently on nonprofit websites. Even churches emphasize that supporting the local congregation has tax benefits.
While I don’t want to camp on the point, I do want to say I am concerned that the desire to give and be generous is being overshadowed by the desire to see the tangible benefit of reducing taxes with this gift. It is one of the reasons many people delay their major giving until the end of the year when they can estimate what gifts they will “need” to make for reducing their tax liability.
The servant is becoming the master. The means is becoming the ends.
This year I set aside a certain amount of our giving that would not qualify for a deduction. We gave to individuals or organizations with no tax certificates. To offset some of the impact of COVID we left larger tips. We gave without getting receipts. We just gave. It was not all or even a large part of our giving for the year, but it was a portion. I wanted to see what the effect was on us and whether or not to keep doing it. Listening to friends I think others might have done the same.
It hasn’t changed my life. It hasn’t made me stop taking deductions. It did one thing though. It allowed me to see opportunities for giving I would have discounted before because they were not deductible. It allowed me to make some gifts that improved the lives of individuals and families. It actually felt more like giving than tax planning…and that was worth it.
I’m not arguing for going back to 1916. Times have changed. Planning for large gifts is necessary. Nonprofits have proliferated and, according to some, employ almost 10 percent of the entire workforce. The arts and cultural institutions especially would suffer from reduced giving by those few motivated only by tax considerations. All this is true.
However, may I encourage you to set aside a certain amount this year and give it with no consideration of tax deductibility or benefit? Do it and see if you have the same experience – or even better.
I’d love to hear from you.