Opinion: Our current charitable deduction system is designed to allow the rich to avoid taxes and increase their influence.
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For most Americans, donating to charity is a selfless act. The bottom 99% of earners receive nothing more for their generosity than the warm glow that comes with giving to an important cause and, if they’re lucky, the opportunity to write a small amount off of their taxes. However, now more than ever, donations to charity and nonprofits come from the uber rich. As the wealthy 1% fork over billions of dollars to nonprofit organizations every year, the gap between rich and poor grows steadily wider. Charitable tax deductions might seem like a great way to encourage giving, but they are doing us more harm than good. Not only do charitable deductions allow the rich to participate in their favorite pastime, tax avoidance, but they give them the power to decide which problems to solve and which to neglect, robbing the American people of the ability to vote on where that money should go.
In July 2021, the Knight family donated $500 million to the University of Oregon. While many have applauded the Knights for their generosity, the decision seems more questionable when you consider that, assuming the Knights are taxed at 37%, this allowed for a $185 million tax write off. This is money that should have belonged to the American people. What makes Phil Knight qualified to decide where that money should go? Why should taxpayers foot the bill so the Knights can have their name plastered to yet another university building?
The richer an individual, the better able they are to take advantage of the United State’s system for charitable deductions. Tax deductions work by reducing the amount of money the government considers taxable income. Since the wealthy pay the highest marginal tax rate, they are the ones with the most to gain from these policies. Let’s say Fred makes $9,000 in a year, and Janice makes $600,000 dollars in a year. Fred pays a marginal income tax rate of 10%, whereas Janice pays a marginal income tax rate of 37%. Despite Fred being the lower earner, he saves less on his taxes. Every $10 that Fred donates to charity costs him $9, but Janice is able to make an equivalent contribution for only $6.30.
Proponents of our current system would argue that it’s good Janice can write off more money than Fred for an equivalent donation. The wealthy have more money, they argue, so it is beneficial to encourage them to donate more to charitable causes. While this may be true in some cases, we must ask ourselves if these charitable causes are really worth contributing to.
For instance, the rich frequently exploit the art industry, manipulating the purchasing and donating of art into a saving mechanism come tax season. It’s not an uncommon practice for a wealthy donor to buy a painting, have it appraised for far more than they paid for it and donate the painting to a museum or gallery. Then, come tax season, they write the appraised amount off of their taxes, profiting at the cost of our tax dollars.
When the ultra wealthy write off their charitable deductions, that is money that can no longer go to infrastructure, public education or social security. While philanthropy is commonly understood as a way to transfer the wealth from the rich to the poor, that is not how it operates in practice. Billionaires are statistically more likely to donate to the arts and higher education and are far less likely than the average person to contribute to causes that help to feed and house those in need.
The wealthy will always have more money to funnel into various causes –– meaning they will always have a disproportionate amount of power and influence. Unfortunately, the rich will never have a meaningful incentive to solve the world’s problems or fix broken systems, considering they are the ones who benefit the most from them. If not for poverty, who would be willing to work in factories for just pennies on the dollar? Why would a billionaire, who has made his money off of oil and gas, want to see the country move toward renewable energy? Why would a class, made up of mostly white men, want to abolish the system of patriarchy and white supremacy that allowed them to gain power in the first place?
Ending tax deductions for charitable donations is a baby step, but it’s one in the right direction. We should no longer allow the wealthiest Americans to siphon away tax dollars in order to increase their own influence. Those who profit off of the world’s inequities will never have a true incentive to end them. Instead, it should be up to the American people to democratically decide where our tax dollars should go.
