The Economist Calls for Ending Charity Donation Tax Breaks

Over more than 20 years Sheldon Solow, an American property billionaire who died in 2020, gave a trove of art to his own foundation. This seemed generous: the public would be able to see works by masters like Matisse and Miró. Yet for years the gallery remained shut; even now it opens for barely more than one afternoon a week. The only real winner was Solow himself, eligible for tax breaks in return for his gifts. A similar study in ineffective altruism is Elon Musk’s foundation. Tax-deductible donations have built a stash of over $14bn, yet it mostly sits idle. What does go out is poorly targeted. The largest grant of 2024, worth $370m, went to a charity set up by Mr Musk whose main boast is a child-care programme near SpaceX’s Texas offices, serving ten tykes.

In 2020 American households earning over $500,000 a year claimed more than half the cash that government spent on income-tax breaks for charitable giving. As AI mints a new crop of billionaires, yet more plutocrats will be able to use these schemes to reduce their tax bills. Most donations go to better causes than private art collections. Tax-advantaged dollars support hospitals and keep foodbanks going. They even support services that the state would need to provide if charitable funding dried up.

But it is right to call time on such tax reliefs. In America alone they are likely to cost over $70bn in forgone revenue in 2026 (roughly the GDP of Alaska). There is flimsy evidence that these schemes prompt significant extra giving, the money is often misspent, and the result is more power for the wealthiest.