Debating the Wisdom of Federal Tax Benefits for Charities

The past couple of months have seen several commentators questioning whether the federal tax benefits for charities should continue to exist, either in their current form or at all. Here are some examples:

• As reported by Peter J. Reilly in Forbes, in December EO Tax Journal editor Paul Streckfus floated the idea that calling for repeal of Code section 170 in its entirety could be used by a presidential candidate to help separate themselves in what may be a crowded field. Reilly further reports that Streckfus made it clear in response to a follow-up inquiry that he supports this proposal, given that the deduction in its current form primarily if not almost exclusively benefits the wealthy who tend to give to the organizations that the wealthy themselves are interested in, such as their alma maters and, if they are very wealthy, their own foundations.

• Shortly thereafter, Peter Coy wrote an Opinion for the N.Y. Times titled The Thorny Questions Raised by Charitable Giving (subscription may be required). He flagged important issues, including the relative roles of government and philanthropy, whether to give locally or globally, and the balancing of giving fish with trying to teach someone to fish. He also noted that philanthropic priorities tend to be set by people with money, citing the effective altruism approach championed by Sam Bankman-Fried as an example, and the fact that the charitable contribution deduction is no longer available to most people of moderate means.

• Then in the Chronicle of Philanthropy, Jeff Cain wrote an Opinion titled End the Charitable Tax Exemption and Remove the Conflict of Interest Baked Into Big Philanthropy. He highlights the bipartisan opposition to the Accelerating Charitable Efforts Act among private foundations, and argues that “philanthropists can use their tax-advantaged funds to advocate for greater tax-incentivized charitable laws through the tax-exempt nonprofits they support. And they do.” He refers to this trend as “Big Philanthropy” and argues that the way to address it is “ending charitable tax exemptions and deductions of every kind.”

• Finally, Business Insider published an article titled How the Rich Have Their Cake and Eat It Too by Using Trusts to Give to Charity, Collect Cash, and Save on Taxes at the Same Time (subscription required), critically highlighting the tax advantages provided for donors to charitable remainder trusts. 

An interesting recent example of how philanthropy favors the wealthy, including through tax benefits, is the Bloomberg News article Billionaire Donates $1.9 Billion to Art Museum Where He Lives (subscription required). The story notes the tax benefits that come with a donation along these lines, although often creating a legacy is more important to the donors.

Lloyd Mayer