Americans gave away more money than ever before last year, donating $390 billion to charities. According to the Giving USA Foundation, the surge was largely driven by individuals as opposed to foundations, corporations, or bequests. According to a Gallup poll taken in 2015, almost two-thirds of Americans had donated money to a favored cause in the month before the poll was taken.
We are a charitable people. Especially on the individual level, this is a good thing, for the most moral way to help other people is to do so oneself, with individual sacrifice of time or money. It is not best done through involuntary taxes and impersonal government transfers. It has been wisely said, indeed, that one of the most baneful aspects of socialism is that it delegates compassion to the state.
It would be a shame if tax reform were to discourage, even punish, individual generosity by preventing people from deducting their charitable giving from their taxable income.
When President Trump outlined his tax reform proposal in April, he proposed the wise reform of doubling the standard deduction to $25,400 for married couples and $12,700 for individuals.
One virtue of that simple reform is that it reduces distortions in the tax code by making itemized deductions moot for most people.
For a church-going, middle-class family today, whose two earners make a combined income of, perhaps, $127,000 a year or more, it's relatively easy to tithe and then find it worthwhile to itemize their deductions, including for state taxes and mortgage interest. But double the standard deduction and suddenly almost nobody would get to write off their charitable gifts. For those who don't give away five-figures every year, the tax incentive to give anything to charity would be eliminated.
The standard deduction should still be doubled, but in addition to that, Congress should allow all charitable deductions up to 10 percent of income to be deducted above-the-line by anyone who uses the standard deduction.
This would ensure that even those who don't itemize their deductions still have a tax incentive to be charitable. The 10 percent threshold would set a benchmark of sorts. Just as people try to maximize their IRAs or HSAs every year, this charitable deduction would set a standard of giving 10 percent of individual gross income to charity.
We rarely advocate further complicating the tax code or even keeping deductions, but a tax incentive for charitable giving is important and should be treated differently than other less-worthy deductions. The charitable deduction is for money that's given away, similar to how one doesn't pay taxes on a paycheck that's lost before it's deposited. If you don't get money, you don't get taxed on it. If you give it away before you can use it, the same principle should hold.
Moving charitable giving above the line would probably increase charitable giving at the expense of taxpayer revenue. But that's the proper order or things. Generosity and voluntary sacrifice on the human, local, level ought to be the primary form of helping the needy. Government ought to come in only as a backstop.