Our take: Similar to another argument made by the Alliance for Charitable Reform, a recent post by Alexander Reid on Alliance for Charitable Reform claims that the charitable deduction should not be messed with. Reid explains that many times we misconstrue contributions to charities as subsidies. But he claims that this is the wrong way of thinking about charitable donations. "As Wall Street waits with bated breath to learn the details of the fiscal cliff negotiations happening right now in Washington, the fate of American civil society hangs in the balance. Will Speaker Boehner and President Obama spare the charitable deduction? Or will they sacrifice it to pay for tax cuts and government spending?" the article begins. "As I argue in my forthcoming article 'Renegotiating the Charitable Deduction' to be published in the January edition of the Exempt Organizations Tax Review, proposals to reform the charitable contribution deduction tend to confuse the purpose of the charitable deduction with its economic effects," Reid wrote. "The purpose of the deduction is to ensure government neutrality toward American civil society by exempting charities and the gifts that sustain them from taxation. The effect of this neutrality is to reduce the cost of giving. That economic effect, however, has been misconstrued by some who believe that the purpose of the charitable deduction is to provide a subsidy to philanthropists, many of whom are wealthy. "Subsidy is the wrong way to think of the charitable deduction because it leads to troubling constitutional problems such as the separation of church and state. Worse, subsidy theory puts civil society under government control, for, as Alexander Hamilton wrote, '[t]hat power which holds the purse strings absolutely, must rule.' (Letter from Alexander Hamilton to James Duane, (Sept. 3, 1780).)"
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