A new study from the Tax Foundation says that the federal tax deduction for charitable gifts is highly regressive and subsidizes many organizations that are questionably charitable.
"More than 75 percent of tax benefits from the charitable deduction go to the 12 percent of taxpayers with incomes over $100,000," said staff economist Andrew Chamberlain, co-author of the study, in a statement.
The study also found that few charities now subsidized by the charitable deduction provide services that wouldn't otherwise be supplied in the marketplace without a tax subsidy.
Nonprofit human services groups receive just 6.5 percent of charity revenue, while scientific research, civil rights and environmental quality groups receive less than 1 percent each. In contrast, hospitals and universities, which are not primarily charitable organizations, receive nearly 57 percent of charity revenues.
The President's Advisory Panel on Federal Tax Reform recently recommended expanding the charitable deduction in various ways. However, the study notes that those benefits come at a real cost to society. By shrinking the federal tax base, the exemption for charitable gifts forces up tax rates for everyone."There's no justification for subsidizing services that free markets will normally provide," said Chamberlain. "As Congress considers tax reform in the coming months, members should consider restricting the definition of charity to include only charitable organizations that provide clear public goods."The report is titled "Charities and Public Goods: The Case for Reforming the Federal Income Tax Deduction for Charitable Gifts." The full study is available at the Web site of the nonpartisan Tax Foundation, at www.taxfoundation.org/publications/show/1191.html .
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