Poor Little Rich People

For those not flying in high tax brackets, rumours are in the air that, to make up for serious budget shortfalls, the government wants to limit eligible charitable deduction contributions for people in the top tax bracket. Museums and other charitable organizations have expressed concerns about this policy change because they think it may create a disincentive for giving, or will make people reluctant to give more than whatever the maximum deduction will be.

Let’s be clear about something. This is not a low cap:

Obama’s proposal would put a cap on the tax rate for itemized deductions at 28 percent for individuals earning more than $200,000 a year and couples earning more than $250,000.

People throw around a lot of reasons for the popularity of philanthropy. Among very rich people, one of the reasons people like to give amply and often is because they can use it to reduce tax liability. That’s not the only reason, but it’s obviously a big temptation. This, like many other tax tricks, primarily benefits wealthy people. Those of us slogging down here in the low brackets usually can’t afford to donate 28% of our income to charity because we need it to, you know, live.

The concerns on the part of organizations benefiting from substantial donations are not without merit. I’d say they are pretty sound, and expose the naked greed behind wealthy contributions to charity. People donating to charity often want to know what’s in it for them, because charity is more about them and their actions than actually making a difference in the world. Will organizations face a disappearance of big donors as rich people look to other methods to hide their income so they can avoid paying taxes?

Because they definitely will. Close one loophole, people will find another one, because that’s how they operate. It’s not that I think this idea, of limiting deductions for wealthy people, is totally pointless or a bad thing. It will definitely create more tax revenue, even as wealthy people continue to pay much less in taxes than the rest of us. And not just in percentages, either; I’m willing to bet that I paid more, in dollars, than many people in higher tax brackets last year. Because, unlike them, I don’t have access to methods to hide my income in order to reduce my tax liability.

What the reactions to this proposal illustrate is that the state of charitable giving is pretty sorry at the moment. Charity is often a performance for wealthy people; people must give publicly, they must be seen giving, they must receive recognition, for them to want to continue giving. And charity must have benefits for the giver, beyond the pleasure of knowing that their monies are funding important and useful things. Givers want their tax candy, and if someone takes the jar away, how many people will continue to donate at the levels that they are currently? What’s in it for them?

Another notable thing about NPR’s coverage of this topic is the stress on where people are most likely to feel the penny pinching: The arts. As the article points out, organizations like environmental charities are not likely to suffer, and likewise with a lot of other social justice organizations. People are not donating millions at one fell swoop to the ACLU to fund the construction of a new wing they can have named after them. The megabucks come out for museums and the like. Museums can certainly use the money and I don’t begrudge it.

I think it’s telling, though, to look at breakdowns of who contributes to what. Wealthy people give to the arts to feel better about themselves, to become patrons, to get their names in bronze over the door. The middle and working class give to organizations working to actively make the world a better place, organizations defending the rights of the environment, people living in poverty, prisoners, and other people not in a position to protect and defend themselves. We have little to give and many of us stretch to the limit to do so, not because we want some juicy deductions on our taxes, but because we think it matters and we believe it is important.

It’s also notable that many middle and lower class donors are reluctant to identify themselves and do not want attention. This is not the case with everyone, of course, but it does seem to be a trend. The focus is not on the benefits to ourselves, on becoming known as charitable people, but on getting funds to where they are needed. Getting money to an organization that can stretch that money and make it go as far as possible. Taking our dollars and using them to fight for a better world. Hell, some middle and lower class people I know don’t even claim deductions for their charitable contributions.

The structure of the tax system in the United States favors wealthy people. This is a pretty established fact. The question here is when poor and middle class people will finally reach the tipping point where they start to push for actual tax reform and a shift in the system. Just for example, the standard deduction is clearly too low, and exposes low income people to unreasonable tax liability. Many people are paying taxes when they shouldn’t be, because they are barely scraping by. Spotting headlines about galleries being sad about not getting more charitable donations is pretty galling in that situation, when you think about the fact that the tax liability those wealthy people avoid through their ‘selfless’ charitable contributions is equal to the wages of a minimum wage worker many times over.