Chronicle of Philanthropy Op-Ed:  Finish the Charitable Tax Exemption and Take away the Battle of Curiosity Baked Into Large Philanthropy, by Jeffrey Cain:

The genius of American philanthropy, it’s usually stated, is that just about all Individuals, of each earnings degree, give. However the tax exemptions and deductions within the Inside Income Code will not be for all Individuals, the overwhelming majority of whom don’t itemize their federal earnings taxes or declare the charitable deduction. Few will ever begin their very own basis or open a donor-advised fund. Most don’t have a tax accountant, philanthropic adviser, or personal checking account.

As an alternative, the formidable physique of tax-exempt legislation, coverage, and regulation created in the course of the previous 100 years supplies the framework for Large Philanthropy. This isn’t solely about America’s wealthiest philanthropists and largest foundations. It’s, relatively, the system of charitable giving that bestows tax privileges upon donors in change for his or her charitable contributions. And it’s a system powered by the battle of curiosity inherent in these tax legal guidelines.

With most surveys displaying public belief in nonprofit establishments in historic retreat and the variety of households that give in decline, it appears affordable to ask: What’s the way forward for tax-incentivized Large Philanthropy?

Modest makes an attempt at change have up to now confronted formidable resistance. Think about philanthropists Laura and John Arnold’s Initiative to Speed up Charitable Giving [more here, here, here, and here], which might improve giving by selling higher accountability and fixing inefficiencies within the tax legal guidelines. …

[T]he Arnolds’ initiative has gone precisely nowhere. Laws influenced by the proposal — the Accelerating Charitable Efforts Act — languishes in Congress. And to Large Philanthropy, the plan was useless on arrival. Of the 85,000 personal, household, and group foundations in America, the Initiative to Speed up Charitable Giving web site lists fewer than 20 basis members. Foundations from each liberal and conservative viewpoints have come out towards it. The Council on Foundations opposes the laws primarily based on the Arnolds’ proposal as a result of it provides “complexity and prices for foundations and donors.” The Philanthropy Roundtable warned that “this proposal would severely hamper Individuals’ capacity to offer to causes they care about.”

The Arnolds’ proposal has run into the identical Large Philanthropy buzz noticed because the cap on deductions included within the Trump administration’s 2017 tax cuts. A flurry of studies, press releases, and op-eds foretold the collapse of charitable giving if the proposal grew to become legislation. That didn’t occur. In 2019, Individuals contributed $450 billion to charity, the second-highest quantity ever on the time in inflation-adjusted {dollars}. “Folks donate once they have extra after-tax earnings and when the financial system is powerful,” the Tax Basis reported in 2020, “not when they’re induced to take action by the tax price.”

Why such bipartisan opposition amongst America’s elites to comparatively minor modifications within the tax code? Why is it that nonprofit organizations funded by George Soros, the Gates Basis, and Charles Koch stroll in lockstep in terms of opposing modifications to tax-incentivized Large Philanthropy?

The elemental purpose is the battle of curiosity baked into the tax code’s charitable exemption. Underneath this method, the very nonprofits that philanthropies are required to fund could in flip use their tax-exempt {dollars} to advocate, educate, and even foyer in assist of tax-exempt charitable legal guidelines that, in flip, profit the nonprofits’ main donors. In different phrases, philanthropists can use their tax-advantaged funds to advocate for higher tax-incentivized charitable legal guidelines by the tax-exempt nonprofits they assist. And so they do. …

Coverage makers and the skilled philanthropic class ought to cease taking part in cat-and-mouse video games and as an alternative embark on a daring new mission: take away the battle of curiosity inherent in tax-incentivized Large Philanthropy by ending charitable tax exemptions and deductions of each variety. This variation would lead rich Individuals to emulate the giving habits of the 90 % of Individuals whose charitable giving is made with after-tax {dollars}. Eradicating the charitable-exemption lid will inaugurate a brand new period of higher giving — and it’ll enable the impartial sector to lastly reside as much as its title.

https://taxprof.typepad.com/taxprof_blog/2023/02/end-the-charitable-tax-exemption-and-remove-the-conflict-of-interest-baked-into-big-philanthropy.html