Tuesday, April 14, 2015

"Your Gift is Tax Deductible"

“Your Gift is Tax-deductible”

With this phrase—“Your gift is tax-deductible”—many novice fundraisers hope they have put forward the final unassailable argument for making a donation.  “Your gift is tax deductible” falls right after “We do good work” and “We help people” in the lexicon of not very useful arguments in favor of donating.

There are three problems with this phrase, and here they are in ascending order:

1) Your gift to any of the now 783,000 public charities (with 501(c)3 tax designation) that currently exist in the United States is tax deductible.  Tax deductibility does not make any one organization particularly special.
2) Your deduction is based on your tax bracket, so the higher the bracket the more you can deduct.  Seventy percent of Americans file a short form and, thus, do not get to deduct their donations.  That promise is simply not true for most of your donors.
3) Suggesting that a benefit of giving away money is that the government has less money should not be attractive except to anti-government ideologues.

The charitable deduction grew up alongside the introduction of income tax, which itself was first put into place to help pay for the Civil War.  The first income tax (2% on income greater than $4,000) was instituted in 1861 but a year later was ruled unconstitutional.  Years later, in 1913, the 16th Amendment was passed which gave Congress the legal authority to collect income taxes. The highest rate was set at 7%, and only the top 10% of wealthy Americans had to pay. In 1917, to pay for the cost of World War I, the top tax rate was raised to 77% and shortly after that, the charitable deduction was introduced to help the war effort by encouraging people to make donations to the War Chest and to the Red Cross.  Until 1944, everyone could take advantage of the charitable tax deduction, but to pay for World War Two (are you starting to see a pattern?) income tax was expanded and the highest tax bracket was set at 94%. However, only that portion of a person’s earnings above $400,000 were taxed at that rate.  

About 70% of all Americans had to pay some income tax and could deduct their charitable giving, but to simplify filing taxes, in 1944 Congress created the “standard deduction” which essentially gave all taxpayers a fixed amount they can deduct from their taxes. Currently, only about 30% of taxpayers are able to deduct more than the standard deduction of $6,200, and they are the only ones that actually receive any direct tax benefit for their donations.  In recent years, the highest tax bracket is only 35%, so even the very rich have far bigger and better loopholes for avoiding taxes than the charitable tax deduction.

All this helps to illustrate why I am most concerned about the point I raise in Problem #3: that taking money out of the tax stream and giving it to a non-profit should be seen as a positive action.  Let’s face it: any human being who lives in the United States and, from time to time, walks on the sidewalk, drives on a road, eats in a clean restaurant, takes the escalator instead of the stairs, or drinks clean water from a faucet, is the recipient of some of the good that taxes do. There is a giant infrastructure that makes life in this country possible, from ambulances to fire departments to public schools to national parks and more—all made possible by taxes.  Taxes are not perfect and they are certainly not perfectly levied.  No one agrees with all of the things taxes pay for and none of us are happy when some people (including corporate persons) don’t pay their share.  But imagine a country without taxes and think about the quality of life you would have there.

We who work and volunteer for nonprofit organizations have a particular stake in any tax discussion.  Many economists will tell you that they can predict how many homeless people a town will have, how good their schools will be, how thriving their arts and culture will be, even how well lit their streets will be, just by looking at their tax structure.  Taxes are a mirror of community values. Poor schools, inadequate health care, a degraded environment are all reflections on our current tax and budget structure.

The nonprofit sector is asked to pick up the pieces caused by poor tax policy.  Cuts in food stamps?  No problem—the food pantries will take care of that.  Terrible public schools?  No problem—PTAs will raise money for art program, music and libraries.  A minimum wage that does not keep you out of poverty?  That’s ok.  Nonprofits will fill in the gaps.

We have been asked to do more and more with less and less for decades.  We need to stop doing that.  We need to teach ourselves and our constituents what fair and just tax policy would look like, to think about what taxes could pay for that foundation grants and grassroots fundraising will never be able to cover, and we need to encourage people to be proud of the taxes we pay.

So this April 15, help a donor understand that the common good, the society we all want, requires appropriate taxation, and say with pride, “I LOVE TAXES.”   

Resources for this article and a lot more very helpful information:
http://ihearttaxes.org/hooraytaxes, www.compasspoint.org/nonprofitstalkingtaxes, www.nationalpriorities.org/,//toomuchonline.org/  

Thursday, April 2, 2015

A Commons View of a College Education
       I teach part time at UC Berkeley, and my classes are my favorite part of the week. So when I learned that the White House is proposing a program called “America’s College Promise,” where students could go tuition free for two years to community college, I was delighted.   But I have to question the reasons behind this important program, which have to do with earning power.
        The Pew Research Center has published a study showing the effect of a college education on salary. Their research shows that the median income for full time workers, ages 25-32, with a bachelor’s degree or higher is $45,500; with a two year degree or some college, $30,000; and for high school graduates, $28,000. Millenials with only a high school education are four times more likely to be unemployed than their college educated counterparts, and far more likely to be living in poverty (21.8% of millenials with a high school diploma live at or below the poverty line, compared to 5.8% of college graduates.)  www.pewsocialtrends.org/2014/02/11/the-rising-cost-of-not-going-to-college/sdt-higher-education-02-11-2014-0-01/)
       Since having a bachelor’s degree seems to make a great deal of difference in the financial quality of your life, it seems logical that getting as many young people into colleges and universities makes sense. A college degree is a commodity and a person who has one becomes more valuable than someone who does not.
From a commons point of view, there are three things wrong with this frame:
1) People should go to college because they want to learn things that can be learned there. Making a BA a ticket to higher pay means also that some majors (i.e. Business, Engineering) will be worth more than others (i.e. History, Comparative Literature). Many universities embrace this, requiring each major to be its own cost center which means that unless enough students major in that subject, it will not be taught. I majored in Religion and Classics—two areas of study no longer available at the college I attended because they didn’t generate enough money. Making a college degree a commodity undermines the very function of a higher education which, to paraphrase John Henry Newman, is to impart the tools to live a principled, significant and meaningful life and thereby to ultimately and collectively improve our society. A broad general education cultivates respect for the variety of different disciplinary approaches to the same questions.
     Simply speaking, we don’t want everyone majoring in hammers and seeing every problem as a nail.
2) There are hundreds of thousands of necessary jobs that do not require a college education, and the people that work in these jobs are often paid very poorly.  Further, there are many technical and vocational careers that require training and lead to certification that are not available from a college or university.  To maintain the commons, someone has to clean the public bathrooms and someone has to sweep the streets.  To maintain infrastructure, both private and public, someone has to understand plumbing and electricity. Contractors, roofers, gardeners, janitors, clerks, waiters, housekeepers:  this is all work that has to get done and someone is going to have to do it.
        The United States has fetishized a college degree as the path out of poverty and trained a generation of young people to go to college no matter the cost, the debt, or even the desire.  This will not provide a path out of poverty for all college graduates and it avoids the question of guaranteeing adequate compensation for other kinds of work.
3)  Not everyone wants to go to college. Some of my students have confided in me that they don’t want to be in college.  One said he wanted to be a plumber but he was the first in his immigrant family to be able to go to college and so he felt he had to.  Another said she liked the freedom of being a waitress and being able to pursue her art that way, but her parents did not see this as a legitimate choice.
       What I would rather see as America’s Promise is this:  anyone should be able to go to college who wants to and all young people should be encouraged to do so.  However income should not be based on education.   People should be able to make good money, with good benefits by doing work that needs to get done whether it requires a college education or not, (a lesson unions taught us years ago) and respect should be accorded to everyone who works to maintain, restore or improve our collective commons and our quality of life.