As a conservative, I’m heartened by President Trump’s commitment to tax reform. But as a licensed tax professional, I fear that we’ll miss a brass ring that is dangling closer to the carnival carousel than it has in decades. That brass ring is the tax code’s ability to liberate and embrace charities as substitutes for bloated government bureaucracies.
Yes, I really said that the tax code has that ability. The next step is for our GOP elected officials to prove that they trust the private sector more than they trust government. Here’s what I’m talking about:
Millions of taxpayers qualify for itemizing their deductions on their federal income tax return. The outcome of itemizing is simple, or at least the concept is. Our taxable income declines as we spend on eligible itemized deductions such as mortgage interest and donations to charity. Less taxable income means less tax.
Why then does the tax code discourage charitable contributions made by people who earn “too much” money or, looking at it another way, give “too much” to charity? Wouldn’t an expansion of the funds received by charities reduce the need for government services? For that matter, why does the tax code expressly forbid tax deductions for donations to charity that are made by taxpayers who can’t itemize? You might be shocked to learn that two-thirds of all taxpayers fall into this category, so they receive ZERO tax benefit from checks that they write to the Red Cross or St. Jude’s Children’s Hospital. They’re stuck with the so-called standard deduction — an esoteric manifestation of sketchy IRS logic. We’re all more motivated to give to charity when there is a tax savings than when there is not. Tax rules ignore this.
So why does the tax code work this way? There are two reasons. One is the short-sighted and misguided logic of politicians and bureaucrats who regard any lost dollar of tax revenue as a tragedy for all of mankind. Such thinking completely disregards alternate uses of that dollar. The other reason is utter terror on the part of some that faith-based charities will acquire a greater role in our society. Never mind that such charities are vastly more efficient and effective. Many people would seemingly rather see a person starve than to have him or her so much as brush up against gospel principles. This is one of the great tragedies of our time. It is also one of the great opportunities.
I’m suspicious of anyone who would rather see money flow to the government than to charities. Aren’t you? The IRS doesn’t write our tax laws. Legislators do. Let’s challenge them to lead us to a better solution.
Joe Kent is a licensed tax professional and founder of the Michigan Taxpayer Coalition.