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Government giving gets Robin Hood all wrong

by Chuck Bentley December 24, 2012

By Chuck Bentley——Monday, December 24, 2012

Killing incentive to give will hurt the poor, not the rich.

A fundamental misunderstanding of the Robin Hood legend in the current discussion of tax policy undergirds a mistaken idea, too rarely evaluated—that hurting the “rich” helps the “poor.” Right now, this is played out in proposals to reduce tax deductions for charitable giving.

Government-spending advocates argue that they should be able to seize more funds from the wealthy by limiting deductions for nonprofit giving. The “rich” will hand over their money to the government in higher taxes and continue to give charitably, and the “poor” will receive largesse from both.

government giving gets robin hood all wrong

This strained reading of Robin Hood makes several very flawed assumptions, including the idea that government is an effective source of help for the poor and that wealth builders deserve to be penalized. In fact, the Robin Hood of legend took back from tax collectors the money seized from the poor and returned it—a medieval tax refund. The heroic act was helping people keep their own money, unjustly seized by the ruling class who did not use those resources to help the needy.

When it comes to real help, just who is most effective? This is the deeper question begging an honest answer.

The government’s so-called war on poverty has yielded more people in poverty, creating a vicious cycle of despair. “Federal spending on more than 80 low-income assistance programs reached $746 billion in 2011, and state spending on those programs brought the total to $1.03 trillion,” according to the Congressional Research Service and Senate Budget Committee.

Welfare is now the largest expenditure of federal dollars, bigger even than Social Security and basic defense spending. Today, an estimated 1 in 6.5 Americans is on food stamps, according to figures released in September. Compare that to 1 out of every 50 Americans on food stamps in the 1970s.

Also helping have been food banks, homeless shelters, Catholic Charities, faith-based hospitals, battered women’s shelters, churches, synagogues and ministries of all kinds—a network of organizations committed to doing unto others as you would have them do unto you. This vast network of resources from the private sector has become a tangible expression of the Golden Rule. These organizations represent love in action by offering a diverse array of services and genuine compassion for emotional needs as well.

Charitable organizations are now facing a crisis of their own, however, given the repeated proposal by the Obama administration to cut or substantially reduce the charitable giving deduction, presented in its budgets and now in its negotiations over the “fiscal cliff.”

Even politically speaking, this is a mistake. Three out of 4 Americans do not favor cutting, capping, or limiting the charitable tax deduction, according to a survey by Dunham+Co., a consultant group to charities. It is not just about assistance for the poor. At stake are jobs created through the generosity of Americans.

“It’s important to remember that 1 out of 10 jobs in America come from the charitable sector,” said Rick Dunham, president and CEO of Dunham+Co. “Charities are much more efficient in delivering social good as independent studies have shown that 70 cents of every dollar goes to recipients of charitable services compared to only 30 cents of every dollar from the government.”

Unmoved by governmental ineffectiveness, the White House set its eye on collecting an additional $291 billion over the next decade by cutting the charitable giving deduction, despite Congress’ repeated rejection of the idea. Inexplicably, that attempt to bring in less than $300 billion over a decade could put at risk the $300 billion that Americans donate to nonprofits each year. In fact, the top 2 percent of taxpayers donate more than $100 billion to support the work of nonprofits, providing a real benefit to all.

The Obama administration’s plan to cut the deductions available to wealthy givers ignores completely the fact that the ability of major donors to provide real help is an American asset, not a tax shelter. Without that support, real people will be hurt.

Dunham+Co. found that 33 percent of donors overall said they would reduce their giving if the deduction didn’t exist, and that number rose to 40 percent for donors ages 40 to 59. Giving is already down across the country, in decline from a peak of $311 billion in 2007. This year, the fiscal cliff is frightening people into holding on to their cash.

The top four reasons cited for reducing charitable giving this year were concern for health care costs (36 percent), personal financial situations (35 percent), uncertainty over the economy (34 percent) and the prospect of the “fiscal cliff” (32 percent). But those worrying over their stagnant resources will not be the most hurt. Those deemed “rich” may hold on to their cash, but the poor will feel the pain.

More than 100 years ago, the U.S. government wisely created the tax deduction for charitable giving, understanding that you get more of what you pay for and less of what you tax. With that encouragement, Americans became the most charitable givers in the world.

In its second annual study of 153 countries, the Charity Aid Foundation concluded that the United States has demonstrated “strong” behavior across all three criteria measured—volunteering, helping strangers, and donating money. The tax break might not have caused acts of good will—but it didn’t hurt.

While it is true that most Americans do not practice the biblical model of tithing 10 percent, Americans on average give about 2 percent of their income to help others. Such acts connect people to the needs of others and remind them that there is more to life on this earth than the acquisition of things.

It is not just that government fails miserably at handling the needs of Americans. Detaching ordinary people from the responsibility to give to those in need allows us all to become more self-centered and hardened to the pain around us. It gives an excuse to walk by the needy, rationalizing that it’s Uncle Sam’s problem.

America has unwisely spent more money than it takes in and failed to address the reality that political promises come with a steep price tag. A budget crisis exists, and it needs to be solved. It will not be the “rich” who suffer if the charitable giving deduction is ended. It will be those most vulnerable who will lose the blessings of help provided through the private sector. This is no Robin Hood plan—it will take from the rich and the poor alike.

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