One of the currently fashionable complaints about charitable and philanthropic giving of even left-leaning billionaires like Jeff Bezos is that the money does nothing to help the poor or reduce income inequality. James Piereson and Naomi Schaefer Riley in an essay at Commentary argue that charitable giving receives a tax deduction to encourage alternatives to government, not simply to help the poor.
They cite Justice Lewis Powell who found the tax deduction as “one indispensable means of limiting the influence of government orthodoxy on important areas of community life.” They go back to the creation of the tax subsidy in 1917, writing
the charitable deduction was not inserted into the tax code with the purpose of encouraging giving to the poor…. Heads of schools, colleges, hospitals, and other such enterprises warned that rich people gave their excess funds via charitable donations and would no longer do so because those excess funds were going to the government [ with the income tax]. They suggested there should be exemptions for gifts to charitable organizations—scientific, religious, and educational. Aiding “the poor” had little to do with it. Indeed, during the debate over tax reform in 1969, there were no real complaints that foundations should be doing more to help the poor.
Piereson and Schaefer Riley rue the loss of independence for nonprofits: “So pervasive is public funding of private charities that in many areas it can be hard to discern any meaningful distinction between public and private institutions. If the original purpose of the charitable deduction was to preserve the independence of private institutions as alternatives to government, then it is no longer fulfilling that vital purpose.” It is up to individual donors, foundations, and nonprofit leaders to restore the distinction between public and private institutions through public policy and private action. Or as one of the great competitors with government, Richard Cornuelle once said, “The spirit of community will be revived as we succeed in devising ways to reinvolve people in solving the perplexing problems they see about them, not just in talking about them, and certainly not in petitioning government to solve them.”