As Tax Day is here, nonprofits are increasingly wondering if donations will drop. Many middle-class and affluent people no longer need to itemize, so just a tiny share of Americans will get a charitable deduction. What’s more, nonprofits are worried about another change from the 2017 law: the impact on benefits nonprofits provide employees to help cover transportation and parking costs of getting to work.
But few are paying attention to an issue far more central to the work of nonprofits: the debate about whether the wealthiest Americans should pay a bigger share of taxes.
Perhaps that’s because many billionaires argue that they can do more good through philanthropy than by paying taxes, with some actually having the audacity to equate the two.
At this year’s World Economic Forum in Davos, billionaire philanthropist Michael Dell weighed in on a proposed 70 percent marginal tax rate on annual incomes of over $10 million. Dell said he was “much more comfortable” donating through his private foundation “than giving … to the government.” Other superrich philanthropic donors, such as Mitt Romney, have said similar things.
Leaders of nonprofit organizations may claim that arguing for progressive tax policies doesn’t fall within their charities’ missions. Or they might be uncomfortable on the opposite side of tax-policy debates from their wealthy donors and those who work on their behalf in foundations and elsewhere.
But that reticence serves neither the common good nor the fundamental interests of all charities, which benefit from well-funded and well-run public programs. Philanthropy can never replace the trillions of dollars in cuts proposed by President Trump in the fiscal year 2020 budget or make up for the spending cuts that will be caused by trillions more in deficits that his tax cuts have helped create.
Inequality Concerns
Trump, Dell, and their peers in the top 1 percent of Americans — who hold as much wealth as the bottom 90 percent — stand against a sizable majority (70 percent) of registered voters who support higher taxes on $10 million-plus of yearly income and 61 percent of Americans who favor a separate 2 percent “wealth tax” on those with more than $50 million in assets.
Likely to the consternation of Dell, the 25th richest man in the world, an even slightly larger percentage of Americans think government should work to reduce the huge and growing wealth gap in our nation, even beyond raising taxes.
Some politicians are catching up with the emerging consensus that inequality has grown too stark in the United States. The richest 400 Americans, the top 0.00025 percent, own more than the 150 million adults at the bottom 60 percent of the economic ladder. Inequality has gotten so extreme that Ray Dalio, the billionaire founder of the world’s largest hedge fund, believes it’s such a threat to the American dream that the president should declare a national emergency.
Generosity Doesn’t Keep Pace
But what’s this got to do with charities and why should nonprofit leaders join the tax debate?
First, because despite some rich people’s assurances, donors’ generosity does not seem to be keeping pace with their increasing concentrations of wealth.
In 2015, “51.6 percent of charitable donations came from households with annual incomes of $100,000 and above,” according to the MarketWatch financial news website, while those households had 60 percent of earnings, according to an analysis of IRS data. Still other IRS data shows that in 2015 taxpayers with the lowest incomes (under $25,000) gave a higher percentage of their dollars to charity than the wealthy.
Higher taxes can lead to more giving because donations can be used to meaningfully cut a tax bill. For instance, in 2010 when the estate tax was not in force, charitable bequests dropped by 37 percent from 2009, only to increase by 92 percent the following year when it was restored. One expert has even observed that since recent tax law changes increased the level at which itemizing deductions makes sense, more than one-third of those giving at least $1,000 are doing so for the first time — likely to increase their charitable gifts enough to qualify for tax benefits.
Dell and his ilk want to rely on free markets and the philanthropy they control rather than on government itself and its more democratic public policy processes. In fact, “Evidence from identical questions asked in various surveys of the general public indicates that in this respect the wealthy tend to differ markedly from less-affluent citizens,” according to researchers at Northwestern University.
Trump’s Budget-Cut Plans
Nonprofit leaders should remember that Trump’s tax cuts have starved essential government programs and that his proposed budget, which violates his campaign promises, would only make things worse by scaling back Medicare (by $845 billion over the next decade), Medicaid (by $1.5 trillion, with only some of that replaced by ill-advised state block grants), and Social Security (by $25 billion).
While a huge outcry stopped a $17.6 million proposed cut from federal spending on the Special Olympics, that represents only 2 percent of the $8.8 billion that Trump wants to take from the Department of Education.
He has also proposed, among other things, slashing safety-net food programs by $220 billion and reducing federal student-loan programs by more than $207 billion over the next 10 years, as well as cutting the budget of the Environmental Protection Agency by 31 percent at a time when we face an already-devastating climate crisis.
The impact of these $2.7 trillion in cuts would be profoundly exacerbated if, as Trump wishes, the courts strike down Obamacare, which covers 8.5 million Americans and ensures coverage of pre-existing conditions for more than 100 million people.
These programs are central to the most vulnerable, those at the core of so many charities’ missions. Proposed wealth and income taxes could help restore funding for them, with just a tiny portion of Americans paying what’s needed.
Rep. Alexandria Ocasio-Cortez, Democrat of New York, is championing the 70 percent marginal income-tax rate, which would affect only about 16,000 taxpayers. That’s a tiny fraction of taxpayers, yet the new tax could generate about $720 billion over the 10-year budget period.
And a “wealth tax” proposed by Sen. Elizabeth Warren, Democrat of Massachusetts, would raise about $2.75 trillion over the next decade from about 75,000 households, less than one-tenth of the top 1 percent.
Promoting the Common Good
At Davos, Dell derided these proposals as radical, but MIT researcher Erik Brynjolfsson immediately countered that far from slowing growth, high U.S. tax rates in the second half of the 20th century coincided with the post-World War II boom. In fact, tax rates were 70 percent or more until the 1980s.
It is in the interest of every nonprofit organization to work for a more equitable and just nation, one that challenges the great concentrations of wealth in the hands of a small elite that often overrides the policy interests and the electoral preferences of the majority.
Good government depends in great part on generating new tax revenue through fair policies that rein in such inequity. Nonprofit leaders should do what they can to help the majority of Americans prevail over the wealthy’s efforts to increase their riches at others’ expense.
Mark Rosenman is a professor emeritus at Union Institute & University and a veteran nonprofit activist.