Monday, May 14, 2012

Charity begins with a tax break

Gillian Tett had another thought-provoking article in the Financial Times magazine this weekend, this time touching on the subject of tax breaks on charitable donations. This issue has caused controversy in the UK recently, where the Chancellor of the Exchequer has announced plans to cap tax relief on charitable donations, but while attitudes on this issue vary enormously from country to country, the astonishing scale of tax relief on charitable giving highlights that debate on whether such tax breaks are worthwhile is long overdue.

Researchers in the USA have estimated the cost of federal tax breaks in that country amounted to $53 billion in 2012, and while some of that money may well have supported worthwhile causes, a large proportion will also have been spent on projects and programmes that ordinary people might not consider to be strictly charitable. As Simon Johnson and James Kwak note in their recent book book White House Burning:
"This ($53 billion) tax deduction is occasionally defended as a way of patching our meagure social safety net, but homeless shelters and soup kitchens compete for donations with the Metropolitan Opera, Harvard University and even politically oriented think tanks."
And the USA is not alone in granting large tax breaks for charitable giving. While tax deductibility is limited to 50 per cent of total income in the USA, in Canada tax deductibility on charity donations goes up to 75 per cent. What's wrong with that, you may ask? Well, as TJN noted in a recent letter in the Guardian

"A decent society should not have to depend on the largesse of the super-rich for its public services, cultural life or anti-poverty drive. Far from building accountability and democracy, philanthropy will only ever allow the funding of "pet projects".

Tax exemptions for the super-rich have helped foster inequality. The removal of such exemptions must form a small part of a wider quest for tax justice which would allow governments everywhere to provide public and cultural goods accountable to their societies."
As Johnson and Kwak comment in their book:

"In effect the (US) government spends $53bn on non-profit organisations - but lets rich people decide who gets the money".
This notion of charity being an alternative to paying tax seems to have taken deep root within the Anglo-American culture. Elsewhere, charity is more generally thought of as an addition to paying tax. As Tett notes:

"In much of Europe, 'charity' is instinctively seen as something which has a moral value, not a game played with accountants. Indeed, in a place such as Sweden, the whole concept of private philanthrophy, let alone tax breaks, evokes unease; voters think that it should be the state - not the ultra-wealthy - that provides aid to the disadvantaged."
For TJN these tax breaks are unjust and undemocratic. They clearly cost significant sums. They re-allocate government revenues to whatever whims are popular among the very wealthy. They fail to promote social justice. They sustain relations of dependency within already massively unequal and unjust societies. As we noted in our Guardian letter, in which we challenged the charitable sector on their widespread support for these tax breaks:

"It is time for the sort of very large charities who will be effected by the proposed tax exemption measures to stand up and be counted: the changes you purport to want cannot come about through your endless expansion, but by economic justice. Will you support justice over charity, public over private, democracy or dependency?"
You can read Tett's article here.


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