Despite all of the varying opinions espoused about the ideal nature of a tax system, one thing seems clear: People do not particularly enjoy paying their taxes. Even liberals who are vehemently opposed to the Bush tax cuts don’t relish the thought of giving upwards of 30 to 40 percent of their income to federal, state and local governments. Although many see taxes as a social and moral imperative, there is still the widespread perception of the government itself as a bloated and wasteful bureaucracy that is not worthy of such a high level of financial support.
So naturally, regardless of political considerations, individuals tend to do anything that decreases their own tax bill, such as making charitable contributions to non-profit organizations (i.e. Duke). Currently, the tax code allows almost any contribution to be deducted from a person’s income, lowering the federal taxes (among others) they owe by up to 35 percent of the amount of the contribution. Director Phillip Buchanan of the Office of Gift Planning said, “it only costs the [average] taxpayer about 70 cents to give $1 to Duke” with the current system. Although Buchanan emphasized that the current situation is somewhat complex, the tax code still effectively subsidizes donations at the same rate the donation would have been taxed had it been counted as income.
However, recently proposed changes to federal tax codes significantly threaten this stream of charitable donations upon which Duke and the entire non-profit sector are dependent. During his presidential campaign, George W. Bush played on Americans’ resentment of taxes and promised to “simplify” the tax code to make it more “pro-growth.” We are just now starting to learn what exactly that “simplification” entails.
Proposals currently under debate in Congress and statements by the Bush administration indicate that Bush and his allies are seeking to transform the current progressive income tax into a consumption tax or into a flat tax with charitable giving provisions that are either stripped down or non-existent. Such changes were recently partially endorsed by Alan Greenspan as one way to boost the economy.
However, such irresponsible changes have the potential to drastically decrease donations to and undercut the support for everything from soup kitchens to major research universities. Duke is particularly dependent on such contributions, as it is trying to increase the size of its endowment while funding the multi-billion dollar operations of the University that cannot be sustained on tuition alone. Research conducted by Duke public policy, economics and law professor Charles Clotfelter suggests that various proposed changes in the tax code could “depress individual contributions by as much as a fifth,” and that other proposed changes to estate and gift taxes could depress some contributions by “more than a third.” Clotfelter believes that almost any proposal currently under consideration “would have significant and adverse impact on the nonprofit sector.”
For Duke, which has received billions of dollars in individual contributions of cash, stock and other assets, these differences could amount to shortfalls of tens of millions of dollars every year. Just imagine if $400-$600 million of the $2.36 billion Campaign for Duke had never materialized due to a tax code that was less conducive to giving. Even if donors continued giving to Duke at the same costs to themselves, Duke would most certainly still be adversely affected if tax incentives for giving were curtailed. “Any significant reduction in the tax benefits allowed for making charitable gifts to Duke and other worthy organizations will greatly reduce the financial support for those charities,” said Buchanan.
For the sake of universities and the rest of the non-profit sector, the tax code should not be changed in a way that eliminates incentives for charitable giving; Duke and other universities need to take an active role in ensuring the equity of any new tax policy—for their own futures, if not any other reason. While Bush is correct that there are significant problems with the current system, changes should not be made at the expense of organizations that provide invaluable services to our society—especially while the government itself is lessening its support for the same services in favor of lower taxes.
Elliott Wolf is a Pratt Freshman. His column appears every other Tuesday.
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