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Charity and taxation
Sweetened charity
The idea that the state should subsidise giving to good causes is resilient, but not easily justified
Jun 9th 2012 |
LONDON AND NEW YORK | from the print edition
"IT MUST be borne in mind," Britain's chancellor of the exchequer told the House of Commons in his budget speech, "that in every case exemption means a relief to A at the charge of B." This was, indeed, the heart of his case for taking away a tax break that benefited charities. "It is not fair", he went on, to impose the cost of the exemption, in the form of higher taxes, on "the fathers of families, men labouring to support their wives and children." This was all the more important because the gifts encouraged by the exemption were largely designed to bring a wealthy donor "credit and notoriety" which "otherwise he might not have enjoyed."
William Gladstone failed in this attempt to end the exemption of charities from income tax in 1863. He would not have been surprised when his successor, George Osborne, last week backed down on a more modest attempt towards the same ends. In his March budget Mr Osborne proposed a cap on the sum that rich people can deduct from their taxes thanks to their charitable donations, framing it as part of a strategy to crack down on wealthy tax dodgers. Britain's charities took up their cudgels, arguing that reducing the tax break would diminish donations and thus their ability to do good works. Charities are, by and large, more popular than chancellors. On this occasion, they protected their privileges, as they did in the 1860s (when, though the
Times thundered at Gladstone for his "perverse boldness",
The Economist approved of his plan: see
footnote).
But the British government is not the only one that charities have to worry about. In America historically generous tax incentives to donation are being questioned in a way not seen before.
"I'm expecting a big fight in Congress over charitable deductions and over the definition of charity. I?m very concerned," says Diana Aviv, the head of Independent Sector, an American trade association for charities. President Barack Obama has made a number of attempts to limit the amount of giving that the rich can deduct from their taxable income. And Ms Aviv says state and local governments are going further than that in attacking charitable tax breaks. There has been a sharp rise in demands from charities for so-called PILOTS (payments in lieu of taxes), which involve local governments threatening to withhold certain services from charities unless they "volunteer" to pay something into the government coffers (as they do, increasingly). According to the Lincoln Institute, a think-tank, such schemes have been introduced by municipal or other governments in at least 18 states...
