Tax deductions and the public good

As the United States is now officially in recession, could one of Barack Obama's proposals have the unintended consequence of obstructing efforts to help the poor, who will suffer most from its effects? Ryan Messmore argues, with some plausibility, that this could be the case: Obama's Proposal to Reduce Charitable Deductions Would Hurt Civil Society, Expand Government. According to Messmore:

The President claims that his tax plan will only have a small negative effect on charitable giving. Percentage-wise, this may be true, but the estimated reduction in giving means billions of dollars less each year for charities, especially if weak economic conditions continue.

Scholars at the Center on Philanthropy at Indiana University estimated that, had Obama's proposed changes been in place in 2006, total itemized contributions from wealthy households would have dropped almost $4 billion.

While this amount is only a small percentage of total charitable donations given each year, it represents more than the annual operating budgets of the American Cancer Society, World Vision, St. Jude's Children's Hospital, Habitat for Humanity, and the American Heart Association combined. Moreover, other scholars estimate that under Obama's proposal charitable organizations would see donations drop possibly by as much as $9 billion every year.

In addition to receiving less money from wealthy donors, charitable organizations under Obama's plan could face a more subtle yet significant challenge: government crowding them out of social welfare provision. This phenomenon occurs when government claims increasing responsibility for tasks once performed by civil society, absorbing a larger percentage of the resources dedicated to carrying out those tasks.

There is another important factor that Messmore does not mention. If the reigning ideological perspective holds that government is intrinsically secular and that whatever government funds must be free from the taint of "sectarian" religion, then the expansion of the public sector must necessarily come at the expense of those initiatives with an overt confessional basis. The result might be what the late Richard John Neuhaus famously called the naked public square, except that in reality it is nothing of the sort, because it is inevitably infused with religious conviction of some sort, even if the latter amounts to the belief that the cosmos can be understood without reference to God.

This secular religion comes now to be given a privileged status and a continually growing political and economic space, before which all the particular beliefs held by flesh and blood people — including Christians, Jews and other adherents of traditional revealed religions — must give way. That this effectively erodes religious freedom would seem evident, but many are ready to acquiesce in this for the apparent pragmatic benefits associated with government action. Yet if Messmore is correct, the expected benefits will prove illusory: little will be gained, but much will be lost.

If anything, the administration should be moving in the opposite direction. Recognizing that government cannot bear the entire burden of ameliorating the effects of a sluggish economy, it should instead be raising the charitable deduction rate for taxpayers to encourage a multiplicity of efforts at seeking the public good, leaving ample space for believers to put their faith into action in concrete ways that accord with their own traditions.