Monday, January 24, 2011

Taxing Charities

Congress has reconvened and despite a patina of civility my guess is the combatants will shortly withdraw to their respective corners and come out fighting. As we know perhaps the biggest fight will be over the budget deficit. This is always good for lots of ink and some of the more inane ideas that flow from the lips of Congresspersons.

To effect significant deficit reduction spending has to be cut and taxes raised. Duh. The four holies of massive government spending are of course social security, health care, defense and the home interest deduction. Some sensible ideas have been advanced for the first that center on increasing the retirement age for new entrants into the system. That might have a shot. But cutting medicare/medicaid, defense and the home mortgage advantage are in my view much tougher nuts; I do not believe much will or can happen. Clinton erased most of the deficit because he benefited from a rapidly growing economy. Growth is the only realistic driver of deficit reduction.

The entrenched lobbies that drive both houses of congress are formidable. That means the deficit continues to grow but perhaps at a decreasing rate of increase as tax revenues recover as the economy enlarges and modest operational economies are realized in various programs - including cuts that don't require legislative action. Flailing away at so-called "entitlement" programs (in quotes because as my wife says "what 'entitlement?' We pay for both") will, we can be sure, cause the premature death of countless trees.

Meanwhile a number of quixotic notions intended to address the deficit abound. Among them is a proposal that charities be taxed. This is another non-starter because at the federal level a significant revamp of the tax code would be required. On its face that is a better than good idea because there is no way a proposal to tax charities would/could not trigger tax policy overhaul. Of the more than 1.2 million 501-c-3 organizations that file 990s - most are small. Only a tiny fraction have annual operating budgets exceeding $5 million.

  • How much tax revenue would charities generate?
  • A sliding tax rate or a fixed percentage?
  • Exempt religious organizations or not? God.
  • Forget "death panels:" TV images of starving orphans, abused kittens or closed emergency rooms - i.e. cutting services to pay taxes?I don't think so.
If taxing charities is the best idea Congress can conjure we are either in serious trouble or we can exit laughing.