WASHINGTON -- Forget for a moment the controversy President Bushignited when he suggested that the government should give religiousgroups a bigger role in solving America's social problems.

Consider something else he proposed the same day that has gottenmuch less attention, even though it would affect many more Americans:allowing everyone a tax break for charity.

At first glance, the idea seems so fair and logical that you have towonder why it isn't being done already.

Under current law, only taxpayers who tend to be well off -- thosewho itemize deductions -- are permitted to claim deductions for moneythey donate to charity.

But the vast majority of taxpayers -- those who use a standarddeduction calculated by the government -- are not allowed a break forcharitable contributions.

That, Bush suggested, is not only unfair to the tens of millions ofAmericans who don't itemize their taxes. It also is silly, he suggested,because it discourages people from giving to charity.

Sure enough, the day after Bush's announcement, a national coalitionof nonprofit groups and corporate philanthropy programs happily hailedhis proposal and issued a study by a major accounting firm estimatingthat expanding the tax break would increase annual donations to charityby $14.6 billion.

"Of all the proposals the president has put forward, this one willhave the greatest impact on stimulating new giving," said Sara E.Melindez, president of Independent Sector, which commissioned the studyby PricewaterhouseCoopers.

So why would anyone oppose such a reasonable idea? Turns out thereare some reasons worth weighing.

"It has a lot of political appeal, there's no doubt about that,"says Sheldon S. Cohen, a former commissioner of the Internal RevenueService. "But it's an idea which has been studied many, many times. Andeach time it comes up there are a number of problems. ... The problemwith the Bush administration is it's coming in quick and it's notprepared and nobody's studied these problems."

The first problem, Cohen says, is that the fairness issue ismisleading. People who don't itemize their taxes already get a pre-setstandard deduction that assumes they are donating some money to charity,he says. In exchange for taking a pre-set deduction, taxpayers arespared the burden of proving they're eligible for particular deductions.

"The point of the standard deduction is to get people out of keepingrecords," says Cohen. "Everybody wants a simpler tax return and a simpletax system and then they keep adding these curlicues that make itcomplicated."

Second, he says, expanding the tax break would greatly increasecheating because tens of millions of Americans would start claimingdonations that IRS agents would have a hard time verifying.

"These numbers are going to be so small that it will be impossibleto check them," says Cohen. "You can't send a revenue agent to look fora $75 item. So you know that there will be cheating. Once it gets aroundthat nobody ever looks at this deduction, everybody will claim it."

Of course, people who already itemize charitable contributions canalso cheat. But Robert McIntyre, head of Citizens for Tax Justice,another group that opposes the expanded tax break, says the odds ofcheating are lower among itemizers because they generally earn moremoney and claim multiple deductions. That means the IRS is more likelyto watch them.

"It's a smaller subset of the population and there's more gold to befound there," says McIntyre. "So they're more likely to be audited."

Advocates of Bush's plan don't entirely dispute these arguments.They say, rather, that the arguments have some holes, and that overall,the benefits of encouraging charity outweigh the drawbacks. Melindez,for example, challenges the notion that cheating will become a muchbigger problem if the tax break is expanded to non-itemizers.

"The people who do the most cheating are those who can hireaccountants and lawyers to help them do it," she says.

And she says that while the standard deduction may have beendesigned decades ago with an assumption that most people give tocharity, nobody can say whether it accurately reflects now what peopleactually give.

Leslie Lenkowsky, a professor of philanthropic studies and publicpolicy at Indiana University, says charitable giving would increaseunder Bush's plan, but not as much as the Independent Sector studysuggests. The best incentives for increasing donations to charity, hesays, are a strong economy and a culture that encourages people to getinvolved with charities in their communities.

"People give to things that they're connected to," he says.

Lenkowsky, who advised the Bush administration on some aspects ofits faith-based initiative, says he supports expanding the deduction butdoesn't regard it "as a be-all or end-all." To allay the fears ofcritics, he suggests the tax deduction be expanded and the IRS do arandom sample of returns afterward to see if fears of increased cheatingare justified.

For his part, Cohen is not optimistic about what such a study wouldfind. In the end, he says, politicians who support an expanded tax breakare likely to find that everything has a cost.

"We are doomed to make hard choices," he says. "Politicians hate tomake hard choices. So they make easy choices and they make a hard taxsystem."
Join the Discussion
comments powered by Disqus