ONE OF the many places where the administration's economic program may cause some disruption is the world of private philanthropy. This is because a good deal of private giving -- over $10 billion this year -- is actually financed (and perhaps twice that amount is influenced) by the provisions of the tax code that allow individuals to deduct charitable contributions from their taxable income.
The administration's plan to reduce maximum tax rates is the main concern. A gift by an individual in the top 70 percent bracket now costs him only 30 cents on the dollar. The rest of the gift is reimbursed to the giver in the form of lower taxes and, thus, is paid indirectly by the general taxpayer. Lowering the maximum tax bracket to 50 percent, as the administration proposes, will raise the direct price of giving to 50 cents on the dollar. Associated cuts in the captial gains tax will also reduce the financial attractiveness of donating highly appreciated assets to charity instead of selling them. Since it's always easier to be munificent with other people's money, the lowering of tax rates would, considered by itself, probably cause a decline in contributions to the philanthropic institutions that are the principal beneficiaries of high-income givers.
There are, however, other more important factors than tax rates influencing private giving. These range from pure altruism to the apparently gratifying sight of one's own name on the program for the annual charity ball.Private giving has lagged behind income growth for some years, perhaps, in part, because of the uncertainties and pressures of rapid inflation -- something the administration hopes to change. Government spending has kept most charitable institutions flourishing, but the budget cuts in the offing may act as a stimulant to private support.
Nonetheless, the concern is real. Since it is unlikely to check enthusiasm for cutting high-bracket taxes, attention has shifted to providing greater incentives for giving at lower income levels. A heavily lobbied proposal under consideration for the administration's "second-round" tax package would allow the 65 million taxpayers who take the standard deduction to claim a deduction as well for charitable gifts.
This would be a bad deal for the general taxpayer. Most mid- and lower-bracket taxpayers already give to charity, and their donations total in the billions. Since these gifts would then be deductible, a large part of the cost of the deduction would pay for something that is already happening. It is unlikely that additional giving stimulated at these income levels would exceed the total cost to the Treasury.
Increased giving at these income levels is also unlikely to replace the type of donations made by the better-off. Over two-thirds of contributions made by middle- an d lower-income families go to churches and religious organizations. No change in tax policy is likely to stimulate these families' interest in the alma maters and art museums favored by the rich.
If private charity, like public spending, now faces a time of belt-tightening, there is also much room for savings. Some charities, the direct-mail fund-raisers in particular, are grossly inefficient. And, as a privately sponsored commission on philanthropy noted in its 1975 report, accountability in the world of private giving is generally inadequate.
The threat to private charity from changes in the upper reaches of the tax code is far from clear. If the danger is real, tinkering with incentives in the middle and lower brackets is neither an efficient nor effective remedy. At a time when the tax accountant is the constant companion of the fund-raiser, it may be well to remember that in the heyday of private philanthropy there was no income tax, and hence no charitable deduction at all -- and private charity was really private.