There are occupational hazards to writing about philanthropy.

One is that when I make a critical comment about donors, I run the risk of being chastised for passing judgment. I’m told it’s none of my business how people choose to be charitable, that I should stop picking nits and simply honor their good intentions. The most frequent phrase I hear: “Remember: It’s their money!

But is it really their money? For most major donors, not entirely. Let me explain.

First, let me tell you about my daughter Becky. (I usually don’t mention my kids in this column, but I will this once. Those of you who know me personally understand that I talk about them constantly.) Becky lives and works in San Francisco. Becky makes a good professional salary, but when she files her taxes she doesn’t itemize her deductions. That’s mostly because Becky’s not a homeowner, so she can’t claim what for many of us are the two largest tax deductions: mortgage interest and local property taxes. Instead, Becky takes a standard deduction. That essentially means that she can’t claim her charitable contributions as a deduction.

Now, let me tell you about my friend Bob. Bob has had a long career on Wall Street, and he makes lots of money and has lots of assets, including a very valuable home. Bob, of course, itemizes his tax return. And he’s in the top income tax bracket of 39.6%.

Becky and Bob each recently donated $100 to support a bike ride I’m doing for cancer patients. Becky’s $100 gift cost her $100. But because Bob itemizes his taxes, he can subtract the $100 from his income on his 2015 tax return. That means he won’t be paying taxes on that $100, which means he just saved $39.60 (based on his 39.6% tax bracket) by giving money to my bike event. So Bob’s $100 gift to charity cost him $60.40, and it cost the U.S. Treasury $39.60 in taxes it will not be collecting.

And if Bob had made that $100 gift with appreciated stock, he would have saved even more by avoiding the capital gains tax.

So when people who itemize their tax return – that’s about a third of the population, and, generally speaking, the wealthiest third – make a charitable gift, it’s a partnership. Part of the gift is paid for by the donor, and part is paid for by the U.S. government in uncollected taxes.

I caught some grief in an internet exchange the other day by calling this a government subsidy, but that’s exactly what it is. The government is incentivizing people to donate to charity by cutting, or subsidizing, their taxes. And the government subsidy for charitable contributions overwhelmingly benefits wealthy people. Again, you have to be rich enough to itemize your deductions in order to take advantage of the tax break. And the higher your tax bracket, the more you save.

Charitable giving is not the only area where the government supports certain behaviors through favorable tax treatment. That’s the philosophy behind IRAs and other retirement plans where you don’t have to pay taxes on the portion of your income you put away for retirement. Similarly, the government supports homeownership through the aforementioned tax deductions for home mortgage interest and property taxes. And the government also encourages saving for college by making earnings from 529 college savings plans tax free.

These efforts to encourage people to save for retirement, own homes, and pay for their kids’ college are all intended to support a social good. But we need to recognize that the vast majority of the benefits from these plans accrue to the wealthy. After all, if you have enough money to own a home, deposit money into retirement and college accounts, and itemize your deductions, you can take advantage of tax savings that a non-itemizing renter who lives paycheck to paycheck cannot. In fact, according to the Corporation for Enterprise Development, the top 20% of the population in terms of income receives 80% of the total benefit from these programs. And, most strikingly, the top 1% receives a full 25% of the benefit. In other words, the people who are most in need of these subsidies are not getting much help. And the rich, well, as is the trend, keep getting richer.

Which brings us back to how the government is heavily subsidizing charitable giving. We elect our government, we are taxpayers, and we are citizens. We are the ones providing the charitable subsidy. That gives us a speaking part. If we think a billionaire’s gift misses the mark, we should speak up. If we think a private foundation is hoarding its assets and paying its staff too much, it’s our duty to point it out. Because, after all, it’s our money, too.

Copyright Alan Cantor 2015. All rights reserved.

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