Why Charity Doesn't Begin at Home

An acquaintance of mine who just returned from the Clinton Global Initiative in New York told me she was so inspired by all the charitable contributions pledged during the event that she had decided that charity was a more important means of dealing with poverty -- around the world as well as here in the United States -- than government action. That struck me as a curious conclusion. While charitable donations in the United States this year are expected to total more than $200 billion, a record, a big portion of this impressive sum -- especially from the wealthy, who have the most to donate -- is going to culture palaces: to the operas, art museums, symphonies and theaters where the wealthy spend much of their leisure time. It's also being donated to the universities they attended and expect their children to attend, perhaps with the added inducement of knowing that these schools often practice a kind of affirmative action for "legacies."

I'm all in favor of supporting the arts and our universities, but let's face it: These aren't really charitable contributions. They're often investments in the lifestyles the wealthy already enjoy and want their children to have too. They're also investments in prestige -- especially if they result in the family name being engraved on the new wing of an art museum or symphony hall.

It's their business how they donate their money, of course. But not entirely. Charitable donations to just about any not-for-profit are deductible from income taxes. This year, for instance, the U.S. Treasury will be receiving about $40 billion less than it would if the tax code didn't allow for charitable deductions. (That's about the same amount the government now spends on Temporary Assistance for Needy Families, which is what remains of welfare.) Like all tax deductions, this gap has to be filled by other tax revenues or by spending cuts, or else it just adds to the deficit.

I see why a contribution to, say, the Salvation Army should be eligible for a charitable deduction. It helps the poor. But why, exactly, should a contribution to the already extraordinarily wealthy Guggenheim Museum or to Harvard University (which already has an endowment of more than $30 billion)?

A while ago, New York's Lincoln Center had a gala supported by the charitable contributions of hedge-fund industry leaders, some of whom take home $1 billion a year. I may be missing something, but this doesn't strike me as charity. Poor New Yorkers rarely attend concerts at Lincoln Center.

It turns out that only an estimated 10% of all charitable deductions are directed at the poor.

So here's a modest proposal. At a time when the number of needy continues to rise, when government doesn't have the money to do what's necessary for them and when America's very rich are richer than ever, we should revise the tax code: Focus the charitable deduction on real charities.

If the donation goes to an institution or agency set up to help the poor, the donor gets a full deduction. If the donation goes somewhere else -- to an art palace, a university, a symphony or any other nonprofit -- the donor gets to deduct only half of the contribution.