Saturday, 28 Dec 2024

Opinion | The Problem With Charitable Giving

Starting this fall, and well into the future, medical students at New York University will get free tuition. In a few years, shiny new facilities will welcome cancer patients in Atlanta and brain researchers at Stanford. The announcements about these developments credit generous philanthropists, but fail to mention who else is footing much of the bill: American taxpayers.

Like most charitable giving, health care philanthropy is tax-deductible. When wealthy people give away millions of dollars, their tax bills go down. But that leaves the rest of us either to pick up the slack or go without the investments that our government could have made with those funds.

N.Y.U. is raising $600 million, for instance, as part of its tuition initiative; the lost federal revenue resulting from the tax breaks those donors receive could amount to hundreds of millions of dollars. In 2018, health-related charitable gifts could reduce federal tax receipts by $4 billion to $5.7 billion, according to reports from the Joint Committee on Taxation and the Treasury. States lose out as well.

The numbers might seem trivial compared with our projected $4 trillion federal spending. But they’re not at all trivial when you look at the health care agencies and programs paid for with our tax dollars. The budget of the National Cancer Institute is $5.7 billion; the budget for Pepfar, which treats infectious disease worldwide, is $6.7 billion. The Centers for Disease Control and Prevention, the agency at the forefront of our efforts to tackle the opioid epidemic and reduce maternal mortality, has a budget of about $11 billion.

The two of us differ over some of these funding priorities, and whether one philanthropist’s efforts are smarter than another’s. But our views should matter no more than any other American. Deciding how our collective resources should be used to improve health is the job of our government, even if it sometimes makes us sigh in exasperation.

We suspect that funding tuition at one expensive New York City medical school, constructing another cancer treatment center in a city already rich with them or building even more research capacity at one of the nation’s best-endowed universities is not at the top of most voters’ priority lists. It is, instead, mainly the very, very wealthy who pass on the costs of their causes. In 2016, half of all the tax dollars deducted as a result of charitable gifts in New York State were deducted by the top 0.5 percent of tax filers, who earned $1 million or more. The bottom 60 percent of tax filers were responsible for 5 percent.

The wealthier the donor, the more taxpayers lose out. According to the Tax Policy Center, in 2017, a $1 donation from someone in the top 1 percent of earners reduced the government’s funds by 32 cents, while a $1 donation from someone in one of the bottom two income quintiles reduced it by less than 5 cents.

This is because higher earners are in higher tax brackets, which means that giving them a pass on those taxes costs the country more. It is also because wealthy individuals often have appreciated stock that they can donate, which lets them avoid paying the capital gains taxes that they would otherwise owe if they cashed in on that stock themselves.

Finally, you have to itemize deductions to get almost any reduction in taxes from giving. Nearly all wealthy people do so, but it’s rare among lower-income people. The new tax law will make it even rarer; the Tax Policy Center predicts that it will reduce the number of households that take the charitable deduction to 16 million from 37 million.

Eliminating the tax deduction for charitable giving would not be politically viable. But we could limit it, either through lowering the cap on how much of a gift can be deducted or setting a flat percent of each donated dollar that can be used as a credit against one’s tax bill.

We could also call on the philanthropists who are making these enormous contributions to voluntarily forgo the deduction. Many megawealthy individuals have followed Bill Gates’s and Warren Buffett’s lead and pledged to give away half of their accumulated wealth. Perhaps they could also pledge that through their funding of the causes they hold dear, they will neither reduce the ability of our government to fund its priorities, nor shift some of the cost of their gifts onto other taxpayers.

Any of these steps could reduce the amount of charitable giving. But some studies suggest that donations would fall far less than tax receipts would increase. One frequently cited figure is that for every additional dollar raised by the government through changes in the deduction, charitable giving might fall by 40 cents. This is not that surprising, really — wealthy philanthropists fund their causes to the level the effort requires, not merely as a way of reducing taxes.

To be clear, we aren’t saying that our messy democracy gets spending right all of the time — or even most of the time. Nor are we critiquing the magnanimity of wealthy philanthropists who choose to bestow some of their accumulated wealth on causes they believe will make us all better off. We just think that if everyone has to pay, everyone should have a say.

Aaron E. Carroll is a professor of pediatrics at Indiana University School of Medicine and vice president for faculty development at the Regenstrief Institute, a nonprofit health care research group. Peter B. Bach is the director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center in New York City.

Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.

Aaron E. Carroll is a professor of pediatrics at Indiana University School of Medicine who blogs on health research and policy at The Incidental Economist and makes videos at Healthcare Triage. He is the author of “The Bad Food Bible: How and Why to Eat Sinfully.” @aaronecarroll

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