In 1981, when Bernie Sanders was serving as mayor of Burlington, Vermont, the current front-runner for the Democratic presidential nomination shocked the crowd gathered to kick off the annual Chittenden County fundraising drive for the United Way when he declared, “I don’t believe in charities.” The mayor, according to a New York Times account, went on to take issue with the “fundamental concepts on which charities are based,” asserting that government should instead be the provider of social services.
What was then a fringe view (in a country that would give more than $400 billion to charities in 2018) would take on the force of tax law, were a Sanders administration to prevail. That’s thanks to the candidate’s proposals to hike tax rates on the affluent and, crucially, to impose for the first time a tax on assets (a “wealth tax”) in addition to one on income. The combination would deeply wound charitable and philanthropic giving, which is dominated by the well-off. It would not only leave less income for potential charitable gifts but would tax wealth that has been pledged but not yet transferred to foundations, universities, or any other nonprofit organization. Like so many other Sanders proposals, it would make the United States look more like Western Europe, where charitable giving (as in Germany) is less than a third of that here. And it’s premised on a false equivalency — that government can and would do the same things and do them as well as charitably funded civil society.
To understand the impact of the Sanders income tax and wealth tax proposals on charity and philanthropy, one must understand that the wealthy are disproportionately the source of both. Williams College economist Jon Bakija has found (in 2009) that those earning more than $200,000 comprised just 2.6% of the population but accounted for more than 29% of charitable giving. The 2018 tax reform law has likely concentrated such giving even more — since only 13% of households now itemize their tax returns and can avail themselves of the charitable tax deduction. Before tax reform, more than 30% itemized. But the rich are different here: Among the wealthiest 5% of people, 72% itemize — and, in light of the limitation of such deductions as that for state and local taxes, may see in charity a still-unlimited tax break.
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Howard Husock is a senior fellow at the Manhattan Institute, where he directs the Tocqueville Project, and author of the new book, Who Killed Civil Society?
This piece originally appeared in Washington Examiner