Any deal that steers the country away from the fiscal cliff should avoid eliminating charitable deductions or replacing the popular item with smaller tax credits, said Yale economist Robert Shiller.
Capping tax deductions has grabbed headlines as a way to avoid the fiscal cliff, a combination of tax hikes and spending cuts due to take effect at the same time in early 2013, possibly tipping the country into a recession next year unless Congress and the White House agree on a budget.
Leave charitable deductions alone, Shiller wrote in a New York Times OpEd, as giving to charity has made the U.S. economy what it is today.
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“[I]n 2011, the Charities Aid Foundation of Britain ranked the United States No. 1 among countries globally in its World Giving Index. Religious organizations, universities and colleges and other social groups rely highly on voluntary contributions,” Shiller wrote.
“The generosity of individual Americans is a good part of the reason that churches are so active in our communities, that our universities are the best in the world and that we have practically the only significant, small, private liberal arts colleges on the planet.”
The broader economy benefits from charity as well, he added.
“We have to clear our minds of the idea that the charitable deduction is a ‘loophole’ that benefits the rich at society’s expense. Income that is freely given away should not even be considered as taxable income,” he wrote.
“Yes, the wealthy use this deduction more often, and give greater amounts of money. But society benefits. And beyond the money involved, the tax break for donors conveys a sort of official recognition, and encourages a habit and a culture of giving,” Shiller added.
“We don’t rely on government to set all of our goals — even our social goals, our wishes for the nation’s future. The essential question we all must answer is how we can achieve the good society.”
Scrapping charitable deductions has met opposition on both sides of the political aisle in that it would increase dependence on the government.
“Eliminating it would undermine activities that help low-income people, that pay for the arts, that do a number of other things that are where government is much more heavily involved in other countries,” said Michael Ettlinger, vice president for economic policy at the liberal think tank Center for American Progress, according to ABC News.
“I don’t think anyone’s pushing hard to get rid of the charitable deduction.”
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