Three broad objectives should guide tax reform. Restoring vigorous economic growth. Simplifying the tax code. And strengthening civil society, so that fewer decisions are made by the federal government and more are made by voluntary associations. One of the best ways to achieve this last goal is to increase charitable giving to three percent of GDP. Tax reform could help achieve this goal by making the charitable deduction universally available to Americans of all income levels.
America is the most charitable country on earth. No other country comes close. For the last 50 years, Americans have voluntarily given two percent of GDP for charitable causes. In Britain, France, Germany, Japan, Canada, and other major industrial democracies, charitable giving is one percent of the economy or much less. Last year, Americans gave an astonishing $390 billion to charity, plus volunteer hours that are worth at least that much or more. But we can do better.
Charitable giving is central to American society. It is the lifeblood of our churches, synagogues, and other religious institutions. It has helped to make our private and public colleges the best in the world. It is indispensable for the flourishing of the arts, science, medical research, and natural habitat. It provides food for the hungry, care for the sick, shelter for the homeless. In Houston and Florida we are seeing the amazing work of volunteers and private givers in response to Harvey’s and Irma’s devastation.
Charitable giving also has the potential to do much more for America. Imagine if instead of two percent of GDP, Americans gave three percent. That’s a reachable goal, not a utopian dream. And at the current pace of our economy, it would yield an additional $200 billion donated every year.
What would $200 billion in extra charitable giving do for our country? We can’t say for sure, because donors follow their own experience and convictions to find the best ways of making a difference. That’s why decentralized charity is so effective.
There are three great opportunities, however, where a substantial increase in charitable giving could help achieve breakthrough solutions for national crises over the next decade.
The first is to offer hope and opportunity for low-income families and neighborhoods. The trillion dollars spent annually by federal and state governments on means-tested poverty programs have reduced the incidence of hunger, homelessness, and other forms of material poverty. But this public spending has also coincided with the collapse of families, the breakdown of the social fabric, the opioid epidemic, and a slowdown in upward mobility.
There is not much the government can do to strengthen our tradition of neighbor helping neighbor, to put families back together, or to restore a spirit of optimism that the American Dream is still alive for those who work hard and act with integrity. This is primarily the work of cultural institutions and civil society: churches and other religious congregations, mentoring initiatives, job fairs, character-building programs such as youth sports, Scouting, and robotics. A new infusion of philanthropy focused on social capital could make a huge difference.
The second great opportunity for donors is to ramp up philanthropic spending on K-12 reform, building on one of the greatest success stories of charitable giving in recent decades: the growth of multiple charter-school and religious- and other private-school networks where low-income children excel academically. These learning environments, made possible by philanthropy, offer families high-quality options while most of the existing public K-12 system is in crisis. Substantial increases in K-12 giving could spread these successes, overcome policy barriers that prevent public school systems from reforming themselves, and transform today’s ineffective teachers’ colleges into centers of excellence.
A third opportunity for donors is to achieve dramatic improvements in higher education. The future of our flagship state universities is in jeopardy at a time of tight state budgets, unsustainable tuition increases, and damaging political correctness. Donors are in a position to protect excellence, drive needed reforms and innovation, and protect free inquiry on these campuses. Similarly, private funders can strengthen the community-college system that is crucial in career training and upward mobility.
Charitable giving is not just the province of the rich. It is a mass phenomenon in this country. Allowing all Americans to deduct their charitable giving from their taxable income is a crucial first step in achieving a “three-percent solution” for philanthropy. It would build on the long American tradition of citizens stepping up to solve problems without waiting for government to act. And it could supercharge social healing and national excellence in America.