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Philanthropy policy ‘misguided’

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Existing public policies governing nonprofits and charitable donations are widening the gap between the haves and have-nots, an article says.

“A Failure of Philanthropy,” written by Rob Reich, assistant professor of political science at Stanford University, and published in the Stanford Social Innovation Review, blames public policy for the failure of charity in the U.S. to help the needy.

Reich contends the tax policy that allows tax-itemizers to deduct their charitable contributions provides them with a government subsidy of sorts.

That subsidy is withheld from taxpayers who donate but do not itemize, and it rewards to a greater degree high-income people who do itemize because their deduction is calculated at their higher tax rate.

And by providing tax deductions, the government is not only subsidizing donors, it is foregoing revenue it otherwise could have collected and spent, perhaps on programs serving the needy, Reich says.

Needy people are also unlikely to be the recipients of charitable donations, Reich says.

Only about one in every ten dollars donated benefits social-welfare groups or human-services groups, he says, with the vast majority going to religious organizations that pass on only an estimated 5 percent of that to the needy.

That is largely because the IRS does not distinguish between types of nonprofits, providing the same deduction regardless of what type of group receives the donation.

To direct more charitable dollars to the needy, Reich says, Congress could provide additional tax incentives to those who donate to groups addressing poverty.

He says Congress also could equalize deduction benefits by replacing the tax deduction, which is linked to tax rates, with a tax credit linked to the amount donated.

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