An odd definition of charity

Probably no item in the budget was more widely praised than the proposal to exempt donations of stock to charity from capital gains tax. "This is great for charities, since it will increase the amount that goes to them," Myron Knodel, manager of tax and estate planning at Investors Group, was quoted as saying. "It's spectacular," agreed Don Johnson, a philanthropist and former vice-chairman of BMO Nesbitt Burns. "I think it will be a great stimulus for giving." "We know that there are donations out there and gifts out there ... People are just waiting to make sure that they get the very, very best tax benefit. And now they are going to," said Monica Patton, head of the Community Foundations of Canada. Actually, they've already started, to hear Jim Flaherty tell it. Speaking in Toronto last Friday, the Finance Minister claimed one anonymous donor had already agreed to contribute $50-million in stock to a community foundation, as a direct result of the budget. Others, he said, had buttonholed him at a party fundraiser the previous night to say that they, too, now planned to make large donations to charity. "A couple of people came up to me and said, 'Jim, I want you to know because of the announcement on Tuesday I've already given a million dollars to this hospital' and other people told me [about] another million-dollar [donation]." And all because of a simple little change in the tax laws. If it were just a matter of saving lives, you understand, they'd take a pass. But dangle a tax break in front of them, and they're all ears. Forecasts of the increase in charitable giving we can expect range from $100-million to $500-million annually. Why do I doubt this story? The size of the tax break should, at first blush, have no bearing on the decision to give. Suppose I set aside $1,000 to give to charity. (It's a stretch, I know, but work with me here.) Whether all of the money goes to the charity, or some to the charity and some to the government, I'm still out $1,000. Actually, that's not quite right. If I give $1,000 to charity out of the goodness of my heart, it costs me just that: $1,000. But if I can also claim a tax deduction on the gift, it costs me rather less than that, since my tax bill is reduced accordingly. Adding together the effect of a new capital-gains exemption and the existing tax credit for charitable donations, it's estimated the donor will pay just 40 cents on the dollar to support his favourite causes. Who picks up the other 60 cents? You and me, brother. Whatever the reduction in tax to the contributor, it has to be made up from somewhere else, namely from other taxpayers. In effect, the tax-assisted donor is contributing not just his money, but yours. This is an odd definition of charity. The altruistic impulse is supposed to entail a willingness to give of oneself, not to give of other selves. I hear a cry of "are there no workhouses," so let me be clear: It's obviously a wonderful thing to give to charity, something we should all both practice ourselves, and encourage in others. But encouraging is a different thing than subsidizing -- least of all in a way that entails no accountability for how these public dollars are spent. It isn't all kids and rare diseases you know. There are in fact more than 80,000 registered charities in Canada. Some, like Planned Parenthood, are controversial. Some, like Bikers Against Drunk Drivers or the Canadian Society for the Study of Names, are just quirky. More than a few have serious management problems. But all are eligible for the tax deduction. That isn't to say that private charities should not be eligible for public funding. Many are marvels of efficiency, and it makes sense in many cases for governments to deliver services through them, rather than in-house. But decisions about which groups should receive public funding should be made by public bodies, accountable to the public. Oh, give it a rest, you old boot: The point, surely, is that charitable giving overall will increase. Why get hung up on the details? Actually, it's not a given there will be an increase. Donors may simply substitute donations in stock for what would previously have been donations in cash. Already tax specialists are advising their clients to donate stock to charity, then buy back the stock. And if private donors do raise their contributions, governments, which account for over half of all charitable giving, may pull back theirs, leaving charities no better off. Either way, the principle remains: People who give to charities should do so with after-tax dollars. Or have we forgotten that bit about virtue being its own reward?