Senate Finance Committee Chairman Max Baucus has released a detailed proposal for international corporate tax reform, which we summarized earlier this week. While there are some improvements to current law, the proposal...
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- Addressing the “New Hungry” with the Charitable Deduction
Addressing the “New Hungry” with the Charitable Deduction
Food insecurity has long been a substantial issue in the United States; according to Feeding America, 2009-2011 averages show that about 15 percent of the population experienced food insecurity, and the recent recession has only increased the demand for food banks. The problem is more disconcerting because of the banks’ new user-base: the suburban poor. A 2010 CNN article dubs this demographic “the new hungry.”
In response to these trends, Representatives Sandy Levin (D-MI) and Jim Gerlach (R-PA) of the House Ways and Means Committee have suggested a permanent extension and increase from 10 percent to 15 percent in charitable deductions for businesses donating food inventory as a method of providing further relief to those in need. However, as we have written elsewhere, itemized tax deductions are non-neutral because they give tax benefits to one group (in this case, businesses) over another, and they encourage economic decision-making based on non-economic factors. They also add more complexity to the tax code, violating two of our principles of sound tax policy.
But charitable contributions represent a murky area because they incentivize private giving for public benefit. The key to deciding whether or not to keep them is to measure the social benefits of giving to charities versus collecting more revenue to use on other programs, or broad-based tax reductions. In recent weeks, the Tax Foundation’s macroeconomic model has found that solely removing charitable deductions from income tax code would generate $39 billion in revenues, but at the cost of a $40 billion reduction in GDP and 131,000 jobs. However, eliminating deductions while using those revenues to finance across-the-board income tax cuts would result in $19 billion in new GDP and $4.5 billion revenue increases, and bring in 200,000 jobs (wages would be reduced in both scenarios, but by a lesser amount in the latter).
But how does this compare to the need for programs like food banks to continue operating? In this particular case, the problem highlights a case of “Give a man a fish…” The deductions represent a significant concern, and are done in good faith. However, economic logic would suggest that gifts in money—or just the income from jobs created by GDP increases—are more sustainable in the long-run and offer more choice to the end-user. Food contributions are gifts in-kind which, while pure in sentiment, are not guaranteed to be available when needed or match the preferences of those to whom they are given. Ultimately, even Feeding America cites that the unemployment rate is a good indicator of food insecurity. Sound tax policy suggests that moving to lower rates and a broader base would reduce unemployment, thereby attacking the root of the problem and helping alleviate the struggles of families without viable sources of food.
More on the charitable deduction.
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