A Tax by Any Other Name: The Donor-Directed Automatic Percentage-Contribution Bonus, a Budget Alternative for Financing Governmental Support of Charity

Abstract

This is an analysis of the merits of four alternatives for providing governmental support to charity — the tax write-off now on the books, a tax credit, a sliding matching grant, and a percentage-contribution bonus.¹ After searching for an appropriate budget mechanism (a five-year fixed-sum authorization and appropriation), we apply some wide-ranging criteria — equity, legitimacy, efficiency, reciprocity, controllability, and others — to each of the four alternatives. In brief, the present tax write-off is grossly inequitable among donors, poorly controlled by government, and is part of a tax system that citizens increasingly feel is illegitimate. The advantages of the write-off are that it produces predictable amounts of income at low administrative cost without overtly raising questions of constitutionality. Its disadvantages would be mitigated by a tax credit in proportion to the amounts contributed by taxpayers. But the credit does not reach people who do not file returns and may significantly decrease income to charitable agencies. The sliding matching grant (under which the government pays to charity in proportion as the individual gives of his income) provides a form of equity for taxpayers but is deficient in other respects. The contribution bonus — a percentage of each dollar contributed paid to charity by government — is wholly equitable, includes all givers, sustains reciprocity with recipients, is controllable by government, and is legitimate in treating expenditures as expenditures and not as tax dodges.