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Should Tax Reform Target Ideological "Charitable" Donations?

David Callahan

Tax reform may be moving to the front burner of Congress this year, if two powerful committee chairs get their way, according to Politico. Should this happen, get ready for a fierce battle over the charitable tax deduction, a large and obvious target for reformers looking for revenue. The Congressional Research Service has estimated that the U.S. Treasury will lose $51 billion thanks to the deduction in 2014. Of course, though, the Treasury's loss is the nonprofit sector's gain, and any number of studies have warned of a big drop in charitable giving if the charitable deduction is eliminated or scaled back.  

But here's an interesting question: Can tax reform open a window to curb some of the worst abuses of the charitable deduction -- namely, the way that wealthy ideological donors use their tax-deductible donations to engage in politics by other means?

Currently, there is little difference -- for tax purposes -- between donating to, say, the Red Cross and donating to the Heritage Foundation, a 501(c)3 organization which has long served as the ideas factory for the Republican Party. Moreover, the law allows the wealthy to make big donations to ideological 501(c)3s with complete anonymity. For decades now, tax deductible giving has been a key way for big money to shape public policy. And things are only getting worse.