December 26th is the feast day of Saint Stephen, the first Christian martyr. Having grown up Protestant, I didn’t learn much about saints, but I do recall the lines from my mother’s favorite Christmas carol, Good King Wenceslas:
Good King Wenceslas looked out,
on the Feast of Stephen,
When the snow lay round about,
deep and crisp and even;
Brightly shone the moon that night,
tho’ the frost was cruel,
When a poor man came in sight,
gath’ring winter fuel.
The song goes through many verses to tell how the king and his page tracked down the poor man tohis humble abode and supplied him with food and fuel. If you haven’t exhausted your Christmas singing yet, this is the official carol for December 26th. It’s a holiday about giving to people in need, not supplying overindulged children with more toys than they need and keeping the economy rolling with consumerism.
The Boxing Day holiday has long been celebrated in some dozen countries, most of them from the former British Empire. Shop owners kept a tip jar and shred the contents among their workers, while others gathered up food and clothing and money and delivered it to those in need. It may well be a remnant of a feudal tradition when the lords of the manor gave and annual (required) distribution of clothing, food, and fuel to their serfs.
For those of you who itemize your tax deductions for Uncle Sam, Boxing Day is close to your last chance to increase your income tax deductions. Generosity should not be motivated solely by tax incentives, and it isn’t, because you have to give away a dollar for every 10-37% in federal income tax savings (plus any state income taxes). But certainly the idea of the government offering a partial match for your gift is a positive incentive.
The basic lesson of Good King Wenceslas is to be generous to the extent you can, because there are many unmet needs out there—refugees, natural disasters, wars, homelessness. But the story also raises the question, why should the government encourage charitable donations with a matching grant? Having graduate degrees in both theology and economics, this question pushes my buttons.
Right now, there is a lot of pressure on governments around the world to provide humanitarian aid to refugees in general and victims of natural disasters and two wars in particular. It’s hard to get people enthused about paying their taxes for any purpose, and humanitarian aid is not high on the list of things voters call heir legislators about.
Refugees and victims of war and natural disaster are not unique to 2023. There’s almost always a war and refugees somewhere, while climate change has accelerated natural disasters. In addition, the problems of poverty, homelessness and hunger don’t go away, and governments are called on to respond t these problems. The more we can encourage private charity to shoulder some of the cost, the less of it will fall on the taxpayer.
There a re three problems with this argument. The first is that providing relief for these hardships benefits all of us, even Ebenezer Scrooge (at least after he saw the light from his ghostly visitors). If we all benefit, should we not all share in the expense? But as with most expenditures that benefit everyone, people are inclined to hope that someone else will step up to the plate and contribute. Voluntary charity is far from adequate to address the size and scope of the humanitarian crisis.
The second problem arose from the tax reforms enacted during the Trump administration. A very large increase in the standard deduction meant that far fewer households would qualify for a lower tax liability because of charitable donations. The standard deduction for a single person for 2023 is $13,850 and for a married couple, $27,700. Your total deductions, which typically include mostly mortgage interest, state income and property taxes, and charitable donations, would have to exceed that amount in order to reduce this couple’s taxes
The tax reduction only applies to the amount by which your deductions exceed the standard deduction. For example, a married couple household with other deductions of $15,000 would have to give more than $12,700 to charity in order to get a tax break. The tax break doesn’t apply to the whole $12,700, just the excess over the excess over $12,700. Charitable donations of $$20,000, in our example, would save this household only about $300. Not much of an incentive, except for the wealthiest households. The limited tax savings discourage smaller contributors from increasing their giving. . (If that confused you, just accept my assurance that the amount of tax savings is very low for the average taxpayer, much larger for the very wealthy.)
Finally, a lot of charitable donations are not humanitarian in nature. There’s nothing wrong with supporting the arts or contributing to animal welfare or preserving green space, but these may be lower collective priorities than the humanitarian issues facing us. When the government provides tax relief for charitable contributions, it doesn’t get to set priorities for which causes should be supported. Would our legislators have chosen to spend money on my local little theatre? Probably not, but it encourages me to spend my money on my pet charity, money that would otherwise have been paid to the government in taxes. To use the favorite insult among economists, that would be (Heavens to Murgatroyd) INEFFICIENT.
If kindness, compassion, and generosity can’t quite get you to pony up for humanitarian aid, like Good King Wenceslas, then at the very least you can support the noble economic goal of efficiency by giving generously to those causes that you genuinely believe are appropriate expenditures of government funds. Now that’s a challenge worth mulling over for the rest of 2023. Just remember to make those donations before midnight on December 31st!
PurpleSage41 