One does not hear much about the “flat tax” any longer. The idea lost its steam when people pointed out that, in order for it to significantly lower most people’s effective tax rate, it would have to include (that is, eliminate) some very well-entrenched tax breaks we all love. Most prominent among these is the charitable tax deduction. Recent events show that it is time for us to rethink that deduction and with it the flat tax.
The appeal of tax breaks for charitable giving is clear and understandable. Because much of what government does (such as providing housing subsidies, food stamps, and other welfare programs) is intended to help people in need, it seems logical to help those people, strengthen our society, and encourage people’s virtue by reducing charitable givers’ tax bill for doing the right thing. The logic of the charitable deduction has spread quite widely, such that giving that extra Renoit to the local museum (we all have several of those lying around, do we not?) can do a lot to reduce one’s tax bill as well. Still, Americans like the idea that their charitable giving should be respected and rewarded and charitable institutions fostered through the tax structure.
Yet people of faith, and conservatives in particular, have been getting the short end of the stick on charitable giving for decades, and things are soon going to get far worse. Catholics in particular are attached to the idea that our gifts to the Church and its various schools and other organizations are tax-deductible. Not only does this help our bottom line, it also, we think, encourages others who might not give to open their wallets for causes we know are important. Unfortunately, with the exception of a football, or basketball school or two, “our” universities hardly compete with the billions in secular school endowments. More generally, the “non-profit sector” is filled with institutions that bring in a lot of money to work for causes openly hostile to traditional morality and faith-based education. What is more, within the next few years the government almost certainly will revoke the non-profit status of many if not all Catholic and otherwise religiously orthodox charities.
Why do I say this? Think about it. The most objectionable, unfair, and dishonest charge made against opponents of gay marriage also is one of the most common, namely that they are merely “bigots” akin to those racists who opposed interracial marriage. The implications of this charge are clear, as are their logical policy outcomes to anyone honest enough to think them through. If Bob Jones University is unworthy of charitable status, then so is Catholic University, or Villanova, or even hyper-liberal, Jesuit Georgetown. At Bob Jones, white and black students are officially forbidden to date. Thus, the University violates federal civil rights laws and regulations, and so does not qualify for tax breaks, including deductibility of charitable gifts. If one believes, as it appears do most members of our contemporary elites in academia, law, and government, that opposition to full “equal rights” for homosexuals is equivalent to support for racism, one logically must (not just may, but must) deny non-profit status and charitable deductions for all institutions that fail to support gay marriage. Even more, for decades now a variety of feminist authors such as Catherine MacKinnon, have been arguing that the Catholic Church’s refusal to ordain women priests is an affront to equal rights sufficiently serious to justify eliminating their non-profit status.
Non-profit status in American law is not an inalienable right. Is a right created by, hence liable to being destroyed by, law. The only institutions that will not see this status revoked are those that accept the current party line on social and political issues. That party line now demands full support for, and affirmation of, gay rights—including the “right” to redefine marriage. As that demand is institutionalized, it will bring with it the rationalization of other aspects of the doctrine of equality such that anomalies like tax breaks for churches failing to ordain female priests also will be eliminated. Some religious charitable organizations may seek to fly “under the radar” by giving up their public role and becoming “insular” institutions that only employ and serve the faithful. Others may simply give up their traditional positions on hot-button issues. Neither tactic will work as even insular institutions may be found “bigoted” and so lose their tax exempt status, and institutions that give up their identity no longer serve their proper function in any event. Thus, we should expect the Church’s charitable status to be taken away, whether all at once or, more likely, piecemeal, before very long.
Given this reality, it is time for Catholics in particular, who have been extremely slow to support “libertarian” policies like the flat tax, to recognize the wisdom of this change in policy. Our choice is clear: either accept that the government will subsidize institutions that decry Catholics for supposed bigotry as our own tax breaks disappear, or sign on, while we can, to a policy that will establish a more level playing field. A true flat tax would have the advantage of seeing to it that no institution, including the Ford Foundation, various activist “charities” seeking to further radicalize American politics, and billion-dollar university endowments reserved for politically correct activist institutions, will receive the tax breaks that almost certainly will be denied to Catholic and other traditional religious organizations.
There is one other aspect of the flat tax that has caused many to oppose it, namely, its elimination of subsidies for home ownership such as the mortgage interest tax deduction. All of us homeowners are loathe to give up this particular tax break. But my support has been dampened by recent events, in which government bullying pushed banks into granting home loans to people who could not afford to pay them. Of course, the banks then turned around and gambled the money away, safe in the knowledge that the government would (as it did) bail them out in the end. My point is that, given the amount of government meddling in the housing market in recent decades, and given this meddling’s horrendous effects on our economy, it may be time to give up on this over-manipulated “freebie” as well.
Perhaps a true flat tax, in which the government gets out of the business of picking virtues (home ownership) and vices (opposition to gay marriage), would allow Americans to re-think where their money goes, and where it ought to go. No doubt there would be substantially less charitable giving. Your local university might have to do without that new football stadium. And more serious cuts also would ensue, such as at various hospitals. But much charitable giving makes sense only as a tax dodge, and some positively wreaks havoc on various markets. One reason we see the ridiculous rush among small hospitals to compete with larger, regional centers as “experts” in various complex, expensive sub-fields, is the desire to attract large donations. But the duplication of expensive equipment and overhead actually increases medical costs. The same goes for the gold-plating of certain campuses, where it is known that certain types of projects will garner large alumni donations, whereas serious academic programs simply will not.
It was worth dealing with the market distortions of charitable tax treatment when the benefits were widespread. Now that we are looking at increased manipulation of the definition of charity and an increased exercise of political power in picking who will and will not receive tax breaks, it is time to pull the government out of the tax break business and lower overall rates. This will allow us to decide, on the merits, where to put our charitable dollars. It also will help charities get down to the serious business of attracting support on the merits of their missions and their seriousness, efficiency, and fidelity in furthering them. And this is a contest I think serious, faithful charities are in a position to win.
Books on the topic of this essay may be found in The Imaginative Conservative Bookstore.
I would personally prefer a National Sales Tax over a flat tax. Cynic that I am, even if a Flat Tax became law, it wouldn’t take long for the lobbyists and special interests to start carving out exceptions that would benefit themselves.
No I tend to disagree. Sure a flater tax would be simpler and more understandable, but I disagree on both the charitable and home mortgage deductions. Charitable deduction is a mere incentive. You are quite wrong that it helps the “bottom line.” All it does is offset a portion of money that would have gone to the government and redirected to what in most cases is a noble cause. People aren’t saving anything when they give to a charity. If you gave a $100 to a charity and deducted it from your taxes, then you still gave up a net amount that you wouldn’t have. If one is at the 25% income tax rate, then in essence you forced the government to pay $25 to that charity but your bottom line was less $75.
As to the home mortgage, property values are sustained because of it, giving people the incentive to maintain the property. Housing prices would drop or never climb without it. I’m not oppssed to a progressive deduction where values are scaled. But that tends to make the tax code even more complicated.
Incentives work marvelously on human nature. As a conservative (not a Libertarian) I believe in using it to the fullest to shape our society for the good.
Dis-empowering the general government is always a good thing. Please continue to write of those ideas that provide the methods of so doing.
From a flat tax standpoint, I would say that capital gains, corporate profits and personal income should all be taxed at 10%. All loopholes would be eliminated as well as most of the deductions. The only deductions I would keep are charitable contributions, which would not be capped and business purchases, which would have a limited tax deductibility of 10% on any items proven to be used for business development and expansion as well as health insurance policies. The exception to the health insurance policies would be if you paid for the policy out of pocket, which is not a deductible expense from the tax standpoint.