Freely Given

 In Charity, Fred's Blog, Giving, Money, Philanthropy, Transitions, Uncategorized

Listen to “Freely Given” by Fred Smith

 

On April 6, 1917, President Woodrow Wilson and Congress declared war on Germany. With the same declaration they created the War Chest and the first charitable tax deduction that allowed individuals to make gifts to help with the war effort and shore up the few institutions whose support would be affected by the war.

That decision did not affect many people at the time as fewer than 10 percent of Americans paid taxes, and the top rate was 7 percent. The cost to the government was relatively small as there were few nonprofit organizations and as a way to keep the war from putting an end to those institutions, the charitable tax deduction was effective.

And now, a little more than one hundred years and several wars later what began as an accommodation to an emergency has become part of the bedrock of both a philanthropic culture and the overall economy. With the growth of non-profit organizations, voluntarism and the spirit of charity have become hallmarks of America. The creation of schools, churches and the great institutions that shape us today has been made possible by the consistent growth of giving by millions. 

In recent years there have been a variety of efforts to allow greater standard deductions and reduce the number of people filing itemized returns. Some make the argument that the changes over time will so reduce giving as to threaten the survival of non-profits. The year after the latest reform in 2017 giving did, in fact, decline but only by 1.7% from the prior year with most of that from smaller donations.

Others argue the opposite as charitable giving has remained at close to 2 percent of personal income year after year regardless of the changes in the tax rates for itemizing charitable giving. Moreover, giving by foundations and corporations has increased.

Charity is not going away but there are other changes.

Clever Charity

While I understand the value of creative instruments for legitimately reducing taxes, I am meeting more and more people whose first question about a gift (no matter the size) is whether or not it is tax-deductible. This troubles me.

There is a growing industry of extremely sophisticated professionals who have taken charity, compassion, caring, duty and – yes – obligation to a community and encouraged people to think primarily about tax considerations as the motivation for giving. The satisfaction is not so much in the gift as it is in beating the system. Being clever is a higher compliment than being charitable while gaming the government has become an even larger part of the incentive for giving.

The phrase “every gift is tax-deductible” is on each nonprofit piece that goes out to potential donors and is also featured prominently on nonprofit websites. Even churches emphasize that supporting the local congregation has tax benefits.

While I don’t want to camp on the point, I do want to say I am concerned that the desire to give and be generous is being overshadowed by the desire to see the tangible benefit of reducing taxes with this gift. It is one of the reasons many people delay their major giving until the end of the year when they can estimate what gifts they will “need” to make for reducing their tax liability.

The servant is becoming the master. The means is becoming the ends.

This year I set aside a certain amount of our giving that would not qualify for a deduction. We gave to individuals or organizations with no tax certificates. To offset some of the impact of COVID we left larger tips. We gave without getting receipts. We just gave. It was not all or even a large part of our giving for the year, but it was a portion. I wanted to see what the effect was on us and whether or not to keep doing it. Listening to friends I think others might have done the same. 

It hasn’t changed my life. It hasn’t made me stop taking deductions. It did one thing though. It allowed me to see opportunities for giving I would have discounted before because they were not deductible. It allowed me to make some gifts that improved the lives of individuals and families. It actually felt more like giving than tax planning…and that was worth it.

I’m not arguing for going back to 1916. Times have changed. Planning for large gifts is necessary. Nonprofits have proliferated and, according to some, employ almost 10 percent of the entire workforce. The arts and cultural institutions especially would suffer from reduced giving by those few motivated only by tax considerations. All this is true.

However, may I encourage you to set aside a certain amount this year and give it with no consideration of tax deductibility or benefit? Do it and see if you have the same experience – or even better.

I’d love to hear from you.

 

“The Tax Collectors” by Quinten Massys

More Posts
Showing 19 comments
  • Avatar
    Marian Ferrell
    Reply

    My husband and I have been blessed to help family and friends over the years with thousands of dollars in gifts. One dear friend lived on social security and our monthly gift made her life easier. There have been others who were given several thousand dollars a month and interestingly, our bank account continued to increase. We give God all the glory for providing what we need to help others. Tax deductions have never been our motivation for giving and I pray they never will be. Enjoy reading your e-mails each week.

    • Fred Smith
      Fred Smith
      Reply

      Thank you, Marian. This is exactly what I wanted to hear!

  • Avatar
    G Smith
    Reply

    Thanks for some additional history on the subject. I am not sure why this seems to be a growing topic, but I am concerned that some in the church might throw the baby out with the bath water regarding charitable deductions. Personally, 1. we look at tax efficiency as allowing us to give more. Learning from the example of others, we have tried to set a certain reasonable standard of living and then give above that. (We always need to give from “first fruits” and baseline giving or tithing should be a given regardless). So while we give to things that we can’t deduct for one reason or another, we recognize that it means up to a 50% reduction in what we can ultimately give (or steward to give more in the future). For those who deduct, it has a very sizeable impact on our capacity to give.
    2. While we need to all contribute towards government, overall we believe the church is better positioned in many ways to serve the community, and a tax deduction allows us to facilitate that to significant effect. With the special regulations around covid, we would love to give 100% of income by giving away out of assets and multiply giving further this unique year. What a blessing to see those funds go to ministry, help people and build the Kingdom. I am thankful for living in a place that seeks to motivate and facilitate people to give.
    Ultimately a tax deduction should be a giving tool not the motivation. It certainly should not absolutely stop us from giving to something because it is hard to get a deduction. However, used wisely it can multiply giving, have a bigger positive impact on peoples lives and is part of good stewardship.

  • Avatar
    D. Davis
    Reply

    Fred,

    Thank you for writing this! I have long believed that if the “tax deduction” went away it would show the true motivation of our willingness to be generous. Our family, for years, has given to those in need without consideration for a tax deduction AND also made gifts to organizations that allow for us to deduct the giving on our taxes. The Bible says, “It’s MORE blessed to GIVE than receive”. Our experience of this “blessing” far outweighs any tax benefits the government could give us!

  • Avatar
    Phil Burks
    Reply

    Thanks for talking about it Fred. I too have found us giving much larger tips, giving to causes and individuals just because we have it to give. One guy has been hit hard with the pandemic- lost his car, and much more. He worked hard to find ANY job and he makes minimum wage doing 30hrs/wk as a gas pump attendant. He takes and Uber to work. When things were really bad, he would walk to work. But he just didn’t quit. We’ve helped him to keep food on the table, NOT for our glory, because it IS helping our neighbor. Tax deduction be hanged. BUT… if there is a deduction to be had, I’m not turning it down.

    • Fred Smith
      Fred Smith
      Reply

      I love that story, Phil! Thanks for responding.

  • Avatar
    John Thomas
    Reply

    Great blog again as usual. In South Africa, they have only recently introduced, tax deductions for non-profits but not for churches. Because of no personal gain, people have given sacrificially and Biblically as an act of generosity mixed with obedience. If we give only to gain, then we are into some sort of prosperity teaching. Our motivation must always be to seek to be generous in our hearts, followed by practical action, then we are acting justly

    • Fred Smith
      Fred Smith
      Reply

      Thank you, John. In the US a number of non-profits (like Focus on the Family and Samaritan’s Purse) are converting to church status which allows them to retain the non-profit status but not having to file returns.

  • Avatar
    Shannon Sedgwick Davis
    Reply

    Thank you Fred for your sage wisdom. Where many fear, you always seem to hope for important, albeit sometimes uncomfortable, change. With those courageous lenses you seem to evaluate things with a mind that isn’t tethered to the familiar by fear of change or a desire to protect what is earthly. With those lenses you often encourage us to live boldly into a reality that looks a bit closer to what awaits us in eternity. I’m grateful for you.

    • Fred Smith
      Fred Smith
      Reply

      Thank you, Shannon. I am going to send you something via text that should make you tickled, I hope.

  • Avatar
    L. Bentsen
    Reply

    Thank you Fred for the opportunities you give to reflect. The last six months have certainly prompted introspection. I have been humbled by how much I can’t control. And never so focused on health, mine and our friends. Truly in awe of my dependence on Him…and the mysteries of His blessings. To your point, our bunkering down at home has freed up both financial resources (less travel, less dining out etc) as well as time. We have, in turn, shifted to using the excess resources towards more one on one involvement. What a joy it is to feel the interdependence that develops. Yes we continue to support tax deductible charities but there is nothing like the feeling you are making a difference in someone else’s life especially in challenging times. Even if it just an extraordinary tip when someone delivers the pizza. The smile, when they open the envelop, radiates even through a mask.

    • Fred Smith
      Fred Smith
      Reply

      Thank you, Lloyd! We did something of a hybrid here in Tyler recently. We raised $500,000 for 1000 grants of $500 to individuals. We worked through Family Independence Initiative in Austin. The stories have been so encouraging. I can send you the report we commissioned if you like.

  • Avatar
    L. bentsen
    Reply

    Would really appreciate receiving a copy of the report. As usual Tyler sets the pace for the rest.

  • Avatar
    Karen Jones
    Reply

    I too have had a concern for years about the motivation of donors toward giving to non-profit ministries. I so wish that people gave to my organization simply because we do such a tremendous good – and not because they get a tax deduction. I console myself by says its some of both – but I fear not.
    And what about the competitive nature of fund raising in this sector? This too is scary to me.

    • Fred Smith
      Fred Smith
      Reply

      I taught this morning on Isaiah 23. “At the end of seventy years, the Lord will deal with Tyre. She will return to her lucrative prostitution and will ply her trade with all the kingdoms on the face of the earth. Yet her profit and her earnings will be set apart for the Lord; they will not be stored up or hoarded. Her profits will go to those who live before the Lord, for abundant food and fine clothes.

  • Avatar
    Mario Zandstra
    Reply

    Fred, this is a great article. During COVID I have a friend that rounds every tip at a restaurant up to $100 irrespective of the price. I watched him tip a waitress $60+ on a $39 bill. The best part, he walked out before he could see her reaction. Just plain generosity.

Leave a Comment