As I've probably already mentioned somewhere over the past couple of months, every special interest group will come shrieking out of the woodwork to protect its own little (or large) piece of federal munificence the moment anyone even hints at changes.
A recent case is the wheedlers, that is, the organizations that depend in whole or in part on the charitable donations of others. They're protesting the suggestion that the income tax deduction for charitable donations by people with incomes over $250,000 be cut from 35% to 28%. The latter figure, by the way, is the amount that less well-heeled donors can deduct. It seems fair that everyone should get the same tax deduction for a donation, but recipients are burning up the hustings with their preemptive protests, and they're dragging in nominally independent theorists like Martin Feldstein of the National Economic Research Board.
Feldstein argues essentially that the rich are different; that they deserve a higher deduction rate for their giving, and if they don't get it, they'll reduce their donations accordingly. He says he knows of a significant body of economic research that demonstrates a direct correlation between the amount of deduction and the amount of giving but fails to tell us where he buried the body. Other commentators I've read make the opposite claim. For example, this New York Times editorial comes down in favor of cutting the deduction, and references several opinions and studies suggesting that donations are relatively inelastic and don't vary hugely with the tax rate. With two such different claims making the rounds, clearly, there are some mushy statistics out there. For that reason, I don't find the statistical claims on either side very persuasive.
I think the real truth lies in segmenting the "market," in this case, both donors and donees. Regarding donors, the real question is whether high-income givers react differently to the tax deduction that those of modest/average income. Speaking for myself in the "average" income category, I give what I think I can afford to causes I think are worthy, and do not consider the tax benefits until filing time in April. (This is what one of the sources in the New York Times concludes is typical.) On the other hand, I'm sure that in higher brackets, where "real money" is concerned, people may think harder about tax consequences. Still, I suspect their giving won't change by 7%; the really big donors are just as motivated by other unquantifiable factors, such as personal prestige (having the plaque in their name or the wing of a building named for them) and the psychic income from "giving back."
Where donees are concerned, I would wager that the continuity of giving levels varies with the recipient. Where a charity is doing work that directly benefits the needy or vulnerable (a soup kitchen, a children's hospital, research on cancer, and the like) I'd be surprised if their donations dropped off very much. On the other hand, the more marginal activities like symphony orchestras, art galleries, or some more ethereal causes probably suffer a little more when times are tough. That's fair enough - these are things we can and do cut back on when funds are short.
Generally, I don't believe most charitable giving originates in contemplation of the I.R.S. I think the most practical attitude is that reported by the Chronicle of Philanthropy: any change in the volume of donations that might occur due to a change in the tax deduction is likely to be small potatoes compared to the effects of the gloomy economic picture. That's basically what Obama said in his March 24 press conference - that putting the economy back on track would do more to help NGOs and charities than anything else.
More broadly, though, the reaction by charity recipients against any suggestion of change is exactly the kind of lockstep thinking we need to alter. The conundrum of the U.S. budget is the huge proportion of it sucked up by "entitlements" (social security, etc.) and legally required spending, which leaves so little in discretionary funds. If we can't break this logjam, we will never be able to address areas where shifting circumstances have left us with insufficient or outmoded social services. To me, such sacred tax cows as the charitable donation deduction and the mortgage interest deduction need to be drastically reformed (as do many other spending categories).
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