Charitable Tax Credits Provide Constructive Alternative to Prop. 1
This November, Saint Louis County constituents will vote on a new annual tax of one-quarter of a cent (1 cent on every $4.00) to fund programs supporting the mental health and well-being of area youth. The estimated $40 million that would be collected after the passing of Proposition 1 would create a steady stream of funding for emergency shelters, transitional living programs for older youth, outpatient substance abuse treatment, and services to teen mothers. A Saint Louis County needs assessment concluded that the availability and funding of children’s programs should be increased, and while taxation may seem like a logical means to reach this end, there are other options.
Many surrounding counties, such as Lincoln, Saint Charles, and Jefferson — not to mention Saint Louis city — have already passed such measures to fund child and youth programs. Although Saint Louis County has more than three times the youth population of those adjacent counties, this would be the perfect time for the state to exercise other options to solve the issues at hand. Missouri could follow the lead of Michigan, Arizona, and North Carolina — states that have expanded tax credits to non-profit organizations and allowed communities to invest in their children by increasing charitable tax credits. These types of tax credits would revive volunteerism by reminding people that providing for the mental health and well-being of children is the responsibility of individuals in their local communities.
Charitable tax credit programs usually share three goals: increased charitable giving; letting taxpayers determine the effectiveness of charitable services; and supporting programs that address local community needs. Currently, individual taxpayers who itemize deductions on their federal income tax returns are entitled to reduce their taxable incomes by the amount of charitable contributions they’ve made, up to a certain limit. Additionally, at least a dozen states offer tax credits for contributions to certain qualifying charitable organizations that perform public functions. For example, Michigan offers tax credits for homeless shelters, food banks, and contributions to community foundations. Although only a small fraction of the Michigan population claims them, the total value of these credits exceeds $40 million annually.
Back in 2006, Gov. Matt Blunt announced that two Saint Louis not-for-profit organizations — The National Council on Alcoholism and Drug Abuse, and Voices for Children — would be eligible to receive state tax credits to help fund programs aimed at preventing substance abuse and violence among at-risk youth. In this circumstance, private-sector donors could receive tax credits valued at up to 50 percent of contributions to approved projects. Furthermore, those credits could be applied to the donors’ Missouri tax bills. Also during 2006, Gov. Blunt announced that Kansas City taxpayers could potentially receive tax savings of up to 50 percent of their charitable contributions to the Big Brothers Big Sisters program — which did, in fact, see a sharp rise in donations and charitable giving. There is no reason why this could not work for other programs in Saint Louis County and across the state.
Another drawback of Proposition 1 is that it would increase government bureaucracy in order to distribute money to existing programs. This makes the giving process less direct and less efficient. Missouri should instead give private-sector charities a chance, by giving taxpayers a choice. Expanding charitable tax credits would give citizens the ability to fund groups that they think are effective. Harnessing this distributed knowledge is a more efficient way to identify organizations that do good work, and shift resources in their direction.
At the end of the day, the question is, “If the government taxes less, will you give more?” Studies have shown that when government spending increases, charitable giving declines. Instead of leaving worthwhile groups to be limited by inadequate funding, charitable tax credits provide an alternative, establishing positive incentives and cultivating a culture of giving. This would expose even more people to the intangible rewards that come from giving to and supporting their own neighborhoods. It really does take a community to raise a child, and no government bureaucracy can substitute for that.
Calvin Harris II is an intern at the Show-Me Institute, a Missouri-based think tank. He is currently pursuing a master’s degree in public policy at the Heller School for Social Policy and Management at Brandeis University.