Common sense tax reform: Don’t save Venice on taxpayer dime

In the 14th century, the Medicis, some of the greatest philanthropists in history, established the modern banking system and helped build the cultural empire of Italy. 

But today, ironically, it’s American philanthropists — many from Wall Street — who are helping to keep the sinking city of Venice afloat. 

As Venice treads water and monuments overseas are falling apart, Washington policymakers are considering reforms to our tax code that could dramatically suppress charitable giving in our country. According to a recent study by researchers at Indiana University-Purdue University Indianapolis (IUPUI), the Trump administration’s proposal to increase the standard deduction and decrease the top marginal tax rate, would have an overall negative impact on charitable giving, resulting in an estimated decrease between $4.9 and $13.1 billion annually.

{mosads}Our not-for-profit sector, a $1.7 trillion dollar industry, which employs more than 14 million people, roughly 10 percent of our labor force, would be negatively impacted by these proposed changes. We can’t throw the baby out with the bathwater. It’s time we rethink our philanthropic policies, but instead of decreasing giving, let’s refocus it — applying the principle of America first — to how we treat charitable donations.

Each year, under our tax code, I receive deductions for contributions to a charitable organization dedicated to the worthy cause of saving Venice from sinking into the lagoon. 

That’s right, the American taxpayer is essentially helping to keep Venice afloat — not Venice Beach, Calif., not Rome, N.Y., and not Florence, S.C.; it’s Venice, Italy. 

With America drowning in $20 trillion in debt and under pressure to cut spending and realign our fiscal priorities, saving Venice, restoring overseas monuments, rubbing elbows with Prince Charles’ trusts and other foreign religious charities — all of which may be worthy causes — are simply not luxuries that America can no longer afford. It’s bad tax policy. 

Americans are a generous people and because of that, many worthy and some not-so-worthy causes from around the world set up shop here to raise funds.

Why do they come to America? To borrow a phrase from Willie Sutton, because “that’s where the money is.” According to Giving USA, 2015 was America’s most generous year ever with charitable donations topping $373 billion.

That is why charities from every country come to America to fight poverty, cure diseases, support the arts, restore temples and even rescue polar bears. Some throw lavish parties of a lifetime, others save lives one at a time. The causes are diverse, but the one thing they have in common is that they are raising funds here in the U.S. that are actually spent in another country. 

All this begs the question, why should the American taxpayer foot the bill for charitable contributions that are spent in support of another nation’s citizenry?

That’s not to suggest by any means that these causes are not honorable and worthy. There are causes that transcend borders, like human trafficking. There are wonders of mankind that are in need of preservation. There are crises, natural and manmade, that call to our humanity. But the fact is, participation in international charitable causes is something we can’t afford to allow our tax code to subsidize. Whether it’s NATO, the UN or our generous direct foreign aid program, our government — the taxpayers — give enough. And enough is enough. 

We can’t afford to save Venice on the taxpayer’s dime. This is absurd and should stop. 

While I will vigorously oppose any cap on deductions for donations to organizations that are spent wisely, here at home, I suggest treating donations spent in other nations, as non-tax deductible. 

America is the most generous country in the world but it makes zero sense for the tax code to reward private sector behavior that does not add value to our nation. 

Will this reform hurt some international charitable organizations domiciled here? Yes, it would leave big gaps in some nonprofit budgets. But we have our own set of challenges in America — over 45 million people, or 14.5 percent of all Americans, live below the poverty line.

There are kids who don’t get enough to eat, crumbling infrastructure, a rampant heroin epidemic and a crisis in educational attainment, just to name a few. Changing the tax code to put America first not only makes sense, it will help restore fairness to a system that most Americans think is a rigged game.

Wealthy donors would still be able to give all the money they want to keep Venice afloat, but we can finally set aside the false pretense that American taxpayers should help pay the tab.

In addition, we must ensure that we preserve the incentive for individuals to make large contributions here at home. All donations matter, but very large charitable donations — gifts of $1 million or more — have a unique impact on the institutions that are recipients.

These donations create a kind of velocity that fundamentally transforms an institution’s ability to raise enormous other private funds.

Finally, we must examine why taxpayers are subsidizing foundations for earned income. Even though most foundations only spend a very small percentage (around 5 percent) of their endowment earnings on charitable purposes, 100 percent of endowment income is taxed at a low rate of only 2 percent. It’s time we consider raising the tax rate on earned income at foundations to a higher rate, i.e. 5 percent.

The Hudson Institute has estimated these reforms would save taxpayers billions over the next decade. When you factor in eliminating deductibility from donations to developed countries, these reforms would substantially increase the savings.

By focusing our tax code on solving America’s problems, creating American jobs and leveraging new investment in communities across the nation, charitable giving can do more for all Americans.

Yes, let’s save Venice, but not on the taxpayer’s dime.

Earle I. Mack is chairman emeritus of the New York State Council on the Arts and a former U.S. Ambassador to Finland.

The views of contributors are their own and are not the views of The Hill.