Generous to a Fault? Fair Shares and Charitable Giving

Miranda P. Fleischer, University of Illinois College of Law

Abstract

Given the vital role that charities play in our society, it is not surprising that the tax Code encourages philanthropy by allowing a deduction for charitable gifts. What is surprising is that it treats the most generous among us less favorably than those of average generosity. This stems from one of the most puzzling limits in the Code: the cap preventing someone from claiming a charitable deduction greater than 50% of her income, even if she gives more than half her income to charity. As a result, someone generous enough to donate all her income must still pay income tax. Few scholars have explored this rule’s theoretical underpinnings or the broader question whether an individual who gives all her income to charity should still pay tax. Those who have seem hard-pressed to satisfactorily answer that question. This Article begins to do so, relying on the literature conceptualizing the deduction as a way of overcoming market and government failure for various public goods by spurring non-profits to produce them. It argues that precluding taxpayers from zeroing out their tax liability via charitable gifts reflects a bargain between individuals whose preferred public goods are fully funded by the government and those whose projects are only partially subsidized, and that this bargain is necessary to reconcile the private provision of public goods via charitable giving with our democratic legislative process.