This article critically reviews the current rationales for the federal income tax system’s favorable treatment of philanthropy, gives those rationales a new descriptive synthesis based on de Tocqueville’s account of American democracy, and offers a normative alternative based on neo-classical ethical and political theory. It first identifies the two basic normative questions: What is the function of philanthropy that warrants favorable tax treament, and how well does favorable tax treatment advance that function? It then examines the answers of three distinct phases of normative tax theory: the traditional subsidy thesis, the antithetical technical definition of income theory, and a set of synthetic theories that combine elements of both prior theories. That review reaches a paradoxical conclusion: Although the charitable exemption and deduction are perhaps impossible to justify in any other way, together they almost perfectly co-ordinate three basic features of American society: the populist and anti-statist sources of American philanthropy, the consumerist orientation of our form of market capitalism, and our tax system’s reliance on income as its principal revenue source. Finally, this paper outlines an alternative, neo-classical justification for favoring philanthropy, grounded in both the constitutional values of justice and general welfare and the ethical and political theories of Plato and Aristotle.
Available at: http://works.bepress.com/robert_atkinson/8/