Miranda Perry Fleischer (University of Illinois College of Law) has posted Why Limit Charity? on SSRN. Here is the abstract:
In the wake of Hurricane Katrina, Congress temporarily lifted one of the most puzzling limits in the tax Code: the cap that prevents an individual from claiming a charitable deduction greater than 50% of her income, even if she gives more than half her income to charity. Although scholars often criticize the cap in passing for creating unnecessary complexity, few have explored its theoretical underpinnings, and those who have appear hard-pressed to find a satisfactory justification.
This Article fills that void by proposing two complementary explanations for the AGI limits, one grounded in economic theory and one in political philosophy. The economic explanation proceeds directly from the literature conceptualizing the charitable deduction as a way of overcoming market and government failure for various public goods by spurring non-profits to produce them. It suggests that the AGI limits reflect a bargain between individuals whose preferred public goods are fully funded by the government and those whose projects are only partially subsidized. The philosophical explanation is anchored by the idea of reciprocity inherent in liberal democratic theory. It argues that allowing some individuals to pay no taxes, even if supporting a “good” cause, is tantamount to allowing them to opt out of a previously agreed-to scheme of cooperation and undermines the stability of our democratic society.
And a bit more from the text:
Of course, arguing that all citizens must pay taxes to fund legislatively approved public goods does not answer the question of whether partially subsidizing other public goods is either required or allowable in a just society. It is unclear whether a just society would require a charitable deduction that enabled citizens whose conceptions of the “good” differ from that funded through the legislative process to receive partial funding. Although an interesting inquiry, answering that question is not necessary for our purposes.
Instead, the immediately relevant question is whether a charitable deduction is consistent with a just society, and if so, what justice suggests about its structure. As an initial matter, providing partial funding to citizens with differing conceptions of the good appears consistent with a just society, for it respects the reasonable pluralism that results from treating citizens as free and equal. To remain consistent with a just society, the method of providing such partial funding must itself embody the elements of fair cooperation that characterize a just society. In other words, partially subsidizing other public goods through the charitable deduction is just only if it reflects the ideals of fair cooperation.
Enter the AGI limits. By limiting the deduction to some portion of each individual’s AGI, the limits guarantee that every citizen contributes something to the bundle of goods set by the legislative process. This implements the element of reciprocity by not letting anyone completely opt out of the terms to which they previously agreed. The limits thus ensures that the charitable deduction is consistent with our notions of democratic equality by protecting the integrity of that process and honoring as equals those who entered into it.
A very interesting paper! Highly recommended.