The Dual Subsidy Theory of Charitable Deductions

Americans contribute billions of dollars to charities on an annual basis. Charitable contributions do not only represent American generosity, however; they also represent a form of giving that provides donors with tax relief. The current literature on charitable contributions suggests that this relief plays an important role in not only decentralizing the provision of public goods, but also in helping the non-profit sector provide public goods more efficiently than government spending. Even if these claims were indisputable, however, they are insufficient to justify the current scheme's anti-democratic function. This Article argues that, at their core, tax-subsidized contributions are part of a non-democratic mechanism that allows individual donors to direct public funds while bypassing majority approval. Despite their non-democratic attributes, this Article recognizes the virtue of charitable spending in voicing preferences not accounted for by the majoritarian process. Therefore, while the current literature suggests that charitable tax-relief represents a substance subsidy - by promoting the allocation of resources towards a confined set of legislatively enumerated public goods - this Article argues that it is also a process-subsidy that supplements the shortcomings of majority decision-making. This dual subsidy approach leads to the inevitable conclusion that current U.S. charitable tax relief scheme undermines the integrity of the majoritarian process, because it disproportionally subsidizes the process component of affluent taxpayers. To better reconcile with democratic theory, many of the scheme's attributes - e.g., tax-subsidies to corporate philanthropy - should be reconsidered and restructured. In raising this point, this Article opens a broader debate about the proper role of majority decision-making and efficiency claims in legitimizing democratic tax and spending decisions