Higher taxes don’t just ‘eat the rich,’ contrary to what we hear so often.
A s inflation, tariffs, and other economic woes start afflicting the working class, Americans must not ignore the quiet rumble of tax reform on Capitol Hill, which poses additional concerns for those who are already struggling — especially the most financially vulnerable among us.
With key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) set to expire at the end of this year, Washington is debating tax reform behind closed doors, and their decisions will reverberate through every corner of American life. If tax reform isn’t approached thoughtfully, the impact on those already facing significant challenges could be disastrous.
Higher taxes don’t just “eat the rich,” contrary to what we hear so often. They have an outsized meaning in the lives of ordinary people. They shape the resources available for families to meet basic needs, and the generosity of individuals to fund the charities that fill in the gaps. While some are shouting about cuts to federal aid programs, the real bogeyman looms large: When tax policy stifles economic growth or makes financial giving harder, the poor lose — first and hardest.
Consider the TCJA’s near-doubling of the standard deduction and the lowering of individual rates. If that lapses, millions will find themselves filling out more paperwork to hand over a larger slice of their income to Uncle Sam. For struggling households, this means less money for rent, groceries, and medical bills, the costs of which have skyrocketed in recent years. It’d be a direct hit to the financial stability of the most vulnerable, and would further strangle their ability to improve their family’s prosperity.
The squeeze won’t stop at their paychecks. The nonprofit sector, which provides lifelines like food and job training, relies on the generous donations of Americans who want to lift up their communities by supporting the causes closest to their hearts. A heavier tax burden on middle- and low-income earners depletes their ability to make charitable contributions, with devastating consequences for the nonprofit organizations that depend on them. Look no further than the opioid epidemic to understand how communities are devastated when institutions that provide support can’t help people.
The TCJA made it possible for more people to donate more to charity by raising the cash deductions on charitable donations from 50 percent to 60 percent of their income. This change can amount to thousands of dollars in additional giving, a game-changer for small nonprofits around the country.
If the cap reverts to 50 percent at the end of the year, that generosity can wither, leaving charities underfunded and those most in need underserved. Many nonprofits run on razor-thin margins, and even a modest dip in giving could force cutting essential services and programs. Think of food pantries shuttering, shelters turning people away, and health clinics closing their doors. The consequences this policy reversion could have on the fabric of communities across the country would be disastrous.
As lawmakers continue crafting the next tax package and how to pay for it, they must not turn philanthropy into Washington’s piggy bank. Targeting charitable donors risks turning America’s safety net into collateral damage for the sake of a policy experiment. There’s a better path: Congress could simplify the tax code, lower rates, or phase out subsidies that distort the market — all without undermining the charitable sector.
Tax reform is bigger than economics. It’s about the kind of society we want to be. Do we value generosity? Do we protect those who fall through the cracks? Do we want our citizens to be part of the solution in solving society’s biggest problems?
Nonprofits that make up our thriving civil society fill the gaps that government programs often overlook or aren’t well-positioned to address. Weakening them at a time of increasing need would betray the very values that we claim to hold dear.
The impact of taxation is simple: Tax something, and you get less of it. Penalizing charitable giving means donations will decline. The poor will feel it most as nonprofits face mounting pressure to scale back just when they’re in high demand.
If Congress gets this wrong, the cost won’t just be measured in dollars but in lives — the lives of those who depend on the generosity of others to survive. Let’s not allow tax reform to harm the poor. Instead, let’s craft a system that protects and uplifts every American, starting with those who need it most.