The current fiscal cliff debate is a welcome opportunity to talk about how tax incentives for giving can be better structured to fuel economic mobility. The president's approach to avoiding the fiscal cliff, which includes increased taxes for the wealthiest along with capping deductions only for those making over $250,000 a year, is more balanced than the alternative.
It seems pretty straightforward that if the majority of the country believes that those at the very top of our economy should pay more, then taxing top earners is a more sensible way forward than only cutting deductions. The math adds up and ending deductions would adversely affect charitable donations.
The Chronicle of Philanthropy reports that while it is expected that capping charitable deductions at 28 percent instead of the current 35 percent will impact giving, the amounts are not very significant. Remember, working and middle class people actually make more charitable donations as a percentage of their income than the wealthy do. And it's not just what percent of income people gift, but what they donate to that varies by class as well. The very wealthy are more likely to earmark their contributions for their alma maters than social giving.
This debate gives us an opportunity to look at the policies that are implicit in our tax codes and think more deeply about how these incentives can be better used than they currently are to spur investment in human and social capital.
Most people assume that charitable donations mostly go to organizations that are fighting poverty. It turns out that only 12 percent of donations go to social service organizations, and most of these groups overwhelmingly work to reduce the harsh impact of poverty. Largely, social service organizations are making poverty more livable, not ending it. We need options for our contributing to systems and approaches that build economic mobility and middle class stability.
There is a different set of tools that have not received enough attention or resources that do help people build pathways out and up. People who are working to create paths to middle class stability need capital, investments, to make their plans a reality. In the last ten years of work by the Family Independence Initiative we have consistently seen families transform their lives because we create environment where they can access capital and resources that match their efforts forward and where they are encouraged to work together and develop their social capital. These tools that deliver financial and social capital are a very strong return on investment.
As we talk about tax deductions for the wealthy and their charitable donations, I want to bring our attention to the kind of donation that goes farther, that delivers more bang for the buck: Investing directly in the capacities and resourcefulness of low-income people. These are a kind of opportunity investments that people can use to fuel mobility.
Charitable donations can become investments in mobility when capital flows to scaffold people's efforts to move their lives forward. Matched savings accounts, micro and zero interest loans, and scholarships are but a few of the investment methods that grease the wheels of economic and social mobility. We need to expand the pool of these kinds of opportunity resources and incent their growth. And we can begin by acknowledging that investments that provide the capital that people need to facilitate their initiative, family businesses, education plans, job transitions, and make it over all the bumps in the road on their way to middle class stability are of tremendous value.
When we make it past this fiscal cliff, it's time to put our attention on scaling the mountain of real economic recovery. The only way to regenerate a strong middle class is to finance the initiative and strengths of hard working low-income families. We have a great opportunity to incentivize everyone to invest in the success of these families. Ultimately, their success is good for all of us.
President Obama appointed Maurice Lim Miller to the White House Council for Community Solutions in 2010.
Follow Mauricio Lim Miller on Twitter: www.twitter.com/fiinational