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While in Saudi Arabia attending the seventh Nonprofit Development Forum, I was fascinated by reports that the Senate had made a deal on tax reform. In Saudi Arabia, I presented case studies on how the U.S. government works with the not-for-profit sector in service delivery. The hope was that the Saudi Arabians could use lessons learned as they developed a new yet rapidly growing sector in the quest to build a balanced economic system as part of Saudi Arabia Vision 2030.
As the day unfolded and I listened to amazing presentations and follow-up questions, I was struck by the search for research-based policy ideas. It’s clear the not-for-profit sector and philanthropy will play an important role in Saudi Arabia Vision 2030.
I find it fascinating that Saudi citizens give tremendous amounts of donations but with no tax deductions. Saudi Arabia has no income tax. Its citizens give entirely based upon generosity that draws upon their Islamic faith. Muslims are required to give 2.5 percent of their wealth to specific causes. However, Muslims are strongly encouraged to practice philanthropy beyond zakat. Corporate leaders in Saudi Arabia seek to give large parts of their wealth away as part of family or corporate foundations with no perceived benefit.
In the United States, the tax reform debate has little connection to research, data or thought-out policy implications. The idea is that if one blindly slashes tax rates for big corporations and wealthy individuals, that will somehow spur growth and create jobs.
History suggests that has not been the case. President Reagan’s tax cuts were followed by a recession that resulted in George H.W. Bush’s failing to win re-election. President George W. Bush’s tax cuts were followed by the Great Recession. I am not arguing the tax cuts caused these downturns, but we have no evidence they spurred economic growth. In fact, each recession left the middle class and poor worse off. Both times, the rich ended up richer.
Furthermore, experts argue this tax reform will devastate charitable giving that’s critical to not-for-profits. The legislation taxes university endowments that are used to provide need-based scholarships using assistance to students in need. The small scholarship my wife and I set up to reduce debt for future public schoolteachers will be able to help fewer people.
Unfortunately, the tax reform act will end up hurting the middle class who have traditionally been drivers of growth. The rich will get richer, the poor will have a smaller safety net, and the middle class will have less chance of upward mobility—all while our nation becomes poorer and more in debt.
The modern GOP is about ideological slogans. Republicans are too stubborn to understand that public policy is about nuance, a delicate balancing of priorities that requires a surgeon’s scalpel rather than a sledgehammer.
The legislation, if successfully enacted, would be transformative to the American economy. Not because it would spur growth or create jobs. Rather, it would exacerbate economic inequality and harm the not-for-profit sector that has been an important part of national identity. It would reduce opportunity to achieve the American dream and instead provide our nation with another fiscal nightmare.
U.S. policymakers would be better served to emulate a research- and evidence-based approach to policymaking.•
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Siddiqui is an attorney, has a doctorate from the Lilly Family School of Philanthropy at IU and leads the Association for Research on Nonprofit Organizations and Voluntary Action. Send comments to ibjedit@ibj.com.
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