The House Committee on Ways and Means recently held a hearing on the charity tax deduction, which revealed two very important dimensions of the issue that have gotten little public notice. (Thanks to Rhett Butler, government affairs director of the Association of Gospel Rescue Missions for this information.)

Some charities are more dependent than others on donation income. Discussions of the effects on giving, and thus on charities, of shrinking or ending the charity tax deduction assume that all charities depend equally on private donations to fund their work. And yet that is clearly not the case. Some charities receive some or much government funding and significant income from sales, special events, or fees for services provided. In all of these cases, they are less dependent on charitable contributions and thus less dependent on the incentive to give that is provided by the federal tax deduction.

On the other hand, gospel rescue missions are heavily dependent on those charitable contributions. Here is what John Ashmen, President of the Association of Gospel Rescue Missions, testified:

“[M]issions are not fee-for-services entities, so they are extremely dependent on the generosity of private donors to care for the poor and homeless. To say that another way, private donations do not supplement the income that rescue missions receive; they are the primary source of their income. For example, Crossroads Center Rescue Mission in Congressman Smith’s Nebraska district receives 99 percent of its annual funding from individuals.

“Rescue missions have for years counted on the current charitable deduction as an effective incentive for donors to give. And they dread what might happen if that incentive is reduced. And let me add that very few rescue missions accept government aid because they desire to protect their religious identities–which, in most cases, is what motivates their deep desire to serve.

“[Furthermore,] because rescue missions rely so heavily on private giving, they are especially vulnerable to even small drops in charitable contributions–and every drop impacts services. For example, for every $2.05 a donor does not give to Rescue Ministries of Mid-Michigan in Chairman Camp’s district, that’s one less free hot meal they can provide. And for every $30 that does not come in, that’s one less ‘Hope and Care Package’–which is three meals, overnight accommodations, and hygiene products-that cannot be provided to a homeless adult or child.

“Every donor and every donated dollar is essential to the daily work of rescue missions. And while prices of goods and services go up all around them, rescue missions cannot fall back on raising their rates because they have no rates–only expenses. You could even say that rescue missions are just as vulnerable as the people they serve.”

Rhett Butler of AGRM notes that, notwithstanding the fact that different charities are more or less dependent on gift income, the tendency of experts on the charitable deduction is to assume that most charities can count on much income from other sources, so that any reduction to giving caused by a change in the tax deduction will be moderated by the other income sources. Clearly that logic ignores the situation of these gospel rescue missions, and also that of many other nonprofit organizations.

Should government define what is authentic charity? Another danger revealed by the hearing is the growing trend among some activists and legislators to redefine what is a true charity–the kind of organization and action that “deserves” government encouragement through the charity tax deduction. Some want to target the government’s encouragement to organizations that serve low-income and minority communities instead of allowing symphonies, houses of worship, and other kinds of good works also to receive tax-deductible gifts. And some want to make it a requirement of charitable status that the organization serves and employs specified percentages of racial and sexual minorities. In either case, the tax incentive to give to certain charities would be cut merely because their assessment of what good to do and how to do it differs from the views of particular activists.

In short, just as the Bible says, the love of money–in this case by legislators seeking a solution to our huge national debt–is the root of many evils.

For more on the impulses to redefine what is charitable activity and how it ought to be carried out, note several past discussions sponsored by the important Bradley Center for Philanthropy and Civic Renewal:

“Philanthropy at Its Best? A Discussion of NCRP’s New Benchmarks for Foundations,” May 28, 2009.

“How Public Is Private Philanthropy?” June 19, 2009.

“Mandating Multicultural Munificence?” April 7, 2008.