The Politics of Hidden Policy: Feedback Effects and the Charitable Contributions Deduction

• Author: Kelly L. Russell
• Published date: 01 March 2018
• Date: 01 March 2018
• DOI: http://doi.org/10.1177/0032329218754504
• Subject Matter: Articles

https://doi.org/10.1177/0032329218754504

Politics & Society

2018, Vol. 46(1) 53 –80

© 2018 SAGE Publications

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DOI: 10.1177/0032329218754504

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Article

The Politics of Hidden

Policy: Feedback Effects

and the Charitable

Contributions Deduction

Kelly L. Russell

University of Michigan

Abstract

Policy feedback, or the process in which policies create constituencies vested in

their maintenance, is a durable feature of the American welfare state. Scholars have

shown that policy visibility conditions how feedback effects unfold: for public-private

policies—arrangements in which the state delegates service provision to private actors,

often described as “hidden” or “submerged”—policy feedback typically galvanizes not

citizens but market actors that benefit indirectly from these subsidies. This article

extends theories of public-private policy feedback from market actors to charitable

organizations through a case study of the charitable contributions deduction. The

deduction’s incremental expansion is found to have mobilized charities as powerful

stakeholders in the policy’s endurance. Charities’ efforts to protect the deduction,

together with the efforts of lawmakers, have couched the policy in a politics of

neoliberalism and disguised its effects, insulating it from reform even as elites have

netted a greater share of its benefits over time.

Keywords

Policy feedback, charitable organizations, tax expenditures, social policy, public-

private welfare state

Corresponding Author:

Kelly L. Russell, Sociology Department, University of Michigan, 3001 LSA Building, 500 S. State St., Ann

Arbor, MI 48109-1382, USA.

Email: klruss@umich.edu

754504PASXXX10.1177/0032329218754504Politics & SocietyRussell

research-article2018

54 Politics & Society 46(1)

In the early days of 2013, the US government faced a singular dilemma: too much debt.

On the eve of the new year, the Treasury had taken extreme measures to finance the

government in order to offset a projected fiscal cliff, which experts feared would exacer-

bate unemployment and slow economic growth. As a result, the government hit its debt

ceiling and found itself in desperate need of revenue. Lawmakers, seeking quick solu-

tions to the mounting crisis, came up with a proposal: to quickly reduce expenditures, the

state could place limits on the tax deduction for charitable contributions. The idea gained

steam in the halls of Washington as legislators began to debate possible forms such a

limit could take, from percentage and absolute dollar caps on the deduction to its replace-

ment with a more modest tax credit. Once publicized, however, proposals to limit the

charitable deduction came under fire. Charitable organizations excoriated them, arguing

that a cap would threaten nonprofit organizations and punish those in need. As one chari-

table leader argued: “Millions of poor Americans will pay the price. Without the gener-

ous support of America, nonprofits will be forced to abandon their work.”1 Charities

characterized the deduction as a broad social benefit and a core source of support for

nonprofit organizations in their efforts to meet public needs—needs that the government

“cannot or will not attempt to address.”2 Awash in controversy, proposals to alter the

charitable deduction were abandoned and the policy went untouched.

Indeed the charitable deduction has gone untouched for most of its century-long his-

tory. The policy is one of the oldest features of the United States’s public-private welfare

state—the collection of policies and programs that provide benefits to citizens through

indirect means.3 Established in 1917, the deduction was designed to serve a much differ-

ent purpose than the one heralded by nonprofit organizations some hundred years later.

Lawmakers created the deduction to incentivize elite philanthropy in the heyday of

World War I: at the time, elites were the only citizens required to pay income taxes, and

lawmakers enacted the charitable deduction to encourage elites’ support of private orga-

nizations despite a significant tax hike to fund the war effort. The deduction’s designers

viewed the policy as a quick fix to a specific problem. Its creation predated the modern

American welfare state—and the large-scale privatization of public provision that began

in the post–World War II years and gained steam in the latter third of the twentieth cen-

tury.4 But the deduction has endured within the tax code ever since, and though its formal

parameters have remained quite stable, its size and scope have transformed considerably

as socioeconomic conditions have evolved. The policy’s size in terms of raw dollars

deducted has ticked upward from $4 billion in 1917 to over $200 billion today, and its

benefits have expanded beyond elites to include the middle class; today, nearly a third of

taxpayers take the charitable deduction. As the deduction has grown, charitable organi-

zations have emerged as the policy’s most powerful constituency, collectively mobiliz-

ing to protect and expand its parameters in moments of contention. They have largely

succeeded in this effort, and their interpretation of the policy as a cornerstone protection

for nonprofits and the welfare services they provide carries considerable weight today.

How has the charitable deduction transformed from a modest subsidy for elite tax-

payers to one of the nation’s costliest tax expenditures? Why has the policy, designed as

a complement to state spending, become a conduit for the private provision of public

goods? In this article, I argue that the charitable deduction has been transformed through