In the wake of Hurricane Katrina, Congress temporarily lifted one of the most puzzling limits in the tax Code: the cap that prevents an individual from claiming a charitable deduction greater than 50% of her income, even if she gives more than half her income to charity. Although scholars often criticize the cap in passing for creating unnecessary complexity, few have explored its theoretical underpinnings, and those who have appear hard-pressed to find a satisfactory justification.

This Article fills that void by proposing two complementary explanations for the AGI limits, one grounded in economic theory and one in political philosophy. The economic explanation proceeds directly from the literature conceptualizing the charitable deduction as a way of overcoming market and government failure for various public goods by spurring non-profits to produce them. It suggests that the AGI limits reflect a bargain between individuals whose preferred public goods are fully funded by the government and those whose projects are only partially subsidized. The philosophical explanation is anchored by the idea of reciprocity inherent in liberal democratic theory. It argues that allowing some individuals to pay no taxes, even if supporting a “good” cause, is tantamount to allowing them to opt out of a previously agreed-to scheme of cooperation and undermines the stability of our democratic society.


Estates and Trusts | Legislation | Tax Law

Date of this Version

June 2007