Question: When is a thousand dollars not a thousand dollars?
Answer: When you use your credit card to donate that amount to a charity.
A moment's thought explains the answer. Whenever you use a credit card, the bank charges the vendor (in this case a charity) a fee of anywhere from 2.5 to 5 percent. If you give the Leukemia and Lymphoma Society, for example, $1,000 using your credit card, the charity will receive at most $975 if the card fee is 2.5 percent. Sometimes large charities, such as the society, will be able to negotiate a discount on the fee.
So far, this made sense to me until I realized that while the charity books $975 in income from my donation, it thanks me for giving the full $1,000--the amount I later deduct from my personal income as a charitable contribution. Given the millions of deductable contributions made on credit cards, it is not too much of a stretch to realize that the government is losing a chunk of revenue to the banks on such transactions.
Reasonable explanations for this odd state of affairs--that is, giving the banks yet another windfall--are made by both the charities and the banks.
The charities regard the credit card fee as just another cost of raising money. If they are willing to pay professional fundraisers, they should have no problem paying a small fee to the banks. As for the banks, they do not distinguish between a transaction that benefits a charity and one that serves any other kind of vendor. They incur the same cost and assume the same risk for providing this very convenient service, whether the money is used to pay off a bribe or to find a cure for leukemia.
Of course, the "other windfall" I referred to above is the huge bailout given to Wall Street by taxpayers in 2008 and 2009 when the economy was about to implode. I note that fact without any suggestion that the bailout was either necessary, too much or too little. However, it was given with no strings attached, which meant that little is known about what actually happened to the money.
As I write this, the House of Representatives just passed a bill that belatedly attaches some strings in the face of massive industry lobbying. Senate action may follow.
In the meantime, as many of us can attest, the banks have added new transactions fees and raised interest rates on their credit cards in anticipation of new regulation.
Now would be a good time to add another "string" to the bailout dollars we gave the banks. This new string would aid both the Treasury and many charities with little more than the stroke of a pen. The new legislation should include a line of text that would prevent a bank from imposing any fee on a credit card transaction intended as a donation to a charity.
The banks would scream bloody murder, certainly, but they are hardly in a position to scream too loudly. The cost to them in foregone revenue would be a pittance compared to both their overall revenues and the billions in bailout dollars they've already received.
The direct benefits of such a rule to the Treasury and the charitable sector would far outweigh the cost--not harm--to the banks.
When the banks do object, as they will, they should be reminded that the taxpayers saved their industry so they could continue to exist, not to prosper. Beyond that, there is the notion of a corporate duty to society in addition to that owed to shareholders. I am under no illusion that these fairness arguments will change any banker's view, but they could empower Congress. If Congress acts, $1,000 will be $1,000 again for charities.
If not, next time write a check.
