The facts–as elegantly stated in a Congressional Research Service study that came to the same conclusion–are these:
The estimated effects of the cap and other elements of the budget package depend on whether the proposals are compared with the current tax rates of 33% and 35% or the rates scheduled for 2011, 36% and 39.6%. Compared with current rules, estimated effects are between one-half a percent and 1% decline in charitable giving . . . . When compared with tax rate provisions in 2011, charitable deductions are estimated to fall by about 1.5% if only the cap is considered, but if income effects from the entire budget package are included contributions actually rise 2.5%. The relatively modest effects of the proposal arise because (1) the effect of caps on the subsidy value is limited, (2) only a fraction (about 16%) of charitable giving is affected, and (3) because evidence suggests that behavioral responses to changes in subsidies are relatively small.
(Emphasis mine.) To paraphrase: the tax subsidy isn’t much reduced; that small reduction doesn’t affect 84% of charitable giving; and, in fact, charitable giving isn’t all that tied to tax benefit.
So whether we take the IUPUI findings that charitable giving is likely to decline modestly if these tax reforms are enacted, or the CRS findings that it might actually go up, we should realize that everyone who’s hyperventilating about the impact of these changes on their poor struggling private school, museum or hospital should just take a deep breath. Given that the reforms will support many of the social programs, environmental protections, educational institutions and health care options the nonprofits themselves seek to provide, it’s about time for the community to stop whining and agree to pony up.
Tags: charitable deduction, charity, nonprofit, not for profit, taxation
I think we should retain some sort of deduction for contributions, for a reason I’ve never seen anyone mention. Those who have an accountant do their taxes have to reveal their giving to someone they know. It’s embarrassing to look like a cheapskate.
I was raised to believe that a higher marginal rate increases the amount of charitable contributions, because the cost of tax-deductible charitable giving has just gone down.
(Byomtov-I don’t know if your observation is true. But it’s delicious!)
Thank you.
Good to see a shout out to the CRS, which is a great and under-heralded source of concise and useful research on all manner of topics. http://opencrs.com/
I’m much more worried about the ending or reduction in the estate tax. There are so many more billionaires and multi-Ms that I worry that without a hefty estate tax they will be balancing a decision : hmmmm, family dynasty or named museum/hospital wing, hmmm … …
I think dynasty will prevail way more than the society we think is “normal”.
So, let’s change the inheritance tax to be that:a tax on what is passed on or handed out. True charities/tax sheltered civics are deducted, then allow $5M to any and every person designated by the dead guy.All amounts above $5M are taxed at some rate - either special provacative inheritance rate, or at the receiver’s own income tax rate.
Note that my plan is directed at the receivers, so that there is no charge of double taxation on the dead guy. He’s thru - dead - and his stuff goes to people who will be taxed.
I don’t know about museums and other such flashy nonprofits but when I was running a small, local 501c3 our support came mostly in the form of small donations from pepole who gave because they believed in our work. The deduction they could take was more an honorarium and I doubt many gave it much thought as a financial consideration.
The tax deductability could be seen more as a stamp of official approval so the public knows that someone has looked at the seriousness of the organization and things are being done on the up and up.
Now that I think about it we did get some pledges from wealthy individuals and foundations. But sadly they always seemed to renege after heming and hawing for a long time. The rich don’t get that way by giving it away.
But our volunteers and small doners kept coming and giving their quiet, steady support. They still are as the organization survives and thrives nearly a decade after my departure. Small, local, slow and steady. Just not flashy enough to make the rich get exited. After all we only help people, we don’t buy Picassos.
“.. impact of these changes on their poor struggling private school, museum or hospital..” Like, for example, Princeton? The Museum of Cord Motor-Cars in Auburn, Indiana? Liberty University? Sidley Friends? What I am leading up to, here, is the ability of donors by donating to extract from taxpayers money for their preferred charities, and the mismatch between those charities and what could plausibly get appropriations from a democratically elected legislature. If the government reduces my tax obligation by 30 % of the money I give to the Museum of Cord.. then that money has to be made up somewhere, if school lunches are to be maintained.