Friday, December 13, 2013

Is the charitable tax deduction an efficient means for incentivizing donations?

With the end of the year looming, many Americans find themselves deliberating over which charity they should write a check to. Why? For at least some people who actually believe this to be true, the reason is often the charitable tax deduction.

A December 2012 Marketplace article explained the “holiday season is the time when many Americans do their end of the year charitable giving. A third of American tax payers itemize deductions and 80 percent of those Americans take advantage of the charitable tax deduction.” The phenomenon that is end of the year giving and the benefits of the charitable tax deduction were revisited in a Marketplace article from earlier this week.

The recent article traces the genesis of the charitable tax deduction back to the Gilded Age, “a time when a small group of Americans were making very large amounts of money, and giving some of it away to start schools and museums and libraries and fund other causes they cared about.” The article provides that with the start of the First World War in 1917, U.S. Senator Henry French Hollis was worried Congress’ plans to finance the war by raising the top rate of the income tax from 15 percent to 77 in only a few years would have an adverse affect on philanthropy. Hollis worried the wealthy would stop donating because he believed people usually “’contribute to charities out of their surplus. After they've done everything else they want to do, after they've educated their children and traveled and spent their money on everything they really want or think they want, then, if they have something left over, they will contribute.’”

The article explains the research on the degree to which the charitable deduction has actually affected the amount of money people give every year is divided, but the goal of the deduction, to incentivize charitable giving, has always been clear.

Does the charitable tax deduction incentivize charitable giving? If so, to what extent has it been successful?


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I will state that when my wife and I decide to make charitable contributions, I do tend to prefer those that permit deductions (ex., giving by check to Salvation Army rather than placing cash in the pot).

Posted by: Tom N | Dec 19, 2013 9:24:22 AM

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