Ripples of Good – How Tax Policy Impacts Charitable Giving
Giving Tuesday, though a relatively new tradition, helps steer us from the transient things that might come from Black Friday or Cyber Monday, and refocus us on the things that have a far larger impact on our communities and societal well-being. Charitable organizations, funded through private donations, play a crucial role in addressing community challenges and bridging gaps that would otherwise prevent some individuals from thriving. Whether religious institutions, soup kitchens, library and reading programs, or the myriad other forms of charitable causes, philanthropic giving allows these groups to help communities grow opportunity and well-being while developing a shared purpose – all voluntarily. According to the National Center for Charitable Statistics, there are over 1.5 million charitable causes operating in the United States, to which nearly $360 billion was donated in 2014. Furthermore, for non-monetary donation, 64.5 million people spent over 12.7 billion hours volunteering in 2012. The impact that these organizations have on communities and local economies is substantial. Unfortunately, the important role that charities play too often remains overlooked in public policy discussions.
Charitable giving does not occur in a vacuum. While giving may often seem like something defined by an individual’s moral mindset, giving capacity is largely a function of income, expenses, and the perceived quality of the charitable causes available to the giver. Of course, there are many expenses that are not mandatory, and individuals who see high value in a particular charity might seek ways to reduce or eliminate these. Taxes, however, are one of the expenses one cannot easily eliminate without the help of public policy. It makes sense then, that increasing someone’s tax burden is likely to impact their philanthropic giving – and we see this effect throughout the states.
In an ALEC State Factor: The Effect of State Taxes on Charitable Giving, researchers use regression analysis to study the impact of state tax rates on charitable giving across the states, and find that an increase in a state’s personal income tax burden is associated with a decline in the growth rate of a given state’s charitable giving. Further, the research found that an increase in the personal income tax burden is correlated with a drop in the growth rate of charitable giving. This means that when we take money out of the hands of individuals, regardless of the purpose, those individuals choose to give less to charity. There is no doubt that there are tax-funded government programs that aid communities and individuals in need, but we should be wary of expanding these too greatly at the expense of the community-based organizations and charities that will have a far better idea of the needs of their community, and be much better equipped to fill the gap.
It is clear that state tax and regulatory burdens play a large role in the health of charitable giving. States with higher taxes strongly correlate with less giving, while states with lower taxes tend to see higher rates of giving. This Giving Tuesday, let us ensure that the discussions about tax policy in state capitals around the country consider their effects on charitable giving.