How do taxes affect charitable giving in the United States? Some observers believe that taxes paid to the IRS cause Americans to give less to charities. Others argue that tax cuts do more harm to philanthropy. Still others insist that taxes have no effect on private giving whatsoever. Are taxes and philanthropy a zero-sum game? The following essays and articles examine the reasoning behind each opinion.
Philanthropy Can Thrive without Estate Tax
Paul G. Schervish. The Chronicle of Philanthropy, January 11, 2001.
Paul Schervish, professor of philanthropy and director of Boston College’s Social Welfare Research Institute, used to oppose notions of revamping or abolishing the estate tax. But he now believes that repealing the tax would lead to greater national and personal economic growth, which could in turn stimulate charities. Charity and foundation officials have been traditional proponents of the estate tax, arguing that eliminating it would undermine philanthropy. But Schervish believes that many tax avoidance schemes are economically unproductive. He sides with the economic experts who say that abolishing the estate tax would increase the gross domestic product by nearly $1 trillion during the next decade and create almost 275,000 jobs. Schervish believes that stimulating the economy and creating more wealth is the best way to foster philanthropy. While he does not guarantee that charitable giving will continue to increase at the same rate it has been increasing if the estate tax is phased out, Schervish says there is reason to believe that such a move could actually increase the amount given to philanthropy. And this change would certainly increase the quality of giving, because it would make charitable giving more a voluntary work of “spiritual depth, ... liberty and humanitarian care, and less the windfall fruit of a convoluted tax strategy.”
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New Poll Shows How Wealthy View Estate Tax, Other Giving Issues
The Chronicle of Philanthropy, January 25, 2001.
Eliminating the federal estate tax would not cause most people, including the wealthiest Americans, to change their charitable-giving habits, according to the results of a poll on philanthropic behavior and motivations. The estate-tax issue was included in a survey designed to gather views of the wealthiest Americans on a wide range of philanthropy issues, and compare them to the responses of the total population. For the most part, the study did not find major differences between the views of wealthy people and those of all Americans. Perhaps the only topic on which wealthy people and the total population diverged significantly was the influence of tax and estate laws on giving. More than half of wealthy people said tax benefits induce them to give, while 28 percent of the total population cited taxes as a motivation.
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Study Links Tax Breaks with Increase in Giving
Thomas J. Billitteri, Stephen G. Greene, and Grant Williams. The Chronicle of Philanthropy, December 11, 1997.
To the question of whether tax breaks influence charitable giving, three researchers offer a conclusive answer: yes, especially for high-bracket taxpayers. Wealthy people give significantly more to charity than they would were their contributions not deductible from taxes on their income or estates, say the authors—Gerald E. Auten, Charles T. Clotfelter, and Richard L. Schmalbeck—of a paper presented at a conference at the University of Michigan.
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The Flat Tax: A Charitable Assessment
Elaine Chao. Philanthropy, May/June 1999.
While the thrust of this article addresses the relationship between the flat tax and charitable giving, it also addresses the primary causes for giving, none of which have anything to do with taxes. In fact, “Tax-code reforms—even ones that abolish the charitable-giving deduction—won’t depress the level of giving.”
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Global Philanthropy Depends on Tax Laws
Nina J. Crimm. The Chronicle of Philanthropy, April 3, 2003.
As President Bush aggressively pursues the wars on terrorism, anti-American sentiment is evident in many countries, not only in those that are predominantly Muslim. One way to contribute to resolving the problems underlying such deep divisions between the United States and “the rest of the world,” writes Crimm, is to encourage America’s citizens, corporations and nonprofit organizations to provide financial support overseas in order to expand the number of nonprofit groups, to stimulate economic development, to promote health care and education, to build social capital, and to take other steps to foster free, stable and open societies. Thus, global philanthropy is a key ingredient. But for it to be truly effective as a major component of America’s foreign policy, we must make changes to our tax laws.
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Estate-Tax Repeal Would Hurt Giving, Report Says
Debra Blum and Elizabeth Schwinn. The Chronicle of Philanthropy, June 26, 2003.
If the estate tax were repealed, Americans would give about $10 billion less each year to charity than they now do, according to a report by OMB Watch, a Washington group that monitors government spending. Hardest hit, says the report, are private foundations, which typically receive the greatest share of money from charitable bequests.
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Charitable Bequests and the Repeal of the Estate Tax
Robert McClelland. Technical Paper Series. Washington: Congressional Budget Office, 2004.
The Economic Growth and Tax Relief Reconciliation Act of 2001 will phase out the estate tax over 10 years until it is fully repealed in 2010. This report from the Congressional Budget Office examines the effect of this tax repeal on charitable bequests. It cites the reports of David Joulfaian and Bakija, et al., which differ in the exact figures they present but agree that the effect will be significant decline in charitable giving. The report argues that charitable bequests will decline by 22 percent as a result of repealing the estate tax. This report is a detailed analysis of, rather than an explanation for, this occurrence. It does, however, mention the obvious assumption behind the supposed decrease in giving: Many who give to charitable organizations out of a desire to reduce their amount of taxable estate would have little incentive to make charitable gifts if the estate tax is repealed.
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