RALEIGH – There’s a lot of interesting conversation going on right now about the economics and politics of charitable giving. I think it’s welcome and fascinating, though sometimes emotions and knee-jerk reactions are getting the best of the participants.
One set of issues has to do with the relationship between tax incentives and giving. In the context of reforming tax codes to broaden the base and lower the rate, some have argued for eliminating federal tax deductibility of charitable gifts, state and local deductibility of nonprofit assets from property taxes, or perhaps both. Challenging the assumption that ending these tax breaks would devastate charities, some researchers point to historical data and polling to demonstrate that the motivation to give is not formed in response to tax law, and that changing tax policies could not dramatically change charitable budgets.
It’s true that finding empirical evidence for the tax effect is more challenging than you might think, though that may be a function more of the inadequacy of historical data than anything else. I remember an occasion years ago when I was studying a table of charitable giving as a percentage of U.S. household income going back many decades. The percentage was remarkably stable at just above 2 percent, give or take a few tenths of a point. During periods of high and lower growth, high and low marginal tax rates (which affects the value of a tax exemption), and other variables, the giving rate did not dramatically change. Of course, the amount given, even after adjusting for inflation, did change, mostly in tandem with economic performance.
From that, the most reasonable conclusion seemed to be that if you want to maximize charitable giving, maximize economic and income growth. If that means reducing the value of tax deductions as part of a growth-enhancing tax reform (which is effectively what happened in the early 1960s, early 1980s, 1986, and 2001-03), the result will benefit charities by putting more actual dollars in their coffers than would otherwise have been there. That’s not to say that I don’t believe the average charitable-giving rate shouldn’t be a lot higher than 2 percent of household income, at least over time. But I’d prefer to use voluntary means to accomplish that. Among other reasons, the coercive approach – using taxes to force people to be charitable, which does violence to the meaning of “charitable” – has apparently not accomplished the objective. It has not increased the propensity to give much, if at all.
A fruitful way to proceed would be to study carefully the findings of Arthur Brooks’ much-talked-about new book, Who Really Cares. Brooks, director of the Nonprofit Studies Program at Syracuse University, argues that the best-available evidence shows self-identified conservatives to be more charitable than self-identified liberals – after adjusting for income and other relevant variables. The crudest version of the resulting debate between the Right and Left has been less than satisfactory, with the former crowing and the latter, angrily, crying foul. Both sides should calm down and read more carefully. The difference is there, yes, but it is not a yawning gap. You can’t fairly say that the “typical” conservative is generous and the “typical liberal” is stingy. (A thoughtful series of posts about the book on the Volokh Conspiracy blog explores the matter in more depth.)
What’s really useful about the book is when it goes beyond the labels and explores specific propositions. For example, those who express support for the idea that government should forcibly redistribute income are less likely to be generous with their own money than those who oppose income-redistribution. Makes sense to me.
My favorite quote from Brooks: “If liberals and moderates gave blood at the same rate as conservatives, the blood supply of the United States would jump about 45 percent.” I’d rather B positive than O (so) negative.
Hood is president of the John Locke Foundation.