December 11, 1997 | Read Time: 2 minutes
To the question of whether tax breaks affect charitable giving, new research offers an updated answer: Yes, especially for high-bracket taxpayers.
Charity officials for years have wanted to know whether tax deductibility increases the overall level of donations or merely affects the timing of gifts, as wealthy donors seek to derive maximum tax benefits from gifts they would have made anyway. The question is of particular relevance now as some influential members of Congress are urging a wholesale overhaul of the tax laws.
“If taxes . . . influence mainly the timing of gifts and not their long-run level, there would be less reason to believe that tax changes would have a significant long-term impact on giving,” say the authors of a paper presented at a recent conference at the University of Michigan. Some policy makers contend that giving depends very little on tax considerations and that eliminating the charitable deduction would not depress donations.
But, in fact, wealthy people give significantly more to charity than they would if their contributions were not deductible from taxes on their income or estates, say the authors — Gerald E. Auten, Charles T. Clotfelter, and Richard L. Schmalbeck. Mr. Auten is a financial economist at the U.S. Treasury Department; Messrs. Clotfelter and Schmalbeck are professors of economics and law, respectively, at Duke University.
They based their findings on a study of more than 9,000 tax returns for the years 1979 through 1990, a period in which the highest tax rates on income of $200,000 dropped from 50 per cent to below 30 per cent.
Economic researchers traditionally have believed that charitable giving is highly responsive to the charitable deduction — to the extent that a dollar in tax subsidy (through the deduction) would increase giving to charity by more than a dollar. In recent years, however, researchers using new statistical methods have challenged that view, saying that tax considerations affect the timing of gifts but have little effect on overall giving.
“We do find significant tax effects on giving,” Mr. Auten said, “but the effects are intermediate between the two earlier strands of research and seem to be largely due to the responses of the highest-income households.”
Proceedings of the October conference are scheduled to be published as a book next year. Meanwhile, copies of the paper, “Taxes and Philanthropy Among the Wealthy,” are available from Mr. Auten at the Main U.S. Treasury Building, Room 4203, Washington 20220 (or by e-mail: gerald.auten@treas.sprint.com); or from Prof. Clotfelter, Economics Department, Duke University, Durham, N.C. 27706-0245.
