Tax Reform

Good Tax Policy Helps Good People Do More Good

Giving Tuesday asks us to look past the transient things in Black Friday or Cyber Monday and refocus on those which have a far larger impact on our communities and societal wellbeing. Charitable organizations, funded through private donations, play a crucial role in addressing community challenges and bridging gaps otherwise preventing some individuals from thriving. Philanthropic giving ensures religious institutions, soup kitchens, free clinics, meals on wheels, library and reading programs and other charitable causes have the resources to help communities grow opportunity and enhance wellbeing. This shared purpose develops entirely through voluntary means.

According to Giving USA 2017: The Annual Report on Philanthropy for the Year 2016, individuals, estates, foundations and corporations in the U.S. donated a massive $390 billion to more than 1.5 million charitable causes in 2016 – an increase of 1.4 percent over the prior year, adjusted for inflation. The report notes individual giving rose faster than any other form, at four percent. But that’s not all. In 2016 alone, 63 million Americans spent nearly eight billion hours, worth some $193 billion, volunteering. These organizations substantially impact communities and local economies. Unfortunately, the important role that charities play too often remains overlooked in public policy discussions.

Charitable giving does not occur in a vacuum. While an individual’s moral beliefs may motivate giving, the actual capacity for one to give is largely a function of income, expenses, and the perceived quality of the available charitable causes. Of course, because many expenses are not mandatory, individuals often reduce or eliminate certain expenses in order to increase giving to charities perceived as particularly high value. But taxes are one expense not easily avoided or lowered without the help of public policy. Increasing someone’s tax burden is likely to negatively impact their philanthropic giving – an effect revealed in stark detail throughout the states.

An American Legislative Exchange Council State Factor Report: The Effect of State Taxes on Charitable Giving, used regression analysis to study the impact of state tax rates on charitable giving across the states. Researchers found that a one percent increase in a state’s personal income tax burden is associated with a 0.35 percent decrease in a state’s charitable giving as a percent of total state income. Further, the research found that a one percent increase in the personal income tax burden is associated with a 0.1 percentage point drop in charitable giving as a percent of an individual’s income. In other words, diverting money from the hands of individuals for government purposes is correlated with less giving to charity. As taxes rise, individuals have less financial resources to donate, and they also may assume (rightly or wrongly) social needs are being filled by government.

Although many tax-funded programs do aid communities and individuals in need, expanding these programs may shrink private resources available to private community-based charitable organizations. These private charitable entities often possess more local knowledge, a better grasp of the needs of their community, and are much better equipped to fill social gaps than their government counterparts.

Tax and regulatory burdens can certainly degrade 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. Federal and state lawmakers should work to provide pro-growth tax reform so that every hardworking taxpayer can have more to give more on this #GivingTuesday.

In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

+ Tax Reform In Depth