30 January 2020

Using Tax Policy to Incentivize Charitable Giving

This blog post is in response to a recent op-ed published in the Chronicle of Philanthropy and authored by Suzanne Garment and Leslie Lenkowsky from Indiana University. 

We all know the charitable deduction works. It encourages Americans to give more money away than they might otherwise give. If it didn’t, we wouldn’t have it, or many other tax incentives for that matter.

Deductions and taxes are used, at all levels of government, to encourage behavior we want more of in society and discourage behavior we want less of. We have the mortgage interest deduction to encourage homeownership, and we have sin taxes to discourage consumption of substances deemed harmful, like alcohol or tobacco.

The same goes for the charitable deduction. From an accounting perspective, the charitable deduction is an acknowledgement that money you give away is not income, therefore you should not pay taxes on it. However, from a social perspective, the charitable deduction is a way to encourage Americans to engage in civil society.

In a recent op-ed in the Chronicle of Philanthropy, Suzanne Garment and Leslie Lenkowsky highlighted two important data points. First, the number of Americans giving to charity has been steadily declining since the early 2000s, long before the 2017 tax bill. Second, and just as alarming, now the amount of money individuals donate to charity has begun to decrease, with an inflation-adjusted 3.4 percent drop from 2017 to 2018.

While I disagree that a 3.4 percent decline over one year is “little”, as Garment and Lenkowsky describe it, I do agree with the observation that the cause behind the decline in givers has a lot more to do with social changes than policy shifts. Americans are less generous than they were 16 years ago. There was a recession in that time frame that caused some folks to stop giving, but when the economy recovered, the number of Americans giving did not.

We can all agree on the facts. Giving is down and the number of givers are down. What really needs to be addressed is how we can right the course, and it appears the answer is obvious: encourage more people to give and people to give more through a universal charitable deduction. Sure, it won’t save lower-income taxpayers “all that much”, but it will drive home the point that charitable giving and meaningfully engaging in civil society is not just important, it’s a part of who we are as a democracy. And it might just boost charitable giving in the process.