Caroline Hartnell

President Obama’s proposal to limit the tax break wealthy people get for charitable deductions in order to help fund a universal healthcare system in the US has given rise to much debate about how much giving is affected by tax breaks. One question is whether all charities would feel the pain equally, or just those in certain fields.

A recently published paper by Robert and Michelle Yetman at the University of California suggests that in the US tax incentives have little or no effect on donations to charities in the fields of health, human services, or public and social benefit, but they do influence giving to organizations devoted to animals, arts and culture, education and the environment, as well as to private foundations.

While cautioning that the approach merits further research, the researchers say the results raise an ‘intriguing’ policy question. If charitable deductions don’t influence how much people donate to soup kitchens or women’s shelters, should they be revoked for such groups since they cost the government money without expanding giving? ‘Likewise,’ they write, ‘our results suggest that if the supply of charities such as private foundations and lyric operas is highly valued, one might plausibly suggest that the charitable deduction to these types of charities be expanded and enriched.’

The fact that donations to health and human services are largely unaffected by tax breaks suggests that these are the causes people feel most strongly about, so there seems something counter-intuitive about the idea of removing tax breaks for donations to these causes. This discussion will be eagerly followed, both in the US and in other countries where tax breaks for charitable giving are much more limited or non-existent. 

Source
Suzanne Perry, Chronicle of Philanthropy, 23 July 2009