Kai Ryssdal: One hesitates to pry, but here goes all the same. Why do you give to charity? Presumably it’s because you believe in the mission of the nonprofit in question. Does the tax deduction you get figure in at all?
I ask because there’s a move afoot in Washington to reduce that deduction. Which brings us to our series Economy 4.0 and its examination of how to make the global economy work better for more people. It also brings us to our correspondent David Brancaccio. Hey David.
David Brancaccio: Hey there.
Ryssdal: So you got to help me out man. Why do people want to reduce incentives for giving, especially in times like these, when in theory people need charities in what they do?
Brancaccio: Well, No. 1 the government says it needs your money. It’s not just anybody saying this. The president of the United States is quite enamored with the notion of looking at this charitable deduction. Who is not enamored are Democrats and Republicans on Capitol Hill. You can guess what charities think about this. And they’ve been lobbying like mad to get the idea of reducing the charitable deduction off the table. But according to Suzanne Perry, who’s senior editor at the Chronicle of Philanthropy, the president won’t let the idea go.
Suzanne Perry: People in the charitable world say, “He was one of us. He came out of a community organizing background.” I think he is really convinced that this would be fairer.
Brancaccio: It would be fairer to reduce the amount that you get back if you give to charity.
Ryssdal: David, what do we know — behavioral economics-wise — about what happens if you reduce incentives. Do people in fact give less money?
Brancaccio: It looks like they do but just a bit. There are a bunch of studies — and they don’t all agree, but the estimate is last year we gave $290 billion to charity — if they messed with the charitable deduction, lose about $1 billion to $3.2 billion. But there is a different way of looking at it. Eugene Steuerle is a tax expert with the Urban Institute. He says the impact of tax incentives is an age old question for economist — they don’t agree on what will happen, as these reports showed. But maybe you could think about it differently.
Eugene Steuerle: Economists generally believe that to the extent you care about incentives, they apply to the last dollar we give. So, you and I are likely to give to our church or to some local charity and we would do that whether we had a charitable deduction or not. But at the point in time at which we’ve already given that money away, our next dollars of giving are more sensitive. And we are sensitive to the extent to which there is an incentive.
Ryssdal: So David, riddle me this. Let’s go back to the introduction when I said this series is about making the global economy work better for more people. What then can we say is the greater good? Collecting tax from people to use on, one imagines, government programs that help people? Or, encouraging people to give to charity?
Brancaccio: Well, think about it this way: If the government can collect more taxes, there is more money for the government to distribute for services. But if the tax incentive does encourage, say, wealthy donors to give away money, there are studies that show they tend to favor things like education rather than paying for basic needs — because that’s what the donors want. So it actually changes where the money goes. What is interesting is that the bipartisan super committee looking at doing the big cuts to the federal budget, they are going to look at this. And when that report comes out later in the month, I’m going to look down to this charitable deductions line.
Ryssdal: We’ll see what it says. David Brancaccio and our series Economy 4.0. David, thanks a lot.
Brancaccio: You bet.
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