Reducing Charity Tax Write-offs Won't Cut Giving

President Barack Obama is giving away billions of federal dollars to try and stimulate the economy, but does he want to cut charitable giving?

House Minority Leader John Boehner accuses Obama of striking "a sharp blow to charities" with his proposal to reduce the charity tax write-off for generous Americans in the top two tax brackets.

Obama's suggested change to the tax code would lower the charity tax write-off to 28 percent for these top-bracket taxpayers. What does this mean? If you're in the upper tax bracket and you give $10,000 to charity, your charity tax write-off would drop from about $4,000 to $2,800.

Surely, this will give pause to some donors as they write their annual charity checks - a seemingly dangerous proposition when a faltering economy already has contributions at such a low level. However, there are two reasons the charity tax write-off change shouldn't really impact non-profits.

First, this won't actually affect the majority of Americans. It's similar to the estate tax feud of years past - many question the principle but few are truly affected. Overall, U.S. citizens are quite generous. An estimated 89 percent of U.S. household give to charity, and 44 percent of adults volunteer. The majority of these donations come from folks in middle tax brackets, and equal less than $10,000, so they aren't subject to the charity tax write-off changes.

Second, surprising new economics research shows people are not influenced by monetary rewards for their charitable giving. It has long been suggested that blood donations would actually decline if blood banks were more like banks, and they started paying for donations.

Instead, economists argue, donations are motivated by altruism and image. If you walked out of the blood bank with $5 in your pocket, you'd get a cup of coffee and quietly go back to the office. Instead, you just get a cute sticker to show off for the rest of the day. The kudos from co-workers will give you a bigger boost than the coffee.

Economists from Tel Aviv, Duke and Columbia universities actually quantified the morale boost of charitable actions, helping explain why it may be more valuable than the charity tax write-off. The experiment - as reported in The Economist asked people to press a series of computer keys to generate donations for the Red Cross. The key pushers were split into public and private groups. Sure enough, those who told their group how much they donated clicked harder and faster than those who kept their donations private.

Furthermore, the secretive group clicked more when a personal monetary reward was added. The public group didn't change their clicking behavior. Therefore, if your donations are publicly announced, you don't necessarily want anyone to know you got a little payback or a tax write-off. This is significant because less than one percent of private donations to charity are anonymous, according to the Economist.

Finally, the new research also offers another reason charitable Facebook applications are so popular. Your friends can see your generosity and love you more. And isn't the love of your friends better than a higher charity tax write-off?

http://www.bloomberg.com/apps/news?pid=20601103&sid=aRLx2HwnWyWs&refer=us

http://www.poynter.org/column.asp?id=2&aid=159551

"Looking Good by Doing Good," Economics Focus, Economist Magazine, Jan. 17, 2009