Accounting for Trends in Charitable Tax Deductions: Framework and Application to the District of Columbia

Wodon, Quentin and Alleyne, Betty and Cong, Lin and Mulusa, Judy and Niami, Farhad (2014): Accounting for Trends in Charitable Tax Deductions: Framework and Application to the District of Columbia.

Abstract

Charitable tax deductions are one of the largest tax expenditures at the state and federal levels, and they are also crucial for the sustainability of the charitable nonprofit sector. Understanding some of the factors that drive changes in charitable tax deductions over time is needed to inform policy. This paper uses a simple multiplicative decomposition to analyze trends in charitable tax deductions with an application to data from the District of Columbia over the period 2001-2011, thus including the recent recession. The decomposition shows how changes in the District’s population, the share of the population that files tax returns, the share of filers that claim the deduction, the average adjusted gross income of filers, and the average deduction claimed by claimants all contributed to the overall changes in the level of the deductions. The decomposition is applied for the District’s population as a whole as well as by income group.

• Item Type: MPRA Paper
• Language: English
• Keywords: Charitable Giving, Tax Deduction, District of Columbia
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies

References

Andreoni, J., 2008, Charitable Giving, in S. N. Durlauf and L. E. Blume, editors, The New Palgrave Dictionary of Economics, Second Edition, Basingstoke, UK: Palgrave Macmillan.

Auten, G. E., H. Vsieg, and C. T, Clotfelter, 2002, Charitable Giving, income, and Taxes: An Analysis of Panel Data, American Economic Review, 371-82.

Bakija, J., and B. T. Heim, 2011, How Does Charitable Giving Respond to Incentives and Income? New Estimates from Panel Data, National Tax Journal 64(2): 615–650.

Barrett, K.S., A. M. McGuirk, and R. Steinberg, 1997, Further Evidence on the Dynamic Impact of Taxes on Charitable Giving, National Tax Journal 50: 321-34.

Hossain, B., and L. Lamb, 2012, Does the Effectiveness of Tax Incentives on the Decision to Give Charitable Donations Vary across Donation Sectors in Canada?, Applied Economics Letters 19(15): 1487-91.

Bönke, T., N. Massarrat-Mashhadi, and C. Sielaff, 2013, Charitable Giving in the German Welfare State: Fiscal Incentives and Crowding Out, Public Choice 154:39–58.

Brooks, A. C., 2007, Income Tax Policy and Charitable Giving, Journal of Policy Analysis and Management 26(3): 599–612.

Brown, S., M. N. Harris, and K. Taylor, 2012, Modeling Charitable Donations to an Unexpected Natural Disaster: Evidence from the U.S. Panel Study of Income Dynamics, Journal of Economic Behavior and Organization 84: 97– 110.

Colinvaux, R., B. Galle, and E. Steuerle, 2012, Evaluating the Charitable Deduction and Proposed Reforms, Washington, DC: Urban Institute.

Cordes, J. J., 2011, Re-thinking the Deduction for Charitable Contributions: Evaluating the Effects of Deficit-Reduction Proposals, National Tax Journal 64(4): 1001–24.

Domenici, P., and A. Rivlin, 2010, Restoring America’s Future: Reviving the Economy, Cutting Spending and Debt, and Creating a Simple, Pro-Growth Tax System, Washington, DC: Bipartisan Policy Center.

Fack, G., and C. Landais, 2010, Are Tax Incentives for Charitable Giving Efficient? Evidence from France, American Economic Journal: Economic Policy 2: 117–141

Feldstein, M., 1975, The Income Tax and Charitable Contributions: Part II – The Impact on Religious, Educational, and Other Organizations, National Tax Journal 27: 209-26.

Fleisher, M. P., 2008, Generous to a Fault? Fair Shares and Charitable Giving, Minnesota Law Review 93: 165-230. Gravelle, J. G., and M. Sherlock, 2009, An Overview of the Nonprofi t and Charitable Sector, Washington, DC: Congressional Research Service.

Joint Committee on Taxation, 2013, Estimates of Federal Tax Expenditures, For Fiscal Years 2012-2017, 113th Congress, 1st session, February 1, JCS-1-13, Washington, DC: Congressional Research Service.

Juffras, J., 2013, Tax Expenditure Briefing to the D.C. Tax Revision Commission, Washington, DC: Office of Revenue Analysis of the District of Columbia.

List, J. A., 2011, The Market for Charitable Giving, Journal of Economic Perspectives 25(2): 157-80.

Reich, R., 2005, A Failure of Philanthropy, Stanford Social Innovation Review 24–33.

Rivers, W., 2013, Increasing the District’s Personal Exemption and Standard Deduction Would Help Provide Greater Tax Relief to Low- and Moderate-Income DC Residents, Washington, DC: DC Fiscal Institute.

Schervish , P. G., M. O. O’Herliby, and J. J. Havens, 2002, Charitable Giving: How Much, by Whom, to What, and How?, in W. Powell and R. Steinberg, editors, The Nonprofit Sector: A Research Handbook, New Haven: Yale Press.

Tiehen, L. 2001, Tax Policy and Charitable Contributions of Money, National Tax Journal 54: 707-23.

Yetman, M. H., and R. J. Yetman, 2013, How Does the Incentive Effect of the Charitable Deduction Vary across Charities?, The Accounting Review, 88(3): 1069–94.