In the Indiana survey of wealthy families, half said they would maintain their giving even if the deduction disappeared, while about 40 percent said it would decline and 10 percent said it would decline substantially. Economic models, meanwhile, have made varying predictions for how the different proposals might affect giving.
Duke University economist Charles Clotfelter is among those whose research leads him to conclude curtailing the deduction would have a substantial effect, and he says colleges are right to be worried. Tax breaks aren’t the main reason people donate, but he said seemingly small changes on the margins could have a big effect.
“The people that are giving the big gifts to universities are very sophisticated,” he said. “They’re having talks with their accountants and tax lawyers. They know what the effect is going to be.”
Others, however, prefer to emphasize evidence that tax breaks are well down the list of philanthropic motives. One study found people already donate about twice as much as they can deduct (many wealthy families already hit deduction caps through the Alternative Minimum Tax). There are also countless billions given in charity—remittances abroad, gifts in kind, cash contributions—that aren’t even eligible for deduction. That suggests taxes are a relatively small part of the equation.
There’s also history. Tax law changes, like the 1986 reforms, clearly affected giving temporarily. But the generally upward trend has usually returned. Paul Schervish, director of the Center on Wealth and Philanthropy at Boston College, notes top marginal tax rates have mostly fallen over recent decades, from 90 percent to the current 35 percent. That would seem to predict decreased giving, as the wealthy were allowed to keep more of their money without having to choose between Uncle Sam and alma mater. But philanthropy has grown, and when it was interrupted, the cause was the recession, not tax incentives.
“The best thing for charity is economic growth,” Schervish said.
“There will be giving without this deduction,” he added. “It will be less. But when there’s a sufficient need communicated, people will give.”
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