PhilMur's thoughts on biz/tech/money/life

Paul Sullivan, writing in the NY Times the other day, makes an interesting statement about charitable giving behavior:

“While there is not a direct correlation between tax deductibility and personal donations, there is a correlation between increased taxes in a continued weak economy and charitable giving.”

The article this quote was taken from, “All This Anger Against the Rich May Be Unhealthy”, analyzes the popular past time in our country at the present of criticizing the wealthy and tries to dispel some public misconceptions.

Sullivan’s statement and the evidence that backs it up is intriguing because it debunks the view that the wealthy only give in order to reduce their tax burden.

Why does it disprove this misconception?  Two reasons can be extracted from Sullivan’s statement:

1. Increased tax DEDUCTIBILITY does not necessarily lead to more giving.  There are various limitations on how much a corporation, individual, etc. can give and the gift still be fully deductible.  These limits vary based on several factors, including the size of the gift, the type of the gift (cash, real estate, etc.), and the income of the giver.  As deductibility rules fluctuate, however, giving does not — meaning that individuals/companies are not inspecting current tax rules and then making a decision to give or not to give.
2. Increased TAXES in a WEAK ECONOMY does lead to a decrease in giving.  Why?  Because in a weak economy, corporate profits and personal income is typically lower on average, and if the government is at the same time taking a higher percentage of a lower number, then it logically follows that fewer dollars are available to give charitably, or to use to reinvest in the business which could include uses such as employing more individuals.

It is unfortunate that it takes this type of evidence to debunk that view, as anyone with basic arithmetic skills knows it doesn’t make sense to give away a dollar to save 40 cents anyway.  Most people (wealthy, average/middle class, or even struggling financially) give because they care about the cause or organization they are giving to! Why else would they part with the other 60 cents?

I cannot claim that human selfishness does not impact giving decisions one way or the other — this would be blatantly false as human nature includes that very powerful force of selfishness that few are regularly unaffected by.

However, I do think it’s important to point out that giving is not primarily a financial, tax-reduction activity for most who give charitably — rather it is a practice that many do, and increasingly so when the economy is prospering.