December 26 2013
Patrice J. Lee
Over the next six days Americans will click, text and mail up a storm. Yes, Christmas Day is over and no, it won’t be to sign up for ObamaCare.
As the year comes to a close Americans will open their wallets to contribute to the 2.3 million charities in the United States. In 2012, Americans donated $316 billion, up 3.5 percent from 2010, according to an annual report on philanthropy from the Giving USA Foundation. And by the way, Americans are the most generous people on Earth far outpacing citizens of European countries.
On average, charities receive between twenty percent and a third of their revenue during the last months of the year. Giving Tuesday (which follows Cyber Monday) has cemented online giving as part of the annual holiday shopping season.
What drives American generosity? A myriad of motivations—including altruism. We care about issues affecting our families, communities, workplaces, and the environment. Financial donations are also a way of playing it forward to others when we’ve been the beneficiaries of. And giving releases endorphins that generate what some psychologists call the “helper’s high.” It makes us feel good.
But let’s not gloss over an important motivation. Tax benefits bolster our other reasons for giving. Tax benefits are a driver of why and when some Americans give –and that’s okay. A third of all Americans itemize their taxes, which is where they can claim their giving for the year.
As Politico explains, prior to last year’s fiscal cliff negotiations, Americans especially chose to bump up the size and timing of their gifts as they were uncertain of what would happen to tax rates in January:
The holiday season puts Americans in a generous mood, with a big chunk of donations coming in the year’s final months. And this year’s giving wave is expected to be one of the biggest since the recession, with advisers seeing a major uptick in gifts from the wealthy.
But altruism isn’t the sole driver of the surge. Last January’s fiscal cliff deal, which included tax hikes on the wealthy, is also a factor in the charitable energy.
“You have a sort of social, political and taxational push coming together at once at the end of the year with giving,” said Steve McLaughlin, director of nonprofit adviser Blackbaud Idea Lab, which estimates that nearly 18 percent of giving occurs in December. “People are altruistic, but they’re also planning.”
If current trends hold, well more than $55 billion will flow into charities this December, based on overall giving last year as reported by the Annual Report on Philanthropy from Giving USA.
And donors can’t cash in on big gains in the market without paying up to a 20 percent tax to the IRS on their capital gains.
Unless they turn those highly appreciated stocks into big charitable gifts.
If Congress decided to nix or alter these tax incentives, what kind of repercussions would we see? Not only would local soup kitchens and food pantries hurt, but scholarship programs for students, giving to churches, and environmental protection efforts.
Politicians make a big deal about cutting programs that benefit the poor, but when they alter incentives that drive giving, they are undercutting private solutions to poverty prevention and alleviation. Unlike our European counterparts, Americans – especially conservatives—would rather iron out the economic disparities in our nation through private means rather than redistributionist government policies. Our government in the past has recognized this and enshrined charitable incentives into our tax code.
The moral of the story is that incentives matter. Not only do Americans give more when they have more disposal income (as evidenced by the three-percent-mirrored growth in individual giving when disposable income grew by over three percent), but when they feel that tax incentives will change for their worse, they will alter their giving accordingly.
What we need are greater incentives such as strengthening the value of the charitable deduction, which would drive more giving. Coupled with lower taxes, not only would Americans see more money in their pockets but they would be rewarded for helping others – something that other tax incentives just don’t do.