Sunday, July 7, 2013
Bakija on Tax Policy and Philanthropy: A Primer on the Empirical Evidence for the U.S. and its Implications
Economist Jon Bakija, who frequently writes about the impact of tax policy on charitable giving, has recently posted Tax Policy and Philanthropy: A Primer on the Empirical Evidence for the U.S. and its Implications. In the paper, Bakija covers a number of topics that will likely interest readers of this blog. First, he explores a variety of data (such as changes in the percentage of income donated by various income groups over time in relation to tax rates, individual income tax panel data, and cross-state comparisons of charitable giving rates) and posits that upper-income taxpayers are more sensitive to tax incentives for charitable gifts than other taxpayers. Second, he nicely reviews several major studies by other economists that model the price elasticity of charitable giving. Using elasticity estimates from both his work and that of others, Bakija then estimates the impact of some of the current reform proposals, such as Obama's 28% cap (Bakija estimates the cap would decrease donations by $8-9 billion while reducing the tax cost of the charitable deduction by $10.1 billion).
What I found most interesting, however, was a very accessible discussion of optimal tax theory and the tax incentives for charitable giving. In particular, Bakija discusses a recent paper by Saez and Stantcheva about how various theories of distributive justice -- and not just utilitarianism -- could be conceptualized in an optimal tax model. Bakija then addresses both how their insights could be incorporated into an optimal tax framework for the charitable deduction and how estimated price elasticities for giving impact that framework.
Highly recommended for anyone interested in a primer on the economic work discussing the impact of tax policy on individual giving.
Miranda Perry Fleischer