Proposed: donation mechanism for people doing direct work (USA tax relevant)
Upgrading and updating this short-form
Preamble
Employees at EA orgs and people doing direct work are often also donors/pledgers to other causes. But charitable donations are not always exactly 1-1 deductible from income taxes. E.g., in the USA it’s only deductible if you forgo the standard deduction and ‘itemize your deductions’, and in many countries in the EU there is very limited tax deductibility.
So, if you are paid $1 more by your employer/funded and donate it to the Humane League, Malaria Consortium, etc, the charity only ends up with maybe $0.65 on the margin in many cases. There are ways to do better at this (set up a DAF, bunch your donations…) but they are costly (DAF takes fees) and imperfect (whenever you itemize you lose the standard deduction if I understand.)
This might be somewhat timely because of (1) loss of funds from FTX thing (2) EA employees feeling guilty if they think they benefited from the FTX thing.
Proposal
Funders/orgs (e..g, Open Phil, RP, FHI, CEA) could agree that employees are allowed relinquish some share of their paycheck into some sort of general fund. The employees who do so are allowed to determine the use of these funds (or ‘advise on’, with the advice generally followed). I think this should generally not go back to the org they work for itself, for reasons alluded to below.
Key anticipated concerns, responses
Concern: pressure
This will lead to a ‘pressure to donate/relinquish’ if the employers, managers, funders are aware of it.
Response: This process could be managed by ops and by someone at arms-length who will not share the data with the employers/managers/funders. (Details need working out, obviously, unless something like this already exists.)
This is also a reason to make this explicitly not go back to the employing organization.
Concern—Legal issues
Is this feasible? Would these relinquishments be seen by governments as actually income?
Response: I’ve consulted a one person with expertise who suggest this would not be a problem as long as
- It is clearly a salary reduction—
The promise (to target the cause the employee wants) is only implicit; the employer/organization has the ultimate control;
- This is something like the situation with a donor advised fund (DAF) if I understand it
Note, ‘it is pretty normal’ for one nonprofit to pass money to another nonprofit.
Concern—crowding out
If the funder knows that the people/orgs it funds give back to other charities, they may shift their funding away from these charities, nullifying the employee’s counterfactual impact.
Response: This is hardly a new issue, hardly unique to this context; it’s a major question for donors in general, through all modes; so maybe not so important to consider here.
… To the extent it is important, it could be reduced if we can keep the exact target and amount of the donations unknown to the funders.
Concern—“Org reputation … why not give back to the org?”
Maybe a stretch, but I could imagine someone arguing “If EA-ORG’s employees ask you to redirect paychecks to a fund, which largely goes to the Humane League, Malaria Consortium, … does this indicate EA-ORG’s employees don’t think EA-ORG is the best use of funds”?
Response 1: Unlikely to be a concern. Employees may want to ‘hedge their bets’ because of moral uncertainty, and because of the good feeling they get from direct impact of donations.
Response 2: Keep the recipient of these funds hidden to outsiders.
Thoughts? Do you think many people would take this up? What am I overlooking here?
My guess is that this would be considered akin to an anticipatory assignment of income and would be charged against the wage earner as income, but I didn’t look at it for more than three minutes. So that is something you would want to run by a tax lawyer before actually doing (standard disclaimer that I can’t give legal advice).
I can think of two other ways you might be able to pull something like this off, although they involve additional complications:
If everyone in Organization X already donated at least $5000 per year to charity, Organization X could potentially cut salaries by $3750 and announce a 3:1 employee charitable matching program (up to $1250 in employee giving).
If you (an employee of Organization X) want to contribute $5000 to Organization Y, and an employee of Organization Y wants to contibute $5000 to Organization X, you might be able to agree to each petition your employers for a $5000 pay cut. In theory, one could develop an algorithm to match people who wanted to do this across organizations in any number of combinations.
I haven’t given much thought to either of these, but they don’t strike me as assignments of income in the same way as the initial suggestion. Definitely do not try without obtaining actual legal advice from a tax lawyer!
The common method to mitigate effects of losing the standard deduction—which I use—is to donate nothing in half of the years (drawing the money into a savings account instead), and donate twice as much in the other half. Yes, I mail a number of checks in December and January of odd-number years. Yes, I take a video of myself putting the December ones in a USPS mailbox that is uploaded to the cloud. :)
FYI: people usually say “modest proposal” for things they think are actually bad ideas, in the tradition of Swift’s satirical https://en.wikipedia.org/wiki/A_Modest_Proposal
Oh good point. I forgot
Thanks for posting this!
At a skim, this looks related to Passing Up Pay by Jeff Kaufman, and Should effective altruism have a norm against donating to employers? by Owen Cotton-Barratt. I don’t remember what was in those posts, exactly, but imagine that readers who find this interesting might also find the discussion on those posts useful.
Within Passing up Pay, the OP’s comment thread in particular: https://forum.effectivealtruism.org/posts/un3fHR8azykyCoCui/passing-up-pay?commentId=z2uL9Egv7XLewekSd
I’m not an expert on this, but when I’ve looked into this before I’ve been told it probably would count as income as long as (a) the amount to relinquish was up to the employee and (b) the employee had influence on where the money was donated.
I’ve heard from someone that Open Phil-sponsored companies are now doing essentially what you suggest. If you look at for example Anthropic’s job board you can see one of their benefits is, “Optional equity donation matching at a 3:1 ratio, up to 50% of your equity grant.” By donating equity they avoid income taxes, and perhaps there are other tax implications of donating tax instead of cash (I’m not an expert).
Donating equity seems a bit different but also interesting! Thanks