I’ve recently joined the EA Brussels group and given my experience in tax, I’ve joined a project aimed at widening the scope of the tax deductibility of charities in Belgium. For the record, in my country we can deduct 45 % of our donations to a set of mostly Belgian charities, and that to a maximum of 10 % of our net income or 250.000 €. It requires that the charity is recognized (not the case for a whole lot of EA top charities), and a minimum of 25 € of donation (per single charity). This is tax deduction, so those with low income will gain no benefit from that given that they are not taxed anyway.
So my question to you all is the following : should the EA community really try to increase tax deductibility for charities given that :
Some research that I read seems to indicate that the price-elasticity of donation is not bigger than 1. This measures indicates by what relative amount the donation increases when the price of donating (that is the tax deduction) decreases. A study by Fack & Landais (2009) (Les incitations fiscales aux dons sont-elles efficaces ?) for example indicates that the price elasticity measured by analyzing the French tax code reform are between −0.2 and −0.6. This would mean that donors don’t increase their donations that much when deductibility increases, but it does impose a cost on the state (for example in France in 2016, the cost of the deductions was 2.2 billion €). It could be that in the end the charities don’t see huge increases in donations, the state is poorer, and the only winners are the donors, who end up with a net benefit. Considering that the donors are generally better of than the rest of the population, it might cause a problem. The science on the subject of price-elasticity of donation seems to be uncertain (some also claiming that the value is bigger then one, see for example Peloza & Steel (2005): The Price Elasticities of Charitable Contributions: A Meta-Analysis).
After reading the book written by Rob Reich (Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do Better), that I recommend to EA reading group by the way, I cannot help but feel that the tax deductibility creates a system of subsidy by the government to the preferences of the donors and that it bypasses the usual process for deciding how to allocate the state budget. My impression, but maybe I’m totally wrong here, is that part of the EA community seems to think that it’s a no-brainer that we should increase deductibility, but in a way this means that we claim, for ourselves, our goals and the ultimate beneficiaries of those goals, some state money. To me it makes it completely different than increasing private donations.
For some countries (US comes to mind), the system seems even more problematic (unless it was reformed since the information I saw dating 2018 : deduction based on the marginal tax rate, huge charity sector able to influence many aspects of society without much control from the public).
On top of that, some remarks I have with the Belgian system that you can maybe transpose to your country :
The Belgian limit of 25 € seems to be unjustified, except maybe due to paperwork cost. With all the automation going on between charities and the government, I cannot see why it could not be taken down.
The fact that tax exempt people get no benefit from the deduction seems to me rather problematic. The least well off are refused a benefit. This could also use a modification.
It seams that a totally different option would be the matching system (see for example Gandullia & Lezzi (2018) : The price elasticity of charitable giving: New experimental evidence). This system is such that the amount given to the charities is matched (in full or in part) by the government. This systems seems much more efficient at increasing amounts collected by charities, and if possible EA groups should try to push that kind of system where possible by lobbying the politicians. This research finds that «on average, donations are significantly higher under the matching subsidy. (…) The difference in total price elasticities (−0.22 for rebate vs −1.14 for matching) and intensive price elasticities (−0.18 for rebate vs −1.12 for matching) between treatments indicates that the form of the subsidy affects the total amount received by the charity, which is much greater under the matching mechanism. Giving under the matching subsidy is three times more responsive in terms of price than is giving under the rebate treatment. Our results are qualitatively and quantitatively similar to the main findings in the literature. Finally, the offer of a subsidy significantly increases donation probability relative to the no-subsidy treatment.»
Before I continue on the project of deductibility, I would like to get a clearer picture on all of this. I’m rather new to EA, so maybe some of you have extensive knowledge on the topic, and in any case this might start a useful discussion. Like many I’ve spoken to, I also feel that there’s something wrong when some random Belgian museum can offer tax deductibility but not the top EA charities, but that should not be the only reason to get tax deductibility. It should be to increase the amount recieved by charities and that’s all, keeping in mind that state money needs to be used with much care and with consideration to the democratic process.
So in summary, is it really that a good idea to increase tax deductibility ?
[Question] Is it really that a good idea to increase tax deductibility ?
Dear EA community,
I’ve recently joined the EA Brussels group and given my experience in tax, I’ve joined a project aimed at widening the scope of the tax deductibility of charities in Belgium. For the record, in my country we can deduct 45 % of our donations to a set of mostly Belgian charities, and that to a maximum of 10 % of our net income or 250.000 €. It requires that the charity is recognized (not the case for a whole lot of EA top charities), and a minimum of 25 € of donation (per single charity). This is tax deduction, so those with low income will gain no benefit from that given that they are not taxed anyway.
So my question to you all is the following : should the EA community really try to increase tax deductibility for charities given that :
Some research that I read seems to indicate that the price-elasticity of donation is not bigger than 1. This measures indicates by what relative amount the donation increases when the price of donating (that is the tax deduction) decreases. A study by Fack & Landais (2009) (Les incitations fiscales aux dons sont-elles efficaces ?) for example indicates that the price elasticity measured by analyzing the French tax code reform are between −0.2 and −0.6. This would mean that donors don’t increase their donations that much when deductibility increases, but it does impose a cost on the state (for example in France in 2016, the cost of the deductions was 2.2 billion €). It could be that in the end the charities don’t see huge increases in donations, the state is poorer, and the only winners are the donors, who end up with a net benefit. Considering that the donors are generally better of than the rest of the population, it might cause a problem. The science on the subject of price-elasticity of donation seems to be uncertain (some also claiming that the value is bigger then one, see for example Peloza & Steel (2005): The Price Elasticities of Charitable Contributions: A Meta-Analysis).
After reading the book written by Rob Reich (Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do Better), that I recommend to EA reading group by the way, I cannot help but feel that the tax deductibility creates a system of subsidy by the government to the preferences of the donors and that it bypasses the usual process for deciding how to allocate the state budget. My impression, but maybe I’m totally wrong here, is that part of the EA community seems to think that it’s a no-brainer that we should increase deductibility, but in a way this means that we claim, for ourselves, our goals and the ultimate beneficiaries of those goals, some state money. To me it makes it completely different than increasing private donations.
For some countries (US comes to mind), the system seems even more problematic (unless it was reformed since the information I saw dating 2018 : deduction based on the marginal tax rate, huge charity sector able to influence many aspects of society without much control from the public).
On top of that, some remarks I have with the Belgian system that you can maybe transpose to your country :
The Belgian limit of 25 € seems to be unjustified, except maybe due to paperwork cost. With all the automation going on between charities and the government, I cannot see why it could not be taken down.
The fact that tax exempt people get no benefit from the deduction seems to me rather problematic. The least well off are refused a benefit. This could also use a modification.
It seams that a totally different option would be the matching system (see for example Gandullia & Lezzi (2018) : The price elasticity of charitable giving: New experimental evidence). This system is such that the amount given to the charities is matched (in full or in part) by the government. This systems seems much more efficient at increasing amounts collected by charities, and if possible EA groups should try to push that kind of system where possible by lobbying the politicians. This research finds that «on average, donations are significantly higher under the matching subsidy. (…) The difference in total price elasticities (−0.22 for rebate vs −1.14 for matching) and intensive price elasticities (−0.18 for rebate vs −1.12 for matching) between treatments indicates that the form of the subsidy affects the total amount received by the charity, which is much greater under the matching mechanism. Giving under the matching subsidy is three times more responsive in terms of price than is giving under the rebate treatment. Our results are qualitatively and quantitatively similar to the main findings in the literature. Finally, the offer of a subsidy significantly increases donation probability relative to the no-subsidy treatment.»
Before I continue on the project of deductibility, I would like to get a clearer picture on all of this. I’m rather new to EA, so maybe some of you have extensive knowledge on the topic, and in any case this might start a useful discussion. Like many I’ve spoken to, I also feel that there’s something wrong when some random Belgian museum can offer tax deductibility but not the top EA charities, but that should not be the only reason to get tax deductibility. It should be to increase the amount recieved by charities and that’s all, keeping in mind that state money needs to be used with much care and with consideration to the democratic process.
So in summary, is it really that a good idea to increase tax deductibility ?