You might think that wealthy people who can tax deduct their charitable contributions are the most generous Americans, and many are. Bill Gates and Warren Buffett deserve praise for the billions they have personally given to charity. But studies show that it is average people with average incomes who are more generous with their hard-earned money, perhaps because they are more attuned to the needs of the less fortunate. On a recent visit to New York City I saw working-class subway riders reaching into their pockets to help a down-and-out panhandler who came through the train with a tin cup. He didn’t give out receipts, and no tax deduction was available for anyone.
It is human nature to be charitable, and evidence of that goes back thousands of years. According to the ancient Egyptian Book of the Dead, successful passage to the afterlife depended on a lifetime record of generosity and help for the poor and suffering. Pretty good incentive to be a donor. Around the world every major religion puts charity at the center of its teachings.
The Judeo-Christian Bibles, the Koran, and Buddhist texts all exhort people to give to the poor. As far as I know, none of these sacred writings mentions a charitable tax deduction.
That concept was created in the US in 1917, shortly after the introduction of the personal income tax. How much does the charitable tax deduction incentivize giving?
Most analysts say it influences the size of gifts more than the act of giving. In fact, a tax break can help a person afford to be more generous. There is no shame in using your brain to be more generous by calculating the tax advantages.
But last December, with the passage of a major federal tax bill by Congress and signed into law by President Trump, charitable giving may be dramatically reduced in 2018.
This controversial bill has several negative implications for high tax states like Connecticut. A key provision includes a large increase in the standard deduction, which means that millions of taxpayers will no longer benefit by itemizing things like mortgage interest, state and local taxes, and charitable gifts.
The nonprofit sector is very anxious about this. Across America, total giving to charities by individuals topped $410 billion in 2017.
By some estimates the new tax laws may cost charities as much as $24 billion less in donations this year. But it doesn’t have to go this way. If there was ever a time for Americans - from every socio-economic group -to think about what really motivates them to be generous, this is the year.
Whether it’s tax code, or religious teaching, or peer pressure, or just instinct, the more that people are inclined to give, the better, and it makes a difference to the quality of life in our communities for everyone, not just the poor.
This is the season when many Americans are inspired to give to charity, and nonprofit organizations depend on it – sometimes for their survival.
Let’s hope that Americans this year do not hold back, but keep on adding to humanity’s collective record of unselfishness and generosity. More than ever, how much we give this year to our favorite charities will be a matter of the heart.
David Davison is the former president of the American Savings Foundation.