Do lower taxes for the wealthy result in higher charitable gifts?
With the U.S. election nearing, some of America’s wealthiest argue that they would give more to charity if they paid lower taxes, as they surely would under proposals put forth by Mitt Romney and in the House-approved budget drafted by his running mate Paul Ryan.
Such an assertion is directly contradicted by scholarly studies. Studies indicate that when taxes go down, people give less generously. Lower taxes mean that what scholars call “the price of giving” goes up; the value of the tax deduction per donated dollar is less.
The notion that the wealthy will pay out in voluntary contributions what they don’t pay in mandatory taxes may seem an attractive proposition to some charities, but it just isn’t so.
While there may be more discretionary money in the pockets of millionaires, it tends to stay there. As a matter of fact, the wealthy give a smaller percentage of their income to charity than do moderate- and low-income people.
The social psychologist Paul Piff, who studies the effects of income on personal behavior, told The Chronicle of Philanthropy last month that “the more wealth you have, the more focused on your own self and your own needs you become and the less attuned to the needs of other people.” He has shown that wealth can make people “more selfish, more insular, and less compassionate than other people.”
Much of this has been known since 1990 when Terry Odendahl published Charity Begins at Home; wealthy Americans tend to support the nonprofit institutions that they themselves use. That includes elite universities, museums, operas, and performing-arts groups as well as other cultural institutions and some hospitals and medical facilities. Few would consider these institutions to be on the frontline of charities dealing with today’s most pressing problems.