The Leaflet – State Governments Affect Charitable Giving

Published December 17, 2015

Christmas is the season of giving, but some states might soon be placed on Santa’s naughty list. During Christmas, the perennial dictum is to spread peace and goodwill. State legislatures impact the holidays through their public policy decisions, and a major component of public policy during the Christmas season is the role that charitable organizations have in addressing social and economic issues. Charitable organizations are funded privately through donations, so it is imperative for lawmakers to understand how their decisions affect these organizations, as well as their communities.

The American Legislative Exchange Council (ALEC) recently released a report titled State Factor: The Effect of State Taxes on Charitable Giving, which examines state tax policies and encourages charitable giving apart from the charitable giving deduction. The report, written by ALEC Director Jonathan Williams, Research Analyst William Freedland, and Research Director Ben Wilterdink, provides an analysis of philanthropic contributions in the states over time and uses rigorous economic analyses to draw conclusions about charitable giving. The authors found, from 1997 to 2012, residents of Georgia, Idaho, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Utah, and Wyoming donated the most to charity as a percent of total income.

Santa will also be pleased to hear the ALEC study notes 41 states experienced increases in charitable giving over the 15-year span studied, and the most charitable states were correlated with higher rates of economic growth. South Dakota, Tennessee, Texas, and Wyoming are four of the nine states that had the largest increase. All four do not impose a personal income tax.

While there are typically multiple factors that influence an individual’s choice to offer charitable donations, it is imperative to remember there are all-encompassing policy choices that can encourage higher rates of growth in charitable giving. In a recent article for Opportunity Lives, Daniel Huizinga states, “Numerous studies and policy experts have recognized that nongovernmental organizations, including churches and faith-based charities, secular nonprofits and even for-profit corporations tend to have more success combating poverty than large, bureaucratic government agencies. Yet this point is often forgotten in tax policy debates, which often assume that cutting taxes will deprive the poor of life-saving services.”

In a recent episode of the Heartland Daily Podcast, Jesse Hathaway, managing editor of Budget & Tax News, spoke to Williams about how state taxes affect charitable giving. Williams told Hathaway, “Some states’ policies discourage getting into the holiday giving spirit, crowding out and replacing private charities with bigger and more expensive government.

“States with smaller governments tend to provide for perceived public needs by giving more to charity to fill that gap,” said Williams. “Moreover, citizens tend to respond to tax increases by decreasing their charitable giving, while increasing their charitable giving in response to tax reductions.”

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