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Question for tax filing for charity

Is it true that there are donors who would respond to things like tax incentives? The deduction for the charitable contributions affects taxpayers in two different ways. On the one hand, you may also have the “price effect.” As noted above, there are higher marginal tax rates which reduce the price of giving, creating a bigger incentive to contribute to charities. However, high marginal tax rates would then also mean that people would then have less money left in their pockets after having paid their taxes. In general, if the people’s incomes were to be reduced, one would expect the people to then become less generous donors. After paying for rent, food, and utilities, they would then have less money left over for non essentials for things like vacations and charitable donations. This is what would be called the “income effect.” Note that the income and price effects would work in opposite directions. Higher marginal tax rates incentivize donations which are through the price effect, but they simultaneously create a disincentive which is then through the income effect. Several economists have been able to examine donors’ responsiveness to tax incentives and over the past few decades as well, but the results would remain inconclusive. Most studies find that donors actually do respond to tax incentives, but then the historical record shows that the level of charitable contributions would remain relatively constant over time when measured as a proportion of GDP regardless of the available tax incentives. Some studies would even suggest that higher earning taxpayers are more responsive to the incentive than those who are less well off or do not earn as much and that there are differences between types of charities for example religious, social, educational, etc. that would receive donations. Many policy analyses like CRS, CBO, TPC would therefore calculate the upper and lower limits of a range into which the effects of proposed policy changes are expected to fall rather than a specific estimate only. Basically or all in all, reforming the deduction on charitable contributions is necessarily a bad thing for the arts. There are some ways of changing the tax code that could actually increase revenues and diversify the sources of income as well all for arts organizations, even while helping to reduce the federal deficit.

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