CHARITABLE GIVING AND THE SUPERDEDUCTION: AN INVESTIGATION OF TAXPAYER PHILANTHROPIC BEHAVIOR FOLLOWING THE MOVE FROM A TAX DEDUCTION TO A TAX CREDIT SYSTEM

Abstract

Governments often encourage charitable giving through the tax system, by a deduction or tax credit. In 1988, Canada moved from a deduction system to a tax credit system. The tax credit for donations above $250 was calculated at the highest tax rate, even if the taxpayer was at the lowest tax rate. This gives what can be called a “superdeduction.” At the same time, the top rate of tax was reduced. Thus, the cost of giving was reduced for the lower taxpayers and increased for the higher-income taxpayers.

The article reports whether taxpayer behavior changed from 1986 (pre reform) to 1988 and 1992 (post reform). The analysis also investigates the influence of inflation on the charitable donations. The percentage of taxpayers giving over $250 was analysed for both all the taxpayers and those consistently in the low and high tax brackets. The lower-income taxpayers were found to reduce their giving, contrary to expectations. The middle-income taxpayers, in general, increased their giving, which was expected and so took advantage of the superdeduction. The results of the moderate high-income taxpayers were mixed. Taxpayers who had very high incomes decreased their giving, as was expected.

Citation

Gelardi, A.M.G. (2004), "CHARITABLE GIVING AND THE SUPERDEDUCTION: AN INVESTIGATION OF TAXPAYER PHILANTHROPIC BEHAVIOR FOLLOWING THE MOVE FROM A TAX DEDUCTION TO A TAX CREDIT SYSTEM", Advances in Taxation (Advances in Taxation, Vol. 16), Emerald Group Publishing Limited, Leeds, pp. 73-93. https://doi.org/10.1016/S1058-7497(04)16004-3