Article on Governmental Solutions to Decreased Charitable Contributions in a Weak Economy

Grace Soyon Lee, Associate Professorat the University of Alabama School of law, has recently published “Mitigatingthe Effects of an Economic Downturn on Charitable Contributions: Facing theProblem and Contemplating Solutions,” 22 Cornell J. L. & Pub. Pol’y 589(2013).  Here is the abstract:

Charitable giving has been afoundation of American society almost since the nation began, but the issue ofhow such giving should be treated for tax purposes has been the subject offrequent debate. Scholars have proposed various theories explaining why thepositive effects of this deduction on both donors and donees outweigh thenegative impact on government coffers of this tax expenditure, although manystill criticize certain features of the deduction in its current form. However,one area of this research that has previously been neglected is how the charitablesector is affected by changes to the economy at large. Contributions tocharitable organizations tend to decline during an economic downturn, and sucha decline may be catastrophic to the charitable sector. In particular, aneconomic downturn can affect charitable organizations in three different ways. First,some organizations may experience an increase in donations but simultaneouslyexperience an increase in demand for their services. Other organizations mayexperience an increase in demand for their services without experiencing anaccompanying increase in donations. Finally, some organizations may experience sucha steep decline in donations that their very survival is put in jeopardy,regardless of whether the demand for their services increases. In order to meetthe recessionary needs of all three types of organizations, the governmentshould: 1) convert the current charitable deduction to a refundable credit thatis available to all taxpayers; 2) provide a tax credit to employers who secondtheir employers [sic] to work for charitable organizations; and 3) provide directfunding to those charities that can demonstrate dire financial need.

Hat Tip: TaxProf Blog

JRB