Jan 26, 2007

Tax Incentives Spur the Generous

by Laura Starita

There are a lot of reasons why people donate to charity. Some do it out of altruism, a desire to make the world a better place. Others do it out of a devotional practice or as part of a tradition they have inherited from their family or culture. Not surprisingly, self-interest also plays a role - generous acts can improve one’s public image and the tax break is nice too.

There is, it turns out, a strong link between tax breaks and philanthropic giving - but not the one that many cynics assume. Tax breaks don’t determine whether a donor gives - the generous are generous regardless of circumstance. But they are important in determining how much she gives. The relationship can be seen when comparing charity donations as a percentage of gross domestic product. In the United States, where the tax system is relatively generous regarding charity donations, it is 1.6 percent; in New Zealand it is 0.64 percent. Given the size of the U.S. economy compared to New Zealand’s, that percentage translates into billions of dollars.

Tax structures unfriendly to generosity can do more than just limit donations, they can drive philanthropists to relocate. This was the case with Jan Cameron, New Zealand’s wealthiest woman. Cameron is relocating to Australia because the current New Zealand tax laws allow her to deduct only $1,800 of the millions she gives to charitable organizations each year, reports The Charity 2.0 Blog. Given the local nature of some of Cameron’s giving, it is New Zealand’s philanthropic organizations that will suffer. It seems that Cameron’s strong stand has awoken the New Zealand government which is now reportedly revising its tax laws.

Philanthropy New Zealand: Tax and Generosity