State taxes and charitable giving

States with higher rates of economic growth grow total charitable giving at a faster rate than states with low rates of economic growth, finds a new report by American Legislative Exchange Council.

From ALEC: Charity is a crucial component of efforts to address societal challenges and help individuals thrive. From religious organizations to community charities, philanthropic donations drive the institutions of civil society and enable communities to develop around a greater sense of shared purpose. Despite this important role, charitable giving is rarely addressed in discussions around public policy — especially state tax policy.

The report uses data collected from the Internal Revenue Service (IRS) and focuses on both the levels of charitable giving and the growth of charitable giving throughout the states. We examined these trends over two different time periods. First, the IRS data begins in 1997 and is available through 2012. Second, we measured state charitable giving from 2008 to 2012 to understand how states fared during the recession.

Here are some of the most significant findings from our report:

• States with higher taxes generally experienced lower levels and lower rates of growth in charitable giving compared with their lower tax counterparts
• A one percent increase in a state’s total tax burden is associated with a 1.16 percent decrease in the state’s rate of charitable giving
• A one percent increase in a state’s personal income tax burden is associated with a 0.35 percent decrease in the state’s rate of charitable giving as a percent of total state income
• In every category, over each time period, the nine states without income taxes grew their rates of charitable giving more than the nine states with the highest income taxes

The report is available to download and read at The Effect of State Taxes on Charitable Giving. Following is material from the report’s executive summary:

An often overlooked aspect of public policy is the role that charitable organizations have in addressing some of society’s most pressing concerns. Because of this important role and since charitable organizations are funded privately through donations, understanding how state policies interact with charitable organizations is crucial for a robust discussion about public policy. This State Factor examines state tax policies that encourage charitable giving, apart from the charitable giving deduction.

While many factors certainly influence an individual’s choice about donating to charity, there are broad policy choices that can encourage higher rates of growth in charitable giving. By examining various tax burdens and tax rates with rigorous economic analysis, this paper’s research findings show that a 1 percent increase in the personal income tax burden is associated with 0.35 percent decrease in charitable giving per dollar of state income. Similarly, this State Factor found that an increase in personal income tax burden of roughly 1 percentage point of total state income results in a roughly 0.10 percentage point decrease in the level of measured charitable donations as a percent of income.

When all state taxes are considered, a 1 percentage point increase in the total tax burden is associated with a 1.16 percent drop in charitable giving per dollar of state income. Similarly, this State Factor found that an increase in total tax burden of roughly 1 percentage point of total state income results in a roughly 0.09 percentage point decrease in the level measured charitable donations as a percent of income.

According to the new report, The Effect of State Taxes on Charitable Giving the following states donated the most to charity as a percent of total income between 1997 and 2012, in order from 1^st to 10^th: Utah, Wyoming, Georgia, Alabama, Oklahoma, South Carolina, Maryland, Idaho, North Carolina and Mississippi. The report examines patterns of philanthropic contributions in the states over time and uses rigorous economic analyses to draw significant conclusions about charitable giving in the United States.

The report is written by Jonathan Williams, William Freeland, research analyst for the ALEC Center for State Fiscal Reform, and Ben Wilterdink, research manager for the ALEC Center for State Fiscal Reform. The report reveals that states with higher rates of economic growth grow total charitable giving at a faster rate than states with low rates of economic growth.