Document Type

Working Paper

Publication Date

11-4-2013

SSRN Discipline

LSN Subject Matter eJournals; Tax Law & Policy eJournals; ERN Subject Matter eJournals; Financial Economics Network; Management Research Network; Organizations & Markets eJournals; Economics Research Network; Legal Scholarship Network; Public Choice & Political Economy eJournals; Law School Research Papers - Legal Studies; Law & Society eJournals; Law & Society: Public Law eJournals; AARN Subject Matter eJournals; Accounting Research Network; Anthropology & Archaeology Research Network

Abstract

Charitable giving has been a foundation of American society almost since the nation began but the issue of how such giving should be treated for tax purposes has been the subject of frequent debate Scholars have proposed various theories explaining why the positive effects of this deduction on both donors and donees outweigh the negative impact on government coffers of this tax expenditure although many still criticize certain features of the deduction in its current form However one area of this research that has previously been neglected is how the charitable sector is affected by changes to the economy at large Contributions to charitable organizations tend to decline during an economic downturn and such a decline may be catastrophic to the charitable sector In particular an economic downturn can affect charitable organizations in three different ways First some organizations may experience an increase in donations but simultaneously experience an increase in demand for their services Other organizations may experience an increase in demand for their services without experiencing an accompanying increase in donations Finally some organizations may experience such a steep decline in donations that their very survival is put in jeopardy regardless of whether the demand for their services increases In order to meet the recessionary needs of all three types of organizations the government should 1 convert the current charitable deduction to a refundable credit that is available to all taxpayers 2 provide a tax credit to employers who second their employers to work for charitable organizations and 3 provide direct funding to those charities that can demonstrate dire financial need

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