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This is the second of two blog posts arising from The Fraser Institute's study of charitable donations in Canada and the United States. (First post here). The study found that, on the whole, Americans report far larger charitable contributions than do Canadians. Manitoba had the highest Generosity index in Canada, but it was lower than 26 states and the District of Columbia.
What might account for that? The Calgary Sun spoke to the local United Way president who suggested two possible reasons. Here’s the first.
Calgary United Way president Ruth Ramsden-Wood said Americans are often forced to dig deeper to cover social expenses not picked up by their governments.
At best, her comment is poorly worded: No one is “forced” to give money to charity. Reading her thoughtless comment as charitably as possible, however, maybe she’s trying to say that Americans fund through charity what Canadians pay for through taxes. That certainly doesn’t put Canada in a very good light, either. As Darcey at Dust My Broom says,
[W]ithout knowing and without any introspective thought she does outline the entire problem of Canadian inferiority when it comes to giving - the government will do it for you.
Attempting to make Canadian taxes at least partially equivalent to American charity is, to me, morally obtuse. Charity involves altruism—a conscious decision to forego some of what one has in order to aid strangers. Taxation involves no such altruistic intention. When taxes are withheld from my income, the money is simply gone. The government takes it and spends it on what it will, apart from whatever I might prefer to do with it. Whether my tax money is spent on social welfare or foreign junkets or dubious advertising campaigns by political cronies is beyond my knowing, never mind my intention.
Ms Ramsden-Wood had one more idea to get cheapskate Canadians off the hook.
She also said tax incentives stateside encourage greater giving.
After doing some research, I find no evidence to support this supposition and much to refute it.
First of all, as mentioned in the previous post, the US tax system contains a built-in disincentive to claim charitable donations. In order to make such claims, Americans must take the time and effort to submit an itemised tax return instead of claiming the standard deduction on a non-itemised return. According to this article by Robert Reich, 89% of American households contributed to charity in 2000, but only 30% of tax-filers filed itemised returns.
The tax benefits of claiming charitable deductions are not noticeably higher in the US than in Canada. In fact, by my calculation, they are lower in some states. The article just linked contains an example of the tax benefit received by a wealthy American charitable donor: Since the top marginal tax bracket is 35%, the donor receives a federal tax reduction of $350 for every $1000 donated. Also, seven states have no state income tax; in the others, top marginal tax rates range from 3.0% to 9.5%. (See table here.)
The Canadian tax system provides a federal tax credit of 15% on the first $200 of charitable donations and 29% on every dollar above $200. The provinces and territories add varying percentages on top of that. In Yukon, which I understand has about average income tax rates, these additional credits are: 7.04% on the first $200 and 12.76% above that. (Rates as at 2005 tax year.) A Yukon taxpayer reporting a charitable donation of $1000 would receive a total tax credit of $378.16. In states with a top marginal tax rate of less than 3.16%, any Yukon taxpayer would get a larger tax reduction than an American in the top tax bracket.
Moreover, several studies show that income tax rates have little effect on most charitable giving. In a 1997 Policy Review article, John S Barry examined the historical evidence for the United States.
The most overwhelming proof that tax incentives have a relatively minor effect on individual charity is the tremendous consistency over time of giving as a percentage of income. Although the tax code has changed frequently and dramatically over the past 23 years, giving as a share of personal income has hovered around 1.83 percent.
On the Canadian side, a 2003 paper by Paul Reed of Carleton University and Statistics Canada looked at data from the 2000 Survey of Giving, Volunteering and Participating. Survey respondents said that their charitable giving was only marginally related to tax benefits. (The paper can be downloaded here as a Word document.)
[N]early nine of every ten (87%) givers stated they did not donate because of the tax credit, and these individuals accounted for 81 percent of all dollars donated. Secondly, one-half (49%) neither donated because of the tax credit nor intended to claim a tax credit for their donations. In fact, of the 13 percent who stated they donated because of the tax credit, four in ten would not be claiming a tax credit! I think the most telling number is this one: a mere 7.7 percent of all givers did so because of the tax credit and intended to claim that credit.
So, the two reasons offered by the president of Calgary United Way have been shot down. Well, then, what might account for the greater charitable giving by Americans? Philanthropy expert Arthur Brooks, whom this blog has mentioned several times in the past month or so, has an answer.
[C]onservatives who practice religion, live in traditional nuclear families and reject the notion that the government should engage in income redistribution are the most generous Americans, by any measure.Conversely, secular liberals who believe fervently in government entitlement programs give far less to charity. They want everyone's tax dollars to support charitable causes and are reluctant to write checks to those causes, even when governments don't provide them with enough money.
Earlier this year, Statistics Canada reported evidence of a similar pattern in Canada.
Hmmm. Religious conservatives give more than secular liberals, and Americans are, as a whole, the most religious and politically conservative people in the Western world. Given that, one should not be surprised that Americans are more generous than Canadians.
h/t for Calgary Sun link: Darcey at Dust My Broom
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