by Arthur C. Brooks
American Enterprise Institute
December 03, 2013
Working Paper Series
The Great Recession has had a significant impact on giving patterns. In January 2013, President Barack Obama signed into law the American Taxpayer Relief Act of 2012, which increases the top marginal personal income tax rate from 35 percent to 39.6 percent for annual taxable income above$450,000. For those families the effective tax price of giving would thus drop from .65 to .604 per dollar donated, a price decrease of 7.07 percent. The price effect would be at least partially offset by the income effect of lower disposable income from a higher tax. To many laypeople this is a counterintuitive result, because it predicts that the tax increase leads to a relatively large increase in short-run giving. More complicated policy reform proposal is a cap on deductions. One level that is frequently considered is 28 percent, which could be expected to lower total charitable giving in the short run by 4.35 percent.

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