41 Pages Posted: 4 Nov 2013
Date Written: May 2013
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.
Keywords: tax, charitable deduction, non-profit, recession
Suggested Citation: Suggested Citation
Lee, Grace Soyon, Mitigating the Effects of an Economic Downturn on Charitable Contributions: Facing the Problem and Contemplating Solutions (May 2013). Cornell Journal of Law and Public Policy, Vol. 22, 2013; U of Alabama Legal Studies Research Paper No. 2348155. Available at SSRN: https://ssrn.com/abstract=2348155