76 Pages Posted: 5 Nov 2014 Last revised: 16 Apr 2015
Date Written: November 3, 2014
Charitable tax policy is at an impasse. Historically, citizens have overwhelmingly supported the charitable tax deduction as a means of fostering diversity, encouraging donations and supporting the nonprofit sector. Yet various policymakers and academics have increasingly disputed the deduction’s cogency and justifiability. In response, legal scholars and economists have offered various defenses and assessments of the deduction, but these have not convinced skeptics or placed the deduction on sufficiently solid theoretical and policy footing. The article adopts a novel approach by instead employing recent research in the neuroscience and psychology of prosocial behavior and charitable giving. Specifically, it identifies structural advantages specific to the deduction, rather than to charity or nonprofits more broadly. It then delineates key neural mechanisms and psychological functions that provide evidence linking dimensions of the deduction to distinct, previously neglected positive externalities. Amidst growing skepticism, developing a more capacious understanding of the deduction’s worth to society is essential. Indeed, failure to consider more robust, innovative analyses of the deduction compels authorities to craft policy without adequate information, and leaves the deduction and thus many philanthropic endeavors unreasonably vulnerable.
Keywords: law, tax, neuroscience, psychology, nonprofit, charity, altruism, externalities, prosocial, deduction, economics, social capital, trust, habit, networks
JEL Classification: K34
Suggested Citation: Suggested Citation
Keller, Ryan S., Beyond Homo Economicus: The Prosocial Brain & The Charitable Tax Deduction (November 3, 2014). Virginia Tax Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2518628