During his press conference Obama explained, apparently with a straight face, that making it more expensive for people to donate to charity by reducing the value of the charitable tax deduction will not affect the level of charitable donations. He further insisted that he was basing this counter-intuitive claim on "the evidence". Really? It will be interesting to watch Obama's apologists within the reality-based community defend this. While we wait, allow me to report back on evidence gathered from the planet with the yellow sun.
First, here is a meta-analysis from 2005:
The authors compile and contrast the results of a vast number of studies looking at the interplay of tax rates and charitable giving. Although people have many motivations for their philanthropy the conclusion of almost all of these studies points in the same direction - on net people give less when it costs them more. (Table 1 on p. 5 and Figure 1 on p. 6 show negative price elasticities in almost every study.)
The interplay of tax rates and charitable giving was also an issue during debates on reforming or repealing the estate tax. Parenthetically, I should note that we are about to shift gears - when it comes to the estate tax, lefties are adamant that a high estate tax coupled with a commensurate charitable deduction promotes charitable giving and that an estate tax repeal "would substantially reduce charitable giving". In that arena they recognize that Obama is talking nonsense. Yes, it can get confusing; I am long resigned to the fact that I am not smart enough to be a lefty.
That said, this is from 2003 in support of the unsurprising notion that people pay attention to their money:
Here are two relevant snippets:
and a 1-percent increase in aftertax wealth raises charitable bequests by 1.2 percent—that is, he finds that charitable bequests are more sensitive to price than to wealth.
As people have more, they will give more, and as giving costs more, they will give less - thank heaven for economists!
Of course, in the current context, Obama is raising taxes on high earners, thereby reducing their net worth, and reducing the value of the charitable deduction, thereby raising the after-tax cost of donating. The net effect of these changes on giving by "the rich" will be unambiguous and bad for charities, although to be fair, the effect will be swamped by the wealth effect of the current market wipe-out.
Oh, well - Obama is certainly not describing the motivations of charitable donors based on his own experience - he and Michelle were virtually unaware of the concept until he became a Presidential candidate. But that said, he did have good success getting people to write non-deductible checks to his campaign. (Here's a stray thought - totally eliminating the charitable deduction would put politicians on an equal footing with charities. That would be a boon for activists, but eliminate the middleman in the case of Planned Parenthood, the NRA, and so on. What side is Obama on here?)
Here is the relevant exchange from the presser:
QUESTION: It's not the well-to-do people. It's the charities. Given what you've just said, are you confident the charities are wrong when they contend that this would discourage giving?
OBAMA: Yes, I am. I mean, if you look at the evidence, there's very little evidence that this has a significant impact on charitable giving.
I'll tell you what has a significant impact on charitable giving, is a financial crisis and an economy that's contracting. And so the most important thing that I can do for charitable giving is to fix the economy, to get banks lending again, to get businesses opening their doors again, to get people back to work again. Then I think charities will do just fine.
If his point is that the wealth effect will is more important in the current environment, well, nobody disagrees. But that is not what the charities are worried about; their point is that this is one more problem for them in an already brutal environment.