Should you subsidize my charity?

On aggregate Canadians are a generous bunch, donating over $10 billion to registered charities.[1] Doing so, however, relies in some part on a generous tax system that sees the Canadian government subsidize our respective donations to the total tune of $2.5 billion.[2] That subsidy means that you, in effect, subsidize my choice of charity.

Now if giving were evenly distribution across all donors than there’d be little to discuss – as everyone would get a similar share of the subsidy. However as it stands, 82% of donations are made by 25% of the giving population. And the top 10% of donors make a whopping 62% of total donations. [3]

If one assumed that tax “subsidies” flow in equal proportion to donation size, that means that 62% of the $2.5 billion tax “subsidy” is returned to those who give over $1000.  However, given our progressive tax system, those at the top will actually see a greater return than those at the bottom who pay less in taxes to begin with, thus creating a regressive use of tax revenues. [Moreover, as my friend Sean notes in the comments below, small donors will only receive a 15% rebate, while donations over $200 are eligible for 29%.]

Now there’s two ways to looks at this:

1-      The subsidy incents giving that would otherwise not exist, i.e., I give because I get a tax receipt.

This argument is used a lot amongst larger donors – I’ve had it told to me twice in the past week during a foodraiser for the local foodback – yet only 13% of self-identified donors say they do so for the tax credit. [4] Other sources, notably the Statistics Canada Annual Giving Survey, put this number higher at 23%.  However, nearly fifty percent of donors don’t even request the credit.

Would larger donors actually exit if the tax credit was removed?  A recently published paper by Robert and Michelle Yetman at the University of California suggests that, in the US, tax incentives have little or no effect on donations to charities in the fields of health, human services, or public and social benefit, but they do influence giving to organizations devoted to animals, arts and culture, education and the environment, as well as to private foundations.

One would hope that these findings indicate that donors are committed to causes, no matter the tax benefits involved. However I imagine it’s likely that a reduction in the tax incentives would cause a drop in donations for some large/mid-size donors.

2-  A second view is that the tax credit subsidizes the wishes of a small share of the population at the cost of broader public goods. If I want to direct my personal dollars to a cause, why should others (and the general public purse) be forced to support my giving? Moreover, given where the majority of donations are directed, to religious organizations (46%)[5], should all Canadians be subsidizing giving that may come with values-laden strings attached? I suppose the counter to this system would be to have public money divvied up by bureaucrats – however is this any more accountable / representative?

Evidently, those two contrasting views don’t offer much in the way of middle ground. We need significant donors to participate but we’d certainly prefer to do so without giving them so great a share of decision-making on public dollars. Can we reduce the tax scheme to cap rebates at a certain level without adversely affecting total donations? Can we allocate public funds in a manner that is more representative of the entire population? Given the advent of programs such as Kickstarter and IndieGogo that use crowdfunding to raise capital, could similar processes be used to allocate public funds from a charitable tax rebate fund?

I don’t pretend to know the answer here – I just find it strange that others are made to subsidize my charitable choices. As a argued with a colleague last week, I don’t need that $6 back on my $20 donation to cause x, nor do I think he should indirectly subsidize my choice of charity. I choose to give $20 or $100, not $14 or $75. And while I can acknowledge that some people love to lessen their taxes, if you’re in a position to be a sizeable donor, then do you really need it? I for one would much rather it be pooled to provide sustainable and reliable funding for organizations/projects/budgets that need it.


[1] http://www.statcan.gc.ca/daily-quotidien/090608/dq090608a-eng.htm

[2] http://www.oag-bvg.gc.ca/internet/English/parl_oag_201010_07_e_34290.html#ex1

[3] Source: Caring Canadians, Involved Canadians: Highlights from the 2007 Canada Survey of Giving, Volunteering and Participating, Michael Hall, David Lasby, Steven Ayer, of Imagine Canada and William David Gibbons, Statistics Canada, 2009.

[4] http://www3.carleton.ca/casr/The%20Impact%20of%20Tax.pdf

[5] Source: Caring Canadians, Involved Canadians: Highlights from the 2007 Canada Survey of Giving, Volunteering and Participating, Michael Hall, David Lasby, Steven Ayer, of Imagine Canada and William David Gibbons, Statistics Canada, 2009.

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