Does the charitable deduction make sense for Mormons?

This year, Mormons will likely be disproportionate beneficiaries of the charitable deduction as they deduct money paid for tithing. The issue is whether allowing Mormons this deduction makes economic sense.

The charitable deduction functions to lower the cost of giving. If taxpayer in a 40% tax bracket were to donate $100, he “saves” $40 in taxes because he would have had to pay a tax of $40 on that $100 if not for the deduction. A common justification for this deduction is that it encourages additional money to flow to and thus benefit charities. The problem, however, is that if people’s donations to charities are inelastic—that is, people will give the same amount regardless of the tax consequences—donors are the primary beneficiaries of the deduction and the charities get no additional income.

To see this point, consider the following scenario developed by one of my professors:

Assume a world with no charitable deduction. A taxpayer in a 40% tax bracket intends to make a $100 donation.  Then, the charitable deduction is introduced. Will he respond by giving more?  Let’s consider the options:

Option One: the donor gives exactly the same amount that he previously intended. Thus, he gives $100, but his cost after the deduction is only $60. The charity is not made better off by the deduction—it received the same amount it would have without the deduction.  Instead, the government “spends” $40 in uncollected revenue that goes to the donor.

Option Two: the donor gives just a little more than he intended.  For example, the donor gives $150 and his real cost after the deduction is only $90 (the government “matched” with $60 (40% of 150)). In this scenario, the donor gives $50 more than he would have without the deduction.  But $10 of the $60 government benefit still goes to the donor. The government would be better off giving the charity a grant of $60 rather than allowing the donor a deduction.

Option Three: the donor gives additional amounts that are greater than the amount “spent” by government on the deduction.  For example, the donor gives $200 to charity and the real cost to the donor is $120 (government matches with “$80″). In this case, the donor gives $100 more than he intended, and the cost to the government is only $80. If donors typically behaved as in option three, then the deduction would be a good way for the government to encourage money to go to charities—they spend only $80 and the charity gets $100 benefit.

There are, of course, other ways a donor could behave.  And, the deduction might encourage people to give who otherwise would not. But the basic point is that if the donor would give the same amount in a world without the deduction as in a world with the deduction, then it is unclear why the government should “spend” money that lowers the donor’s costs but does not provide any additional benefit to charities.

Because Mormons are asked to pay a fixed percentage of their income to tithing, most active Mormons would pay 10% regardless of the charitable deduction. If that’s the case, Mormons are reaping tax savings, but the Mormon Church isn’t seeing additional benefits. Accordingly, allowing charitable deductions for mandated amounts of tithing probably doesn’t make tax sense.

Note:  In the comments, feel free to also discuss other deductions you take in pursuit of church activities (i.e., deductions for mission expenses).  

Comments

  1. And because only a small percent of Mormons actually pay tithing, your point is…
    More Muslims give charity.
    Baptists tithe too.
    Or is this just a round-about way to support Obama’s push to eliminate charitable deductions. We would all be much better off without those pesky charities getting in the way of government support.

  2. Naismith says:

    Given that this is a worldwide church, I’m uncomfortable with the title. It’s not “the” charitable deduction, it is the USAmerican tax code.

    Also, it is regressive because only those who itemize can benefit from the deduction. In some years, charitable deductions for non-itemizers have been allowed, but I believe that by 2010 it reverted back to being only for those who itemize.

  3. This post makes no sense from a public policy perspective (or, indeed, any other). Although it has been shown that religious people give more (even once you subtract sectarian giving), I’m not sure that most of the money donated to charities in this country does not go to the Mormon church, or any other church. So, this is a pretty small drop in the federal bucket here.

    Even more to the point, the implicit policy options being advocated here is almost certainly unconstitutional: state direct funding of churches or state discrimination against charities that happen to be churches.

  4. Natalie B. says:

    #2: Obviously, this post is about Americans who itemize.

    #1: I think that the logic here would apply to any religious organization that requires a fixed amount. Since this is a Mormon blog, I’ve limited the discussion to Mormons. Mormons who don’t pay tithing aren’t deducting it; this discussion is about Mormons who do.

    Finally, let’s try to avoid making this post about Republicans v. Democrats.

  5. Natalie B. says:

    3: I am not advocating government giving direct funding to churches. The hypothetical is a demonstration of what the charitable deduction is in general supposed to do.

  6. Natalie B. says:

    3: In fact, it would not surprise me to learn that the charitable deduction stays around largely because religious groups that can’t get grants lobby for it. But this post is only about why a deduction probably doesn’t make sense for those who pay fixed amounts to churches.

  7. Peter LLC says:

    Assume a world with no charitable deduction.

    Because Mormons are asked to pay a fixed percentage of their income to tithing, most active Mormons would pay 10% regardless of the charitable deduction.

    Obviously, this post is about Americans who itemize.

    World = America?
    “Mormons who are asked to pay tithing” = American Mormons?

    Anyway, I would be surprised if the existence of a charitable deduction wasn’t the spoonful of sugar that helped the tithing get paid. Why wouldn’t US Mormons view the tax windfall that arises from righteous living as an additional incentive to pay (more) tithing?

  8. Stephanie says:

    This year, Mormons will likely be disproportionate beneficiaries of the charitable deduction as they deduct money paid for tithing. The issue is whether allowing Mormons this deduction makes economic sense.

    How does a Mormon benefit differently on charitable deductions than any other religious person who pays a tithe? Are you arguing that Mormons alone should be blocked from deducting tithing, or that religious contributions in general should be disallowed?

  9. Stephanie says:

    Sorry, that should be *deducting* religious contributions in general

  10. Last Lemming says:

    I’m told by someone in a position to know (but not at liberty to name) that the charitable contribution deduction is the only part of the tax code that the institutional Church cares about (this based on their experience with the flat tax proposal in Utah). From this, I conclude that the Church does not see donations as inelastic.

    You can take that for what it’s worth, but as an public finance economist, I agree that donations to the church are almost certainly price elastic. The deduction certainly matters for partial tithepayers. Even for full tithepayers, it could determine how much they contribute to fast offerings, the missionary fund, the humanitarian fund, the perpetual education fund, etc.

    A stronger criticism of the deduction (particularly with respect to tithing and missionary funds) is that the donations are essentially purchasing “club goods” that primarily benefit the contributors themselves. Why should the government be subsidizing that? In contrast, fast offerings, the humanitarian fund, and the perpetual education fund substitute for expenses the government might have to undertake on its own in the absence of charitable activity, so it makes sense for the government to leverage its contribution with a matching requirement of sorts.

  11. Natalie B. says:

    #8: I think that any donation that is price inelastic should probably not get the deduction.

    10: That’s interesting. I really wish the church would share its information on this topic. It’s really hard to know what people would give in an alternative universe, but I wonder if there is information on donations in countries without a charitable deduction equivalent that could be used as an admittedly imperfect comparison.

    Also, I really agree with your criticism that things like missionary funds are purchasing club goods. In fact, I was thinking of a follow-up post on that topic before you beat me to it. It might well make sense to say that donations given for general welfare purposes should be deductible and those for ecclesiastical purposes should not.

  12. Natalie you’re making an unfounded assumption on the implications of the tax deduction on US Mormon behavior. Do you have any evidence that members don’t make additional contributions to Fast offerings, the Church Humanitarian fund, the Perpetual Education Fund, the Missionary program, or the Temple fund as a result of the tax break? How do you know that members aren’t engaging in other forms of charitable assistance (like supporting family members and friends in need directly as we’re encouraged to do) as a result of that tax benefit?

    Lacking data to adequately evaluate these assumptions even if we added in the other rows in the tithing slip I wonder how deeply one can really expire this question.

    BTW, you wouldn’t happen to be studying tax law at the moment would you? The question reads like an essay question on a final exam. :)

  13. Of course “expire” should read “explore” – posted simultaneously with LastLemming but concur with what he said.

  14. Stephanie says:

    Natalie 11, so you are assuming that tithing is inelastic and all other religious contributions are elastic? Do you think that tithing donations for all religions should be blocked from being deducted?

  15. Natalie, I’m guessing your hypotheticals were not constructed by an economist — the obvious response is that the charitable donation deduction lowers the marginal cost of giving (for itemizers) and therefore increases the amount of giving. Period. Suggesting charitable giving is perfectly inelastic is misguided (because it is wrong) and simply muddles the issue.

    Does it make sense for Mormons? (Your original question.) Of course it does. For individual Mormons, it lowers the cost of giving. For the Church as a whole, it increases the total amount of contributions.

    Does it make tax sense? (The question you ended up with.) Yes, if you think giving taxpayers an incentive to make chartitable donations is a good thing. Unless Mike Huckabee gets elected and tries to pass a law denying only Mormons the ability to take charitable deductions, the only question that makes sense for the tax code as a whole is whether the deduction for all charitable donations makes sense. Of course it does — nonprofits do a lot of good things that neither for-profit corporations nor governments are very good at, and the deduction does increase the donation funding that gets directed to nonprofits.

  16. Natalie says: It might well make sense to say that donations given for general welfare purposes should be deductible and those for ecclesiastical purposes should not.

    No, that makes no sense at all. The deduction is to decrease the cost of giving and increase overall donations to charitable organizations — because it is the organizations that provide the services. No organization, no services. All costs of running those organizations are legitimate costs, and donations fund those costs. There is no basis for distinguishing between operational costs (what you call ecclesiastical purposes) and flow-throughs (what you call general welfare purposes) in terms of the deduction — you simply can’t deliver the beneficial services without the organization that provides them.

  17. remember…if you have a calling at church you are a charitable volunteer and you can deduct the milage you drive to and from church and on any official church duty–it adds up.

  18. I have to admit I’ve felt a little uneasy about the charitable deduction. Not exactly paying my tithes in secret from the world when I am declaring how much I paid to the government in order to pay less taxes.

    What is worse? Telling others how much you pay to make yourself feel/look good or telling the government how much you pay to get a financial reward? Not attacking anyone, as I make the deduction, but it raises an uncomfortable point.

    I was even more surprised when I heard an expat say this is specifically why they not only paid tithing, but fast offerings in their old/home US ward (rather than current international one) because they could claim it on their taxes.

    Fast offerings especially get used locally by the bishop, so paying those “back home” simply to get the deduction seems worse for some reason.

  19. As far as the deduction itself, I like to think the sugar-coating aspect is that it encourages more giving. The reason why it is tax-deductible (in my logic) is because it is going toward a service that is (supposed to be) beneficial toward all of society. I think in most cases society at large is better off because someone donates money to build a church, feed a homeless person, etc.

  20. It is an interesting question. But even flat tax proponents have backed away from the elimination of charitable deductions (and mortgage interest). My take is that this is a signal that it is not politically feasible.

    But I am also interested in the terminology used: ‘government matches’, ‘cost to the government’, government ‘spend’, etc. I recognize the quote marks indicating some skepticism but clarification would be useful. Is the government making some sort of sacrifice to allow charitable donations to be deductible (government owns the money and allows people to have some of it)? Is the deduction a cost shift forcing others to pay more? Is this another ‘reward’ program where the government is inducing behavior? (we are just rats in a maze.) If so, has government determined that the behavior is actually bad and should no longer be given that incentive. Or is it something else?

    The original question is interesting but it begs so many more interesting questions…

  21. Agree it doesn’t make sense. Of course, the same logic would lead one to agree that families don’t belong in the carpool lane of the freeway…

  22. “Mormons will likely be disproportionate beneficiaries of the charitable deduction as they deduct money paid for tithing”

    Are we really so disproportionately benefiting?

  23. France gives tax credits instead of tax deductions. It is an amazing benefit if you are in a low tax bracket. If there were more LDS here, they would have to change the law.

  24. A) I’m not sure that there is such thing as a completely inelastic good (I’m pretty sure there isn’t). Some goods are more inelastic than others, but to assume that tithing contributions would not change were it not for the deduction is a little naive.

    B) For me tithing is elastic. Lets assume that I would under all tax circumstances continue to pay tithing, even so my other charitable giving (which I do, and enjoy to do) would change significantly based on how my tithing was taxed. If a $100 donation effectively costs me $60, then I still have another $40 (or $66.66 in reality) to give to charitable causes, I will be much more likely to do so. So while 10% may indeed be the baseline, my other giving will be directly affected by the tax code. I similarly assume many Mormons give more charitable giving than just the baseline 10% and their giving will also be affected by how that original 10% is taxed.

  25. I’d only add that for me, tithing is indeed “inelastic”, but other church related charitable donations are less so. When things are going well, we donate more to humanitarian aid, fast offerings, missionary funds, PEF, and when things are not as good, we pay some fast offerings, but may hold back on the others. Disclaimer: A significant part of my income is elastic in that is it is salary plus bonus and commissions, while my wife’s salary as a schoolteacher is mostly flat (and likely to become more so based on state budget projections). So for us, the deduction, while not a primary factor, still is part of the equation. And we do donate to non-LDS charities as well.

  26. What is worse? Telling others how much you pay to make yourself feel/look good or telling the government how much you pay to get a financial reward? Not attacking anyone, as I make the deduction, but it raises an uncomfortable point.

    Telling others to feel/look good. Without question.

    I was even more surprised when I heard an expat say this is specifically why they not only paid tithing, but fast offerings in their old/home US ward (rather than current international one) because they could claim it on their taxes.

    Well done, good and faithful servant; thou hast been faithful over a few things, I will make thee ruler over many things

  27. I have no problem with reaping tax benefits from being obedient to the law of tithing. Maybe that is one of the blessings! Malachi said paying your tithing will “rebuke the devourer”. Well, the IRS is the biggest devourer I have encountered in my financial life.

  28. PS: Please don’t audit me if you read that last post.

  29. StillConfused says:

    My husband paid tithing on inheritance, which is not taxable income. As a result, we have a large charitable deduction carryforward. My figuring was that if it wasn’t taxable income, no tithing is necessary. But apparently, the Church doesn’t follow the tax code in that way.

  30. Natalie B. says:

    Tithing is inelastic for me. I generally don’t donate large enough amounts to other places to think about the tax deduction when I pay, so those are inelastic as well for me.

    I think that there will always be a range or responses–people’s behavior will be affected differently by the deduction. In terms of thinking about whether a deduction is a good idea in a given sector, I think we’d have to ask if more people would be inelastic than elastic. Ultimately, it is an empirical question we can never have solid evidence for. But we can speculate based on what we know about the context.

    In the absence of data, I tend to think that tithing (our biggest donation to the church) is more likely to be inelastic than not for any given person. First, if you are going to contribute at all to the church (the only people we really care about for this discussion), you are probably active and face a whole lot of pressure to pay 10%. I find it unlikely that people will pay anything worth deducting if they aren’t believing Mormons who face the 10% commandment.

    Next, assuming you are a full tithe payer, the additional amount you might give to the church is likely to be quite small given that you’ve just paid 10% of your income to the church.

    The point about how the deduction impacts non-church giving is interesting. That would be interesting data to explore. It seems that if you gave additional amounts to other charities in excess of the tax savings from tithing, then the deduction from tithing would make sense. I wonder how many Mormons give that much excess.

  31. I wonder how many Mormons give that much excess.

    Obviously I have no way of knowing numbers, either of people or dollars, but I do know that everywhere I’ve heard of, there are people who can be counted on to make special donations (beyond tithing, fast offerings, and other funds on the tithing slip), however generous their regular donations are. We hear over and over (well, you hear if someone you are connected with it in any way) of sudden enormous needs arising and bishops not hesitating to call on certain members for emergency donations, knowing they will come through. My family saw that once, when my nephew needed tens of thousands of dollars to deposit for specialized medical care, and needed it before close of business that day. The checks that poured into my brother’s hands (there wasn’t time to funnel them through an account to make the donors anonymous) proved that. If they did it for us, if the bishop knew who could be depended upon, then those people have given before and will give again.

  32. Look at it as a way to encourage the type of people who put something other than money and themselves first. That has some governmental benefit, no?

  33. Again Natalie, I think it is important to emphasize that there is no such thing as something that is 100% elastic or 100% inelastic, but instead the terms refer to a multiplier used to estimate demand. I say this because when you say “Tithing is inelastic for me.”, it’s not actually true. It might be more inelastic than most goods, but lets say hypothetically the tax rate was 91%, and there was no deduction, you wouldn’t pay full (gross) tithing no matter how much you wanted to. You might pay tithing on your net, but you definitely wouldn’t on your gross, and therefore the amount you give is – to some degree – elastic.

    The same is likely true if the tax rate were 89%, still likely true at 85%, less sure but still likely at 80%, and so on down the line until you find the point where you could reasonably pay a full tithe. That line will be different for everyone, but it will exist for everyone. Based off this, we can assume that for some people, if they didn’t have the deduction, they wouldn’t pay because it would be too much money. They might not be the majority and that would make this a relatively inelastic good, but it wouldn’t be a totally inelastic good.

  34. Natalie,

    “I find it unlikely that people will pay anything worth deducting if they aren’t believing Mormons who face the 10% commandment. ”

    Really? I hope I’m misunderstanding but are you really saying that you find it hard to believe that Americans in general would not donate enough for deduction purposes if they aren’t under commandment to do so?

    If that’s what you’re saying then please do some reading on American charitable donations and also on the tax strategies that every accountant leverages to help their clients reduce their tax burden.

    http://www.mint.com/blog/trends/charity-who-cares/

  35. Stephanie says:

    Again Natalie 30, what is it exactly that you are proposing? Eliminate the tithing deduction for Mormons only, or for all religions?

  36. Peter LLC says:

    First, if you are going to contribute at all to the church (the only people we really care about for this discussion)

    I thought you were talking about American Mormons who itemize?

  37. A slight thread-jack to chime in that there are goods that are pretty close to inelastic. Insulin is often the text book example, but for me personally, I would die in pretty quick fashion without my thyroid medicine. While I guess there might be some hypothetical price at which I would choose to forgo that medicine, the consequence of death makes it pretty inelastic for me. Unlike blood pressure meds that one could maybe cut back on and substitute another medicine/treatment/lifestyle, the dose (quantity) I need to live is the dose I need to live. In other words, I will buy the quantity I need at pretty much any price –> inelastic good.

    To the extent that people believe spiritual well-being requires 10% tithing, it is an inelastic good… you pay it no matter what – or at least that is what the church leadership would like to you to believe.

    It seems to me that it is the lumping the tithing in with other goods that lends itself to B Russ’ line of reasoning that tithing is elastic. To lump tithing in with all charitable giving muddies the water because now you are assuming you can ‘afford’ x amount of charitable giving and will prioritize tithing over other kinds in order to stave off spiritual ‘death’ if you would. It is akin to saying that you have a portion of your budget set aside for medicine (prescriptions and supplements) and that insulin is elastic because you could substitute insulin for vitamin D.

    To those with little or no discretionary income (and thus without a discretionary ‘charity’ basket of goods), the extent to which tithing is inelastic is less debatable. There is no room for vitamins. Either you believe that (spiritual) life is dependent upon paying your 10% tithing or not.

  38. One can see the deduction for religious contributions the same way one sees contributions for other charitable purposes, and say that the reason for the deduction is to encourage such contributions. But another way to look at it is that the income tax is supposed to reflect something like disposible income (or ability to pay), thus a deduction for state income taxes. For people in some religions, like ours, tithing represents a tax imposed by another sovereign (God) which reduces disposible income.

    In a country with high tax rates (say the US in the 1950s–91% highest marginal rate) and if there were nondeductibility of tithing, theoretically, for a person who tithes on gross and who pays high taxes, the marginal rate of tithes/taxes could exceed 100%.

  39. it's a series of tubes says:

    The OP reeks of law school, in all the ways I remember with nary a drop of fondness.

  40. If your question is “Would Mormons pay the same amount in TITHING if it wasn’t tax deductible” I would say the answer is 90% yes.
    You have PLENTY of people who don’t itemize, so the deduction is irrelevant.
    You have PLENTY of people who don’t know or don’t care how much of a deduction they get so it wouldn’t really change their behavior.
    You have PLENTY of people who pay tithing and taxes first, so they would adjust how much they pay for other things based on what they have left over.
    You have only a minority who might pay less in tithing because they pay on net so if their tax refund is smaller they will pay less.
    You have a minority in a high tax bracket who try to give to charities specifically and choose to pay extra tithing, so they might not pay as much extra tithing.
    You might have a small minority that think they can’t afford tithing but if their taxes are lower they will believe they can afford tithing.
    So, I believe it would make SOME difference, but not a lot.

  41. Natalie B. says:

    35: I’m not proposing anything. I’m merely making an observation that I think many if not most mormons are unlikely to change the amount they give to the church in response to a tax deduction.

    39: Sorry if it reeks of law school. While I agree that law school often reeks, I actually find this topic interesting.

  42. Stephanie says:

    I’m not proposing anything. I’m merely making an observation that I think many if not most mormons are unlikely to change the amount they give to the church in response to a tax deduction.

    I think that a mere observation of the behavior of Mormons in response to changes in the tax code would sound different than

    The issue is whether allowing Mormons this deduction makes economic sense.

    and

    Accordingly, allowing charitable deductions for mandated amounts of tithing probably doesn’t make tax sense.

  43. My husband paid tithing on inheritance, which is not taxable income. As a result, we have a large charitable deduction carryforward. My figuring was that if it wasn’t taxable income, no tithing is necessary. But apparently, the Church doesn’t follow the tax code in that way.

    The Church seems to go out of its way to avoid define what money should be considered for tithing. (We were just discussing this in EQ yesterday.) It is up to you and your husband to decide what should be tithed, not the tax code or the Church.

    To the point of the OP, I have never had enough deductions in itemisation to make itemising worthwhile (the standard deduction has always been greater), but if I were to itemise and have an amount greater than the standard, I would be one of those American Mormons who would not donate more or less to the Church as a result, and would therefore presumably be one of those who benefits from the charitable donation deduction.

  44. StillConfused says:

    Here is an interesting question: Does tithing HAVE to go to the Mormon Church? For instance, suppose that I really love XYZ charity. Can part of my 10% go to XYZ charity and I still be a full tithe payer? I actually asked my Bishop this as I prefer to donate my charitable dollars in certain ways. He declined to answer.

  45. StillConfused – Yes, it is very generally accepted that the 10% has to go to the LDS church as “tithing.”

  46. Guess I’ve always looked at it the other way around. (Kinda like SilverRain.) I figured the government wants to encourage charitable donations, because most non-profits, in some way, take some of the burden off the government.

  47. It seems to me that it is the lumping the tithing in with other goods that lends itself to B Russ’ line of reasoning that tithing is elastic. To lump tithing in with all charitable giving muddies the water because now you are assuming you can ‘afford’ x amount of charitable giving and will prioritize tithing over other kinds in order to stave off spiritual ‘death’ if you would. It is akin to saying that you have a portion of your budget set aside for medicine (prescriptions and supplements) and that insulin is elastic because you could substitute insulin for vitamin D.

    Well, no, it’s not really the same. Because you probably can’t substitute insulin for vitamin D.
    But if the idea of a deduction is to encourage charitable giving, and if you removed the deduction for tithing, total charitable giving would decrease, then the deduction is doing exactly what it is supposed to do: encourage increased charitable giving.

    While I guess there might be some hypothetical price at which I would choose to forgo that medicine, the consequence of death makes it pretty inelastic for me.

    Yes, but we can probably agree if the medicine were $10 billion, you wouldn’t buy it.

    I am trying to make the point that elastic/inelastic is not an on/off switch, but a multiplier used in economic equations.

    Natalie has made the comment a couple times, effectively, that we have no way of knowing whether or not giving would decrease so this discussion is effectively a thought experiment. The problem is that some data exist1 , the equations exist, and an economist if so inclined could come up with some pretty good assumptions2 and estimates about how removing the tithing deduction would affect tithing giving and charitable giving in general. These aren’t unknowables. So treating it as a thought experiment – as opposed to simple (non-leading) questions to promote further investigation – seems sloppy. And as Stephanie has pointed out, many of the questions being asked are very leading and assumptive.

    1 I.e. how was tithing affected when tax rates changed over the decades – if tithe giving was higher when taxes were 50% than they are now at 35% then we can see evidence of an elasticity multiplier. Since at a 50% tax rate a deduction is much more valuable than it is at a 35% tax rate.

    2 I’m not saying it would be easy. It would be a real challenge worthy of a dissertation. But it is possible, and those economists are really weird people. I mean really. I knew this one that would post pictures of dead frogs on Facebook. Weird.

  48. Natalie B. says:

    42: I think we can ask if a phenomenon makes sense in light of the justifications traditionally given for it without proposing full scale changes to the tax system if we decide it doesn’t. I have not, and do not intend, to propose any reform measures here, because I do not know enough to feel confident about any proposal. I think we need to work on understanding situations before we jump at proposals.

    47: That would be awesome if we had that data. I hope someone does it. But, and here I am really curious, where can one get the information on the church’s tithing revenues? I’ve always been told that information is not available to the public. I’d love to know if I could find it.

  49. 42 says “Well, no, it’s not really the same. Because you probably can’t substitute insulin for vitamin D.” Yes, that was my point, apparently poorly articulated. You cannot substitute a life saving medicine with a vitamin. They may be related (in terms of both being substances you take for your health) but are not substitutes. When you absolutely require something that has no substitute, it turns into an inelastic good. And in those cases, the multiplier isn’t a particularly useful tool because the budget gets set aside for the good no matter what.

    Some (most active?) people feel that way about tithing. For the portion of Mormons whose budget barely support a 10% tithing rate, I doubt you would see a significant tradeoff/multiplier effect between tithing and alternate forms of charitable giving. It is my hunch that far more people fall into this category than this bizarre alternative world created as a thought exercise.

  50. If I’m not mistaken, the data used to be read during general conference and had been for decades (through many different tax rates). Those numbers would be a good place to start.

  51. CBO did a report on charitable giving elasticity back in 2002 when they were discussing whether non-itemizers should get to deduct charitable expenditures.

    http://www.cbo.gov/doc.cfm?index=4008&type=0

    Some points:

    1. Dollar for dollar, most giving is done by really rich people who itemize deductions.

    2. There is clearly some elasticity (maybe -1.0 maybe -1.2 or maybe -.06…) but it is tricky to measure and it’s kind of hard to say whether the extra amount given to charity is more or less than the amount the government loses in tax revenue.

    3. Increasing charitable giving is not the only purpose of the charitable deduction. Another major argument for the deduction is that tax should be based on consumption, and it is simply more equitable to charge less in taxes to people who consume less (because they give more to charity).

    For poor, young and lonely bloggers, tithing calculation might be fairly simple. Maybe you pay tithing on your nominal salary, or maybe on your post-tax paycheck or something like that — but either way it’s a simple rule that you don’t change from year to year. For the really rich people who contribute most of the revenue, determining what constitutes tithable income is more complicated and subjective and the possibility of giving more much than 10 percent is also more practical. There are also opportunities to leave estates to the church at death, decisions made by estate planners very aware of tax code details. If you took away the deduction for churches and left it in place for other charities, I would expect church revenues to decline dramatically. But that’s just a hunch. Too bad we don’t have any actual data…

  52. “Yes, that was my point, apparently poorly articulated.”
    You made your point fine, I was making the point that it is a false comparison.
    Even if we assume tithing is completely inelastic (in a hypothetical world where such things exist) it still has to have a variable effect on how much other charitable giving is done (because if nothing else, it will affect how much total money a person has). In other words, to use your line of thinking and create a better comparison, it would be like saying that people who HAVE to buy insulin are just as likely to buy Vitamin D as people who don’t have to buy insulin. Which at large probably isn’t true because people who have to buy insulin are going to have less money to buy Vitamin D than people who don’t have to buy insulin. Particularly money which one would deem worthwhile to set aside for medical expenses.

    “Some (most active?) people feel that way about tithing.”
    Probably less than one might assume. But yes, some would feel that way.

    “I doubt you would see a significant tradeoff/multiplier effect between tithing and alternate forms of charitable giving.”
    Do you have any reasoning for this?

    At any rate the point is that some people would pay less/stop paying. As long as that number exists, and we are talking about public policy, that number is relevant. It might not apply to you, but the fact that it applies to someone is what is relevant. We can say, almost without question, that charitable giving would go down if the deduction were removed. Possibly it is $1 billion, possibly it is $0.01. So then the question becomes how much would it go down – which is why the multiplier is important.

  53. You know what, Russ, I’m not sure I can engage anymore and remain civil. While it is an aside to the greater point (and I suppose I could just engage the greater point), you seem absolutely convinced of your position that there is no such thing as an inelastic good. I’ve offered you two examples of goods (insulin and thyroid medicines) that people will use up their whole entire budget if needed to get the quantity their body needs (not some price sensitive quantity demanded) otherwise they die (and the whole point is moot). I’ll grant it isn’t a perfect analogy, but for the rank and file member who is on a fairly limited budget but pays tithing out of obedience, I think the values placed on tithing might be close. But given that you won’t even admit to the inelastic good, there is no further engaging in wonkish policy discussion based on quantifying values that are not logical.

  54. no further *use in* engaging

  55. Perhaps members shouldn’t even be claiming it [any donations to the church, no matter their use] on their taxes.

    Now, I’m not saying that we shouldn’t take advantage of any money savings the government gives us, but ethically speaking, I’m not sure I’m kosher with reporting my donations and, therefore, benefiting financially through tax savings for the same donation.

    To be fair, I’ve never made enough to itemize and therefore typically make the standard itemized deduction. However, there was a year or two where it was close and I purposefully went with the standard deduction because I thought the whole itemized donation thing was a bit problematic (personally speaking). Additionally, I’m not sure how I feel about the Church really caring for this portion of the tax code, if it’s true that they do care so much that there are those voicing the same [comment #10].

  56. You know what, Russ, I’m not sure I can engage anymore and remain civil.

    Okay. I don’t know what I’ve said that would provoke uncivil discourse. But if you have to become uncivil, its really no bother to me. Go ahead. You have my blessing.

    you seem absolutely convinced of your position that there is no such thing as an inelastic good.

    I’m absolutely convinced that elasticity is not yes/no but a spectrum.

    From Wikipedia:

    In practice, demand is likely to be only relatively elastic or relatively inelastic, that is, somewhere between the extreme cases of perfect elasticity or inelasticity.

    Some sample elasticity co-efficients:

    Airline travel (US)
    -0.3 (First Class)
    -0.9 (Discount)
    -1.5 (for Pleasure Travelers)

    Medicine (US)
    -0.31 (Medical insurance)
    -.03 to -.06 (Pediatric Visits)

    Wikipedia

    So, interpreted: pediatric visits, while incredibly inelastic, still have some elasticity. These are real world representations of your necessary medical goods. Possibly insulin/thyroid is even more necessary, but I still remain very doubtful that the elasticity co-efficient is 0.00000. I’m doubtful because I know diabetics that eat donuts at the cost of their feet, so I’m sure at least one exists somewhere in the world that wouldn’t buy insulin at the cost of their life – even if they could afford it.

    but for the rank and file member who is on a fairly limited budget but pays tithing out of obedience, I think the values placed on tithing might be close.

    But thats the problem, economics is the study of margins not averages. I’m sure for the “rank and file” member there is a lot of truth to that. The question is the marginal member. Who wouldn’t pay, how many of these people are there? To claim that tithing is completely inelastic is to claim that not one single person exists that would stop paying tithing if the deduction was removed. Is that what you are claiming? Not one single member, out of an ballpark estimate of 3 million tithing paying members, would stop paying tithing based on that change in tax code?

  57. This is a actually a little entertaining. I hope no one gets too upset or uncivil.
    Tithing is not completely inelastic. But like I said before, it wouldn’t change a lot.
    My thyroid medicine isn’t completely inelastic either. When I was hyperthyroid I took one kind of medication and ultimately had to choose whether to kill off my thyroid and become hypothyroid. Can you guess what one of my questions was?
    Which is cheaper? (Of course I also asked which is healthier for me).
    I absolutely took into consideration the cost of medication when choosing whether to be hyper or hypo for the rest of my life. My current medication is not expensive. If it had been I would have chosen to stay hyperthyroid and avoid having to need to buy it.
    So, while it is probably very inelastic, it is not completely.

    Homer- Most people who itemize have a house, state taxes and tithing. So the tax benefit they get for the tithing not just because of the tithing. If they don’t itemize they would still claim the standard deduction. Also, if they didn’t pay tithing they might definitely have a nicer house with a higher interest payment and tax payment. Especially if your tithing is lower than the standard deduction there is a real argument that your taxes aren’t lower because of tithing…..they are only lower because of your housepayment.

  58. Natalie, you offer a good argument, but I humbly reject the premise. You assume that a charitable deduction mainly “functions to lower the cost of giving.” i.e. the force is vertical. I believe this is a secondary effect, easily compensated for by raising taxes.

    Instead, I believe the main force of a charitable tax deduction is horizontal. The government is good at raising funds but lousy at spending them. The IRS is the propeller, but donors are the rudders. With small pushes to one cause over another, the ship of state is steered towards those solutions which are more effective, as judged by those with skin in the game. Ideally, the charity recipients would also have a say. With enough private buy-in, public policy itself often changes to follow. Nothing sells a charity better than success — in fundraising! Leverage works in two dimensions.

    My current company recently offered matching funds for Japan disaster relief. This was purely for leverage. Otherwise, though, they offer 50% matching funds to the charity of my choice, by which they hope not just to increase my charitable giving in general but to learn through me of new and otherwise unnoticed but promising solutions. Consider this a kind of spot-market where amateurs gamble for pennies but the bookies index off that to spot new trends and bet big. Or else perhaps stockholders pushing on a company while its executives steer, but steer with the help of key stockholders who can take their money elsewhere.

    The question thus reformulated might be: would the LDS Church itself, having set and receiving an absolute level of tithing from the members, nonetheless benefit from the leverage of communal wisdom on where this money might most effectively be spent in building the Kingdom or supporting the individual in need?

    As an non-member, I would not presume to answer this question, but I hope active tithe-paying Mormons on this list will answer it for me.

  59. Natalie B. says:

    51: I’m not a big fan of the consumption argument. To me, paying tithing is conceptually a lot more like a personal choice of how to spend money–no one is forcing me to pay it.

  60. Last Lemming says:

    For the record, the CBO study cited above did not report on original research regarding elasticities–it only applied a range of elasticities estimated by others to a particular policy question. A good recent paper on the subject providing both original research and a review of previous work can be found here:

    http://web.williams.edu/Economics/wp/BakijaHeimCharity.pdf

  61. 59: Many people feel that consumption, not income, should be progressively taxed, and that gifts to other people and/or organizations should not be taxable events. The people who feel this way are not unaware that giving and consuming are personal choices.

    http://en.wikipedia.org/wiki/Consumption_tax

  62. Natalie B. says:

    60: Thanks for the paper! I look forward to reading that.

  63. it's a series of tubes says:

    39: Sorry if it reeks of law school. While I agree that law school often reeks, I actually find this topic interesting

    Natalie, I think one of the reasons you’ve seen some forceful objections to your post is that it reads IRAC-style, but with some gaping holes. Various other posters (for example, 42) have commented on the discrepancies between what the OP actually said, and what you said in the comments as to what the OP was supposedly about.

    Take it all with a grain of salt, but you might want to think of this as a good example of the results of passing along writing that is less than rigorous – or that could simply benefit from another round of proofing to consider the scope. The assigning partner reading your memo (or the judge assessing your brief) will likely be far less forgiving than some of the commenters here have been.

  64. This seems relevant given the conversation through this thread about how the Church approaches tax deductions and whether those deductions are fair:

    I want to say a word in conclusion about our tax situation. Some people both within and without the Church seem to worry about some welfare projects upon which no state tax has been levied. Let me say to you humbly, my brethren and sisters, and to the world, that we pay in very deed a hundred percent of the production of these farm projects of ours to the same identical cause to which much of our taxes are dedicated. The gross production of our welfare projects goes to relieve a tax burden rather than the small fraction which would be charged us were we limited alone to the tax that might be levied upon it if it were not tax-exempt by law. I am sure that the people in the Church and out of the Church should have no worry about our not meeting our civic responsibilities. I am sure that we will always be found doing more than our share in the communities in which we live throughout the world.

    Henry D. Moyle (Apostle), April 1956 General Conference

    For those unaware, Moyle was heavily involved in building out some of the welfare farms that provide funding and food to the Church system.

    Also, I checked and could not find in any of the Improvement Eras from 1942 – 1971 any listing of Church tithing statistics. So if those details are out there, I suspect they might be listed in the Church Conference Reports which are of limited availability.

  65. #63, I don’t understand your emphasis, much less your zeal. This is not a legal brief. Since when did a post to BCC have to be the polished conclusion of a discussion not yet started, or even a self-consistent exposition of the authors views?

    The ancient Greeks seemed to have no problem starting with half-baked Ansatz (or should I stick with “hypothesis” in a fetish of self-consistency?) and changing sides when persuaded.

    If the salient metric here is cleverness of disputation, at least the saccharine one is that Natalie squeezed 63+ comments out of her post. I call that success enough by BCC standards.

  66. I admit that half of the above info is Greek to me.

    But as for myself, I pay tithing because:
    1. it’s a commandment
    2. I want to

    I then deduct it from my taxes because:
    1. I can. So why would I not do it?
    2. The US government has screwed my family and the church over multiple times in the past 180 years and now I can get something out of them!!!

  67. it's a series of tubes says:

    I don’t understand your emphasis, much less your zeal. This is not a legal brief. Since when did a post to BCC have to be the polished conclusion of a discussion not yet started, or even a self-consistent exposition of the authors views?

    It doesn’t, by any means. However, the OP contains certain elements (“the issue is…”, etc) that are reflective of the way a 1L is commonly taught to reason on paper, and it recites examples provided by one of Natalie’s law school professors. Thus, my commentary could be viewed as an aside intended to assist Natalie in, shall we say, proactively structuring/strengthening her writing against the challenges that will be thrown against it in her legal career. Not an issue that ranks high on my zeal meter, but rather a quick tip from a practicing attorney to one soon to be.

    If the salient metric here is cleverness of disputation, at least the saccharine one is that Natalie squeezed 63+ comments out of her post. I call that success enough by BCC standards.

    Point well taken!

  68. Natalie, I think one of the reasons you’ve seen some forceful objections to your post is that it reads IRAC-style, but with some gaping holes.

    Actually, my objections stem from the fact that Lawyers talking about economics (something of which they usually have a tacit understanding, but hardly a professional grasp) is the seed from which all of our tax code has stemmed (assuming that around 35% of all congressmen are lawyers – by far the most common profession for a congressman). So any time a lawyer starts talking economics I get the shivers, my blood runs cold, and I can’t fight back the urge to weep.

    No offense.

  69. (To clarify, I’m not saying that lawyers can’t understand economics, nor even that they shouldn’t try. Just that when they do talk about economics, I hope for damn sure they try their best to get it right)

  70. it's a series of tubes says:

    No offense.

    None taken. Besides, I was an engineer first :)

  71. Natalie, there’s a huge legal academic literature addressing both the charitable deduction in general (including its regressivity) and whether a charitable deduction for donations to churches is appropriate.

    I don’t have the numbers handy, but a large percentage of donations to churches come from nonitemizers, suggesting that charitable giving to churches is, if not inelastic, at least motivated by more than tax considerations. That is potentially in contrast to museums, schools, and other types of 501(c)(3) public charities, which are funded largely by wealthy donors who do itemize.

    Nonetheless, the idea that we should subsidize charitable giving so that people give is only one of the possible justifications for the deductibility of donations. Another is that, as Dan (58) suggests, the government is ceding a portion of its spending power to taxpayers. That is, the government largely directs money where Congress says to direct money, but the charitable deduction gives individual and corporate taxpayers the ability to choose where some of their tax dollars go.

    Another justification that has been floated by some academics is that public charities function as co-sovereigns with the government. As such, it is inappropriate for the U.S. government to tax their income streams. Tangential to that is the idea that a charitable donation doesn’t constitute consumption by the taxpayer; essentially the taxpayer never gets the benefit of the money that is donated, and thus shouldn’t be taxed on it.

    All of these justifications are problematic to some extent. Still, it would be a mistake, IMHO, to treat the charitable deduction solely as a means of encouraging charitable deductions in excess of what taxpayers would otherwise donate.

  72. I don’t know if I should add, but I will nonetheless, that, as long as we provide a deduction for some charitable giving, there are strong horizontal equity reasons that we should provide a deduction for all charitable giving, irrespective of whether that giving is elastic or inelastic. Specifically, one underlying tax policy principle (horizontal equity) is that similarly-situated taxpayers should be taxed in approximately the same way. That means that if you earn $100,000 and make a charitable donation of $10,000 and I earn $100,000 and make a charitable donation of $10,000, our ultimate tax bill should be similar if not identical. To the extent we say that there is no deduction for Mormons, who have a mandatory tithe of 10%, but there is for Catholics who have no mandatory tithe but nonetheless give 10% violates horizontal equity and is unjust.

  73. Does one gets blessings from Heaven if they have already received one from the government?

  74. Does one gets blessings from Heaven if they have already received one from the government?

    A tax deduction is not so much a blessing, as it is an absence of a curse.

    (also, are we so sure a tax deduction doesn’t come from heaven? I thank God when I take the deduction. Am I directing my prayers to the wrong purveyor?)

  75. I think it is stupid. My future father-in-law somehow games a lower tax rate than his son (and it’s not like we’re hurting.) I chalk it up to the huge discrepancy between his income and his wife’s (she makes zero dollars), the fact that they have three dependent (old! Haha) children, and the danged tithing issue.

    Look, do we really need to reward the wealthy suburbanite chemists more than they already are? I know that Mormons are inherently suspicious of helping the poor–I get it–by I don’t know why anything to do with ANY religion should be tax-free. I asked my fiancébif country club memberships could just be “written off”… same thing.

  76. Anyone want to crunch the numbers of how much our taxes will change once we get married (a silly thing for the government to hand out bonuses for), and have a child (slightly less so, but basically welfare for rich people). He paid 14K, and I received c. 500.

    Handout, please! ;)

  77. Stephanie says:

    I chalk it up to the huge discrepancy between his income and his wife’s (she makes zero dollars), the fact that they have three dependent (old! Haha) children, and the danged tithing issue.

    I chalk it up to the fact that our government (still) acknowledges the benefits families and charitable organizations provide to society. Thank God for that.

    When you get married, you are more than welcome to not claim your children as dependents or deduct your tithing. Noone is forcing you to. None of the rest of us will complain. If you feel that is the best way to “help the poor”, you go right ahead.

  78. I know that Mormons are inherently suspicious of helping the poor–I get it–by I don’t know why anything to do with ANY religion should be tax-free.

    A) Yes. We hate helping the poor. Good thing we’ve never set up welfare programs, aided in disaster relief, etc.

    B) Yes. We understand that 100% of tax dollars go to helping the poor, and 0% gets wasted in bureaucratic inefficiency, empire building, or pork spending that helps out (random politician)’s cousin.

    C) Yes. The only way to help the poor is through government spending, and that’s what this discussion is really about.

    D) Yes. Their really is no economic nor rational reason why churches should have tax advantages. The multitude of reasons brought up in this thread (particularly the great ones point out by Dan Weston (58)) Are really just a smoke screen to further protect our coffers so that we can enjoy our “country club” church.

  79. I can’t believe I dropped a “their” mistake. Grammar Nazis, please disregard.

  80. Portia, why your future FIL pays a lower tax rate than his son would depend on a lot of things. If he’s married filing jointly, the tax brackets applicable to his income are roughly 50% wider than his son’s. So if they make a similar amount of money, that’s a start.

    The dependency deduction may help, too, depending on his children’s situations (like age, if they live with him, or if they’re students). His tithing may also reduce his taxable income.

    Does he contribute to an IRA or a 401(k)? Is he self-employed or does he have business expenses? Is he earning some portion of his income as capital gains or dividends? Does he have a mortgage? All of those things can materially affect the amount of tax he pays. It’s worth noting, though, that if his income is $100,000 and he pays $10,000 in tithing, that will save him a total of $2,500 in taxes. Nothing to sneeze at, of course, but not a huge saving, either, comparatively.

  81. As for how your tax bill will change after you get married, it, too, depends on your situation. Assuming your and your fiancé’s income remain the same, your collective tax bill may go up a little if you both earn a similar amount. If one of you earns a lot more than the other, it may go down a little. On the other hand, it may not in either case.

  82. Stephanie says:

    Sam B, I think her point was that she doesn’t think anything should change on her taxes after she gets married.

  83. Stephanie, it’s fine that she think, from a policy perspective, that taxes shouldn’t be affected by marital status. There are a whole host of academics who argue that treating married couples differently than two unmarried individuals creates problems.

    The thing is, not treating married couples differently also creates problems. And I’m pretty convinced by a series of articles that Stephanie McMahon has written, arguing basically that history and England’s experience in eliminating the married-filing-jointly tax brackets show that, notwithstanding the problems in our current system, the results of a switch are suboptimal and, therefore, we shouldn’t move in that direction.

  84. Natalie B. says:

    71: Thanks for your comments, Sam.

    I agree that there would be huge problems with deciding who should get deductions and who shouldn’t, which is why I have not made any suggestions about how we should respond to this observation.

    Nevertheless, since you’ve brought up horizontal equity, it seems worth pointing out that current tax law doesn’t treat all gifts the same for purposes of the deduction–gifts to some types of nonprofits and to individuals are not deductible. So, if I give to a family next door and you give to the church, we will not be treated alike for tax purposes.

    Absolutely correct that there are other justifications for the deduction–I’ve just focused on the one I find most persuasive.

  85. Natalie, that’s right: the Code doesn’t treat all gifts the same. But all* gifts to 501(c)(3) organizations (what we call “public charities”) are deductible, so that would be the appropriate comparison. There are lots of tax-exempt organizations in section 501, and donations to most of them are not tax-deductible to the donor.

    And, even though in our law-and-economics times, the incentive aspect of the charitable donation rises to the top, I’m pretty convinced that, historically, it’s not the reason for the charitable deduction; moreover, I’m not convinced that its the best normative reason for the deduction. Nonetheless, it looms large in current discussions of the deductibility of charitable contributions, so it is necessary to address.

    An equally salient issue: a donation to a 501(c)(3) is not deductible if we get something in return for it. But is the ability to go to the temple something in return? (It’s not under current law, btw.) How about the warm glow we get for doing something charitable? Or the fact that I get tons of enjoyment out of listening to WBEZ?

    *Of course there are exceptions. For example, if you make a charitable deduction of more than 50% of your adjusted gross income, a portion of the deduction will be disallowed. But in general, the horizontal equity point holds

  86. (Ah, I see that I was inexact in my horizontal equity comment. What I mean is that, if we make donations to one 501(c)(3) deductible, horizontal equity would require us to make donations to another 501(c)(3) equally deductible.)

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