UC Berkeley News


Charitable efforts to relieve the suffering and losses caused by Hurricane Katrina (right) took many forms, from the ad hoc (left) to the hyper-organized. Hurricanes and a tsunami made 2005 a banner year for disasters, and possibly for charitable contributions as well. But even a record-setting total could increase exponentially, a campus economist proposes, if tax credits for charitable donations were instituted. (Shelley Powers photo (left))

Berkeley economist proposes Choose-Your-Charity policy
A change in regulations governing charitable giving could yield enough money to pay for a wealth of social programs

| 12 January 2006

At year's end, charity officials in the United States were forecasting that 2005 would wind up a banner year for giving. But a Berkeley professor says that could be just the beginning of a major cash flow of charitable donations.

In a recent issue of the journal The Economists' Voice, Aaron Edlin, a professor with dual appointments in economics and law, proposes shifting the regulations for charitable giving to allow individuals to target donations as part of an "ultimate matching grant" program that, he says, would amass a treasure chest for charities.

A former senior economist with the President's Council of Economic Advisers, Edlin suggests instituting a tax credit of $1 for each dollar one spends in charitable giving, with limits on what percentage of income can be donated.

If everyone contributed at a limit of 10 percent, Edlin estimates, annual charitable revenues of an extra $400 billion could be realized, which could lay the foundation for unprecedented progress on numerous fronts. "There would be no homelessness in America. Job retraining would be available for all," he writes in the journal. "And that's only on the domestic side," he continues. "If half this charity went abroad, U.S. foreign aid would increase by a factor of 15. Instead of fast becoming one of the most hated nations in the world, the U.S. could quickly become the most loved."

Under a more modest scale where the Choose-Your-Charity contribution limit would be set at 1 percent of a taxpayer's income, Edlin says the nation's charitable giving would escalate by $40 billion a year.

He acknowledges that a common complaint of those who don't give as much as they can afford is that their donation seems all but irrelevant because of the staggering challenges that charities face.

"The problem with good causes is that the very thing that makes a charity a good cause is the enormity of the problem it is fighting," he writes. "Yet because the problem is so vast, my gift is a drop in the bucket. The problem will still be there when I am done giving. The problem will be there if I do not give."

The Choose-Your-Charity plan would create a reasonable expectation that others would also give, magnifying the impact of each individual donation, Edlin says. Matching contributions with more than 100 million U.S. taxpayers, he writes, would result in "the ultimate expansion of the proven 'matching' tactic that has already helped increase donations to charities."

Current tax-deduction rules for eligible charities would have to be amended, says Edlin, and replaced with the new credit of $1 for every dollar that individuals spent on contributions to the specific charity of their choice.

The change would allow people to choose whether to contribute to charities that directly help the needy, provide domestic training or infrastructure programs of a more self-reliant bent, or even opt not to take the credit and, in essence, make a gift to the government, he says.

Liberals will support the plan because it would route more funds to their favorite causes, Edlin predicts. Meanwhile, he expects that conservatives will like it because they favor private solutions rather than public ones and have long contended that private charity is more efficient than higher taxes, and that big government bureaucracies are often ineffective and inefficient in tackling problems.

In addition, Edlin says, the existing competition among charities would increase as they work harder to prove their value and efficacy.

"The point is," he concludes, "that the Choose-Your-Charity tax . could convince individuals to listen to their higher selves - not their innate selfishness - with the assurance, through 'matching,' that they are not alone in doing so."

U.S. charity officials reported $248.5 billion in gifts for 2004, according to the Giving USA Foundation. Many feel that relief efforts in the aftermath of such disasters as the Asian tsunami and Hurricane Katrina, along with a one-time tax break allowing donors to deduct gifts up to 100 percent of their adjusted income, were likely to make 2005's charitable-giving outlook even brighter.

The Economists' Voice (www.bepress.com/ev), issued at least six times a year, features analysis and opinion by leading economists about key national and international policy issues. It was launched a year ago by two Berkeley economists - Edlin and J. Bradford Delong - and a Nobel laureate from Columbia University, Joseph Stiglitz.

The journal is among several publications issued by The Berkeley Electronic Press, founded in 2000. The journals address topics in business, law, political science, technology and science, current affairs, medicine, and the humanities.