Would Fiscal Cliff Keep Rich From Giving to Charity?

Would Fiscal Cliff Keep Rich From Giving to Charity?

The idea of cutting deductions is raising howls of protest from non-profits and many wealthy givers.

If the charitable deduction is capped or cut, they say, the United States will lose billions of dollars in charitable donations.

This idea is based on two central premises: that the wealthy account for most charitable giving, and that tax breaks motivate their giving.

Let’s take the first. There is no hard data on how much of the nation’s more than $ 300 billion in annual charitable donations come from “the wealthy” (however they are defined). But research shows that of the total charitable giving in 2001, about 70 percent came from individuals, with the rest coming from companies and other entities.

About half of that 70 percent comes from the top three percent of earners, who make around $ 200,000 or more. (Read more: Millionaire Give Away Nine Percent of Income)

In other words, the top three percent (and the group most affected by any deduction cap) account for about around a third of all charitable giving. Which is a lot – or just a fraction, depending on your leanings.

As for the importance of tax breaks to those givers, again there is no hard data since we are measuring relative motivations. But a recent survey from Bank of America and the Center on Philanthropy at Indiana University found that fewer than a third cited tax advantages as among their main reasons for giving.

A majority said they would maintain their current levels of charitable giving even if deductions for charitable donations were eliminated.

What’s more, it said that three out of four respondents plan to give as much or more in the coming years. While the poll was taken before the election, most of the wealthy have known for years that there is a high likelihood that their taxes will go up at some point after 2012.

This is not to say that deductions don’t matter. People naturally like to say “the right things” in surveys, and few are likely to admit that they give to charity for the tax breaks. And any cut in deductions would not doubt reduce the amount of money given to charity. (Read more: Rich Give Less than Middle Class)

Still, the Bank of America survey tracks a host of other similar surveys which find that the wealthy give for the self-fulfillment and personal satisfaction of making a difference in the world. And of course, some give out of a need to be noticed for their giving.

In sum, it seems that taxes may not play as great a role in charitable giving as the opponents might have us believe.

-By CNBC’s Robert Frank
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