Influences of the Change in Related Tax Benefits on Changes in Household Charitable Contributions Behaviors
Asian Tax Journal Vol. 21 No. 2 (2020), pp. 61-91
Abstract
Focusing on charitable contributions above the deduction limit, this study analyzes the causality between marginal tax rate, reflecting tax－saving effect, and household’s decision making on charitable contributions. As the above－the－limit charitable contributions (ATLC) have no tax－saving effect, the increase in opportunity cost by removal of the tax－saving effect is deemed to be much greater in households with higher marginal tax rate. In case the effect of tax－saving purposes is stronger than that of non－tax (public or religious) purposes, the above－the－limit charitable contributions are expected to be reduced more than charitable contributions within the deduction limit as a household’s marginal rate gets higher. Otherwise, in case the effect of non－tax purposes is stronger than that of tax－saving purposes, the degree of reduction of ATLC is expected to be relatively small as a household’s marginal tax rate gets higher. Moreover, this kind of reduction in charitable contributions can vary depending on the purpose of charitable contributions, whether it is public or religious. That is, charitable contributions reflecting more faithfully personal beliefs are deemed to be less susceptible to tax－saving purposes, and, in most cases, among public purpose charitable contributions and religious purpose ones, the latter fall into such charitable contributions. Consequently, reduction of ATLC is expected to be smaller in religious purpose charitable contributions. This study recognizes how decision making on charitable contributions is affected by personal features － type of charitable contributions, household’s marginal tax rate of contributor, etc. Regression results of this study show that as the marginal tax rate increases, charitable contributions grow bigger significantly, which implies strengthened tax－saving effect in accordance with increased marginal tax rate, and non－tax factors are not as influential as tax－saving effect. This finding remains unchanged in case classified charitable contributions (religious purpose charitable contributions and public purpose ones) are adopted as dependent variable instead of the whole amount of charitable contributions. In addition, as the marginal tax rate increases, above－the－limit charitable contributions grow bigger significantly, which also implies that strengthened tax－saving effect proportionate to increased marginal tax rate plays an important role in decision making on household’s overgenerous charitable contributions above the deduction limit. This kind of regression results are likely to result from systematic coupling of the whole amount of charitable contributions and above－the－limit charitable contributions. Furthermore, we can find a significantly positive association between the religious contributions ratio and above－the－limit charitable contributions. Because the ratio represents households’ non－tax factors that are weakly affected by tax－saving incentives, this result implies that above－the－limit charitable contributions seem to become greater as household’s personal beliefs get strengthened. However, as the marginal tax rate increases, above－the－limit contribution ratio declines. This regression results can be interpreted that taxpayers intend not to spend charitable contributions above the deduction limit due to increased opportunity cost. That is, the regression results imply that, as the marginal tax rate increases, taxpayers intend to spend charitable contributions possibly within the deduction limit, not surpassing the limit, considering the tax－saving effect enough. As a result, non－tax purposes are found to be not so influential to excessively spent charitable contributions, through which tax－saving effect can’t be expected.
Keywords
- Above－the－limit charitable contributions
- Marginal tax rate
- Religious purpose charitable contributions
- Public purpose charitable contributions
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