Cutting charity: Why give if the government does it for you?

December 15, 2021

What happens when the government increases household taxes in the name of expanding social services to others? One of my late career research themes tried to address that issue.

IBAM 2015 Cutting charity.docx

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The original, complete title of this research paper was, 'Why give if the government will do it for you?' Using data collected from my undergraduate students, I tested the self-reported likely behavior of a head of household confronted with a tax increase on a fixed budget, requiring reductions in spending elsewhere in the household budget.

The impetus for this research came from learning the ever-increasing share of the federal spending that was devoted to 'human resources,' meaning wealth transfers via government programs. This covers the money that goes directly to a recipient, in the form of cash or a free or discounted/subsidized service, from the taxpayer via the seeming largesse of the federal government, the proverbial "robbing Peter to pay Paul." That percentage, which hit a low during World War II at about 2% of federal spending, quickly recovered and then grew rapidly over the following sixty years, growth in both the percent of the budget and the total dollar amount, hitting over 65% and two trillion dollars under Obama, with no sign of relenting.

The research included prompt that told the head of household that federal taxes on household income would increase to pay for additional wealth transfers, i.e.. social programs, that benefitted one person at the cost of another person's increased taxes. Told this, the research found that this increased taxation would "disproportionately affect charity than other discretionary parts of a household budget." This produced the expanded title, concerning the transfer of charitable behavior from the person to the government, a clear "no net gain" if not a lose-lose proposition, as the government 'take' on the funds passing through its hands reduced the real constribiuton that would otherwise result from direct, personal charity.

Here is the executive summary/abstract:

This research examines the effects of a non-discretionary health cost increase, age, and sex on charitable decisions. The results indicate that a cost increase can disproportionately affect charity than other discretionary parts of a household budget. Households cut charitable contributions at a higher rate than cuts in entertainment, travel, clothing, food and savings. Younger females reduced charity significantly more than did older females.