Gerald Auten

Charitable Giving, Income, and Taxes: An Analysis of Panel Data

This study implies that taxes affect the level of contributions by way of a price effect and an income effect, each of which has two components, a transitory one and a persistent one. The findings suggest that persistent shocks in incomes have a larger impact on charitable donations than do their transitory counterparts. The most important behavioral aspect for considerations of tax policy is the persistent price effect, since transitory effects are passing. Through this effect tax reforms can have a long-lasting influence on charitable giving.

Charitable contributions and intergenerational transfers

Abstract This paper investigates the effects of bequest taxes and the income of children on the lifetime charitable contributions of parents. Using matched income tax records for parents and children, the results show a positive elasticity of 0.6 for contributions with respect to the tax price of bequests. The paper also finds that the income of children affects the amount that parents contribute to charity. The results show a positive elasticity of up to 0.14 for contributions by parents with respect to the income of children, implying that when children are better off, parents are likely to increase charitable giving.

Permanent versus Transitory Tax Effects and the Realization of Capital Gains

Recent empirical work on captial gains implies that realizations are highly sensitive to marginal tax rates. Because they are based on cross-section data, however, these estimates cannot distinguish between permanent responses to tax rate changes and the timing of realizations to take advantage of the normal fluctuations in any individuals tax rates over time. The purpose of this paper is to distinguish transitory from permanent tax effects by analyzing panel data for taxpayers. Controlling for permanent and transitory income and other variables, the estimates suggest both transitory and permanent effects, although the permanent tax rate effect is not significant in all cases.

Bequest taxes and capital gains realizations

Abstract Contrary to popular view, capital gains do not escape taxation at death as they are subject to the estate tax. The presence of the step-up in basis increases the lock-in effect of capital gains taxes as individuals are induced to hold assets until death. This effect, however, is mitigated by the estate tax which applies to assets passed to heirs. Using a sample of matched income and estate tax records in a period that straddles significant changes in capital gains and estate tax rates, the estate tax is found to have an unlocking effect on capital gains realizations. The realization elasticity with respect to the estate tax rate is estimated at 0.36 in the basic model.

Tax reform and individual giving to higher education

Abstract Higher education benefits from a number of special provisions of U.S. tax laws. One of the most important is the deducibility of charitable contributions. One effect of recent proposals for tax reform would be to increase the net cost to donors of making such gifts, thereby reducing current tax incentives to give. Higher education would be especially impacted by such proposals because of its dependence on gifts from high income donors and on gifts of appreciated property. Simulations of taxpayer behavior under the assumption of a passive response by higher education institutions and contributors imply that tax reform could lead to a significant reduction in giving.