Charity Begins at Schedule A
By IAN AYRES and BARRY
NALEBUFF
EW HAVEN
Most people think of today as tax day. But it is also an
ideal moment to reflect on whether we've given enough to charity. Thanks to
Schedule A, tax day is often the first time that we add up how much we've given
and see how it stacks up against what we've earned over the year.
Two small changes in tax law could encourage people to be
more generous. First, extend the deadline for deducting donations to April 15
of the following year, the same as the deadline for contributions to an
Individual Retirement Account. Second, provide a new line on the tax form for
people to total their donations as a percentage of their income.
Most of us teach our children to tip at least 15 percent.
Yet we generally don't tell them how much they should give to charity. In fact,
most people don't even know how much they themselves gave to charity.
Ask yourself this question: Are your contributions above or
below average? Most people can't answer. First, they don't know what percentage
of their income they donate, and second, they don't know what the national
average is. Our informal survey of some of our students found that very few
students had any idea what percentage of income their parents donated. The
national average is 2 percent, but there is a huge variation, and many people
with above-average incomes give virtually nothing.
If the explanation for this low level of charity is simply a
lack of generosity, then there's no easy solution. But another cause, and one
much easier to fix, is a lack of information — and the corresponding lack of a
social norm.
Once a social norm is established, behavior can change.
Researchers have discovered that most students think they drink less than the
average — and thus increase their consumption to be more like others. Simply
publicizing that few students had more than five drinks reduced peer pressure
to binge. Rather than telling students to "Just say no," it was more
effective to say, "Just be like everybody else." The I.R.S. could
apply the same approach to charitable giving.
By requiring everyone to calculate their giving as a
percentage of their income, the I.R.S. could solve the self-ignorance problem.
Donations percentages, like tipping percentages, would be something that people
know about themselves. Second, the 1040 instruction sheet could report the
average contribution rate for different income levels. The I.R.S. already has
this data. Indeed, this information is used by accountants and tax software for
the purpose of assessing audit risk — rather than allowing individuals to assess
their generosity.
Of course, a comparison with the average percentage might
induce some above-average givers to reduce their donations. But since the
median contribution is far below the mean, the number of people who feel
pressure to donate more will exceed those who might be tempted to give less.
Lastly, the I.R.S. should extend the deadline for charitable
contributions the way it extends it for the I.R.A. contributions. A delayed
deadline has worked well with regard to I.R.A. contributions. If taxpayers
discover they haven't saved quite enough, they have a chance when they file to
add to last year's I.R.A. This retroactive contribution also helps people
reduce their tax liability. Seeing the immediate tax savings from donations
would similarly encourage people to give to charity.
By letting taxpayers know more about their own giving and
that of others, the I.R.S. would help define a national norm for charity. And
by allowing taxpayers to deduct contributions until they file, it could
encourage Americans to be more generous. After all, most of us are like
residents of