The art of “giving back” is one some say has been perfected in the US, which gives about 2 percent of GNP each year. In 1960, it is estimated that Americans total giving for philanthropic purposes was about $125 billion, after adjusting for inflation. In 2011, Americans gave $298.3 billion. Figures for charitable giving are back to almost where they were pre-2008 recession, again adjusting for inflation.
Some economists, according to the political philosopher Michael Sandel, believe this altruistic behavior to be a scarce commodity, and that people need financial incentive to act charitably. In this economic school, altruistic behavior is a scarce commodity because it can be overused and thus diminished, while positive incentives can make more of it. Sandel actually theorizes the opposite of this – that the commodified way of examining altruism is flawed because “financial incentives and other market mechanisms can backfire by crowding out non-market norms.” These norms, such as simple generosity, could be harmed by the very incentives that seek to maximize them. For example, Richard Titmuss argues that providing payment for blood-donations “undermines the ‘gift relationship’ as an active feature of social life.” However, some evidence suggests that market mechanisms such as tax breaks or other monetary incentives promote charitable giving and volunteering in the big picture, and lead to a culture of giving in the US unmatched by any other nation in the world.
Each year, Americans give enormous sums to charity. The median yearly individual contribution in the US is $2,564. Though the term charity is very wide – ranging from the collection in a local church to disaster-relief donations for foreign countries – it is essentially the act of forgoing income in the service of some “cause”. The breadth of the definition for charity that culturally prevails can be traced all the way back to the Charitable Uses Act passed under Queen Elizabeth I in 1601. There, four categories of charity were defined: relief of poverty; advancement of education; the advancement of religion; and the extremely broad “other purposes beneficial to the community.” Roughly a third of individual gifts go toward religious causes, primarily supporting houses of worship. The remainder is spread out among secular causes, such as education, health, and social welfare.
Charity in the US is not an activity limited to certain social classes. According to the 2010 Harris Poll, 88 percent of Americans said that they had donated either time or money to charitable causes. At the same time, in 2012, 15.9 percent of Americans lived below the poverty threshold, according to a September 2013 US census. That implies that some number of households living below the poverty line still give to charitable causes, even as the percentage of people living in poverty rose markedly after the financial crisis. Charity seems such an essential aspect of citizenship that it is even practiced by those structurally vulnerable in society. Because this is such a politically charged topic, closely related to economic policy, statistics tend to be multitudinous and contradictory. According to a 2008 congressional testimony, people earning below $50,000 on average gave away two percent of their income. The “one percent,” or the percentage of Americans that earned above $500,000, gave over three percent of their incomes to charity, according to that same testimony. The “One percenters” accounted for 24 percent of charitable giving in the US in total. However, other reports claim the exact opposite – namely the lowest income brackets give the most in terms of fraction of income. What seems to be agreed upon, however, is that giving is not an act exclusive to one income bracket.
In contrast to the US, the Norwegian government and its economists seem to operate under the assumption that giving to charity brings pleasure in itself, as there are very limited tax breaks available for charitable donations by individuals. In most countries, benefits earned by giving to charity include benefits that are difficult to earn through other spending—social status, self-actualization, or a sense of accomplishment or prestige, for instance. People are expected to give not because it benefits them economically, but because it benefits others materially. However, this way of looking at charitable giving is also based on incentives, albeit of another sort; people who give get immaterial, rather than material rewards. It is questionable whether this form of reward is inherently more “selfless” than the system of tax breaks in the US, and whether truly selfless giving exists at all.
Tax breaks in Norway are not as generous as in the US, and are generally seen as a way of getting the state to “pitch in” on your charitable donation, rather than a way of avoiding taxation or increasing tax refunds. Tax breaks are only available for donations under 10.000 NOK, or $1600. The act of philanthropy and charitable giving is a task assigned to and essentially subsidized by the state. The government has generally preferred collecting more tax revenue for later redistribution in order to promote equality. In the U.S., on the other hand, giving is made easy and “profitable” through providing tax breaks. Higher income brackets receive larger tax breaks than lower income brackets, in percentage points. That is, if you pay 33% of your income in taxes, you get a 33% tax subsidy on charitable donations. When a person gives 1 dollar to charity, they are in reality only paying 67 cents. Similarly, people who pay 10% of their income in taxes get a 10% tax subsidy, and pay 90 cents on the dollar. People who pay more in taxes therefore get more freedom to be charitable, because it is comparatively cheaper for them. In America, the motivation for giving is seen as an economic choice, in addition to a personal, altruistic choice.
In Norway, one of the richest countries in the world in terms of GDP per capita, total giving in terms of GNP is only around 1.7%. Norwegian poverty is consistently around 8%, and defined as earning under 60% of the median income, and so is not necessarily comparable to US poverty, especially because median income is so high in Norway. Considering the average Norwegian earns about $30,000 more than the average American per year, this is not a particularly impressive statistic. In the Charities Aid Foundation’s 2011 World Giving Index, which utilized the answers to a Gallup’s World Poll Survey, Norway was ranked 32nd in the world, and the US first. To offer some perspective, Angola was ranked 35th, Guinea 21st, Liberia 14th and Sierra Leone 42nd. According to that same ranking, only 43% of Norwegians gave money in 2010, whereas 65% of Americans gave. That Norwegian citizens are more likely to be employed than Americans, and at the same time give less in terms of money, could suggest that financial incentives have a significant role to play in charitable giving.
This picture also rings true for other countries; Americans gave, per capita, three and a half times as much to causes and charities as the French, seven times as much as Germans, and 14 times as much as Italians. Similarly, in 1998, Americans were 15 percent more likely to volunteer their time than the Dutch, 21 percent more likely than the Swiss, and 32 percent more likely than the Germans. This picture of tax breaks providing incentive to give looks plausible when examining England and Australia, both of whom are also top charity contributing countries and provide tax breaks for charitable giving. In Germany, where there are fewer financial incentives, Germans only give zero point twenty-two percent of their GDP to charity. However, France, with generous tax breaks, gives about only zero point fourteen percent of GDP to charitable causes. It is also interesting to note that the five most generous countries, according to the World Giving Index, the US, Ireland, Australia, New Zealand and the UK, are all countries with a predominantly Anglo-Saxon culture. The picture is clearly more nuanced than simply relying on tax breaks – factors such as culture evidently play an important part in creating a trend of charitable giving.
At the end of the day, most legislation comes down to maximizing favorable behavior, and minimizing negative behavior. For example, we want to minimize crime, but maximize the number of people staying in school. Tax incentives can therefore be viewed as a way of maximizing charitable giving, and does not seem to stop people from volunteering in addition to giving. However, if cultural factors also play a role in charitable giving, we must also try to incorporate other forms of (non-monetary) incentives. Where certain countries evidently lack some sort of “culture of giving,” they should see what nations that give significantly are doing to encourage the trend other than providing tax breaks.
Additionally, we must ask ourselves whether there is really such a thing as non-externally incentivized giving. If there isn’t, getting people to donate could be solved by further research into and better understanding what motivates their giving – tax cuts, religious affiliation or social prestige. Furthermore, what works in one society may not work in another. Patterns of altruistic behavior may differ from culture to culture, and the scarcity of altruistic behavior mentioned by Sandel may therefore take different forms in different countries. There is probably no one-size-fits-all solution when it comes to tax breaks and charitable giving, but acknowledging the effect that they have in the US may illuminate similar schemes in other countries.