The Effect of the Treasury Proposal on Charitable Giving: A Comparison of Constant and Variable Elasticity Models

The recent proposal for tax reform developed by the Department of the Treasury suggests dramatic changes in the structure of the personal income tax. One likely side effect of the changes will be a significant adverse impact on the level of charitable contributions by individuals.This paper evaluates the marginal effect on giving of various parts of the Treasury reform plan using the existing literature on the price and income elasticities of charitable behavior. Two explicit models are simulated for 1985 using the NBER TAXSIM model: one with constant price and income elasticities and one with the price and income elasticities varying with income.

The CRA as a means to provide public goods

Community Reinvestment Act of 1977

Community development at a crossroads

Community Reinvestment Act of 1977

Alternatives to the Current Maximum Tax on Earned Income

The Maximum Tax on Personal Service Income was intended to reduce the maximum marginal tax rate on earned income to 50 percent. In general it did not achieve this result, although it did lower marginal tax rates on both earned and unearned income. This paper considers the effect of different tax rate structures on the total tax revenue collected from high income taxpayers. The sensitivity of tax avoidance practices to marginal tax rates is estimated using four different specifications. These estimates are then combined with plausible parameter values for income and substitution effects in the supply of labor to produce a range of elasticities of taxable income with respect to tax rates. The NBER Taxsim model is then used to estimate the effects of different rate structures on tax revenue.

Capital Gains Taxes Under the Tax Reform Act of 1986: Revenue EstimatesUnder Various Assumptions

This paper examines the effect of the Tax Reform Act of 1986 on the level of capital gains realizations and tax revenue under a variety of behavioral assumptions. Independent investigations by Feldstein, Slemrod, and Yitzhaki, the Department of Treasury. Lindsey, Auten and Clotfelter, and Minarik, all point to a large, though highly variable, amount of response by taxpayers to changes in capital gains tax rates. The econometric results of each of these papers are reparameterized for use in the National Bureau of Economic Research TAXSIM model. A total of 13 sets of behavioral assumptions are modeled. The results show that the capital gains tax rate increase in the new tax bill is unlikely to produce an increase in capital gains tax revenue. Of the 13 simulations run. 12 produce lower tax revenue over the period of 5 fiscal years being simulated. The final simulation suggests a virtually unchanged level of revenue. Two of the models predict extremely large levels of capital gains realizations in late 1986 in anticipation of the tax rate increases in the coming years. In none of the simulations is any significant increase in the permanent level of capital gains tax revenues predicted.

The case for disinflation

Federal Reserve Board Governor Lawrence B. Lindsey discusses the consequences of inflation in developed economies in this speech presented to the Government Bond Club of New England on March 12, 1992.Inflation (Finance) ; Monetary policy

Simulating Nonlinear Tax Rules and Nonstandard Behavior: An Application to the Tax Treatment of Charitable Contributions

This paper examines how the tax simulation method can be extended to incorporate nonlinear budget constraints and nonstandard economic behavior. We simulate the effect of extending the charitable deduction to nonitemizers and study the effect of alternative "floors". The specific simulations indicate that the econometric evidence on charitable giving implies that extending the charitable deduction to nonitemizers would raise individual giving by about 12 percent of the existing total amount or $4.5 billion at 1977 levels. The extension would reduce tax revenue by slightly less, about$4.1 billion. A floor of $300 or 3 percent of AGI would reduce the revenue loss by 30 to 40 percent, even if there is significant bunching. The effect of the floor on increased giving depends critically on whether taxpayers' behavior is guided by conventional demand principles or by the net altruism rule. A reasonable conclusion is that a floor would reduce giving by less than the increased revenue but that the difference between them would not be very large.

Joint Crowdout: An Empirical Study of the Impact of Federal Grants on State Government Expenditures and Charitable Donations

We estimate the effect of exogenous federal expenditure cutbacks on state social service expenditures and on charitable donations. In the process, we also estimate tax and income effects and explore the impact of community environment and "need" variables. Data consist of a unique three-year panel of aggregate itemized giving by state and income class and government expenditures by state. Our results confirm the 'flypaper effect' of federal grants on state spending and show statistically significant but partial crowdout of charitable donations. The flypaper effects appears to dominate the crowdout of donations, so that federal grants are especially productive of overall social service expenditures. Finally, we find that the state's poverty rate is a particularly strong and positive determinant of charitable giving.