Compares options for improving tax incentives for charitable giving, including lifting the ceiling on deductions as a percentage of adjusted gross income, and estimated effects on nonprofits in Puerto Rico, where average giving is high relative to AGI

Elizabeth T. Boris

Eric J. Toder

Joseph J. Cordes

Mauricio Soto

English

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An Analysis of Potential Tax Incentives to Increase Charitable Giving in Puerto Rico

Improved incentives for private charitable giving would strengthen nonprofit orga-nizations in Puerto Rico. Because of the public benefits provided by a strong and vibrant nonprofit sector, policymakers are interested in identifying ways to increase the private financial support received by these organizations. This study investi-gates options for reforming current tax incentives in Puerto Rico to stimulate additional charitable giving. We summa-rize current laws and charitable giving in Puerto Rico, review studies by economists on how tax incentives affect giving, and present and estimate the effects of alterna-tive ways to structure the deduction. We estimate that lifting the current 15 percent ceiling on contributions would increase contributions by more than the revenue loss to the Puerto Rican Treasury and would, therefore, be a more cost-effective way to pay for additional services of charitable organizations than increas-ing direct government grants. Reforms that instead modify or eliminate current floors on contributions would add less to contributions than the revenue loss. Such changes would, however, make it easier for taxpayers to understand and claim the deduction. By increasing the number of taxpayers who would take advantage of the incentive, simplification could increase charitable giving by more than our esti-mates, which consider only the effect of the improved financial incentive

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An Analysis of Potential Tax Incentives to Increase Charitable Giving in Puerto Rico

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