Across the Nation

The Most Charitable States: Do Taxes Have an Effect?

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In 2014, the United States was ranked as the world’s most benevolent country. But domestically, there are stark differences between the most charitable states and the least generous ones. This could be due to a number of factors: average state income, unemployment rates, and even rates of practicing religious groups. When it comes to charity and taxes, however, is there any correlation? This has been the discussion in Maine, one of the nation’s least charitable states, as new legislation is being proposed.

Sharing Is Caring

The Republican governor of Maine, Paul LePage, proposed a budget this year that eliminates all deductions for charitable giving while simultaneously cutting income taxes. The insinuation behind this plan is that reductions in overall tax rates would lead newly enriched citizens to give more, despite the tax implications. But is money the only reason why people give?

A 2011 Congressional Budget Office (CBO) report found several reasons why people donate to charities, including altruism and recognition. The CBO, however, says one motivation stands out: “Empirical studies have generally found that the amount of giving is responsive to changes in the after-tax price of giving.”

According to the The Chronicle of Philanthropy:

The wealthiest Americans — those who earned $200,000 or more — reduced the share of income they gave to charity by 4.6 percent from 2006 to 2012. Meanwhile, Americans who earned less than $100,000 chipped in 4.5 percent more of their income during the same time period. Middle- and lower-income Americans increased the share of income they donated to charity, even as they earned less, on average, than they did six years earlier.

The Tax Impact on Charity

When examining the monetary charitable giving of specific states, it is important to examine the amount of income taxes associated. The following are the top performing states regarding income donated and the state income tax percentage affecting them each year.

  • Utah – 5 percent (flat tax rate)
  • Mississippi – 5 percent
  • Alabama – 5 percent
  • Tennessee – State only taxes dividends and interest (6 percent)
  • Georgia – 6 percent

As you can see, the percentage of income tax rates for the top charitable states hovers around 5 to 6 percent. Regarding the least charitable states, state tax rates tended to be a bit higher, but not the highest in the country.

  • Rhode Island – 5.99 percent
  • New Jersey – 8.97 percent
  • Vermont – 8.95 percent
  • Maine – 7.95 percent
  • New Hampshire – State only taxes dividends and interest (5 percent)

The Effect of Religion

Religion appears to be a strong variable within the most charitable states. According to The Chronicle of Philanthropy, church attendance rates greatly influence giving.

While the average giving rate in the U.S. is about 3 percent of income, charitable giving has remained at that level for years. Utah, which has a large Mormon population, leads the way with a donation rate of 6.6 percent. According to The Washington Post, the Mormon church asks its followers to donate at least 10 percent of their income.

Maine, Vermont, and New Hampshire meanwhile ranked among the lowest in charitable donations. The Washington Post reported that “the meager handouts in northern New England are partly because of low rates of church attendance, but the low rankings also stem from residents’ ‘independent streak’ and a tradition of self-reliance.”

Whether the reason for giving is the recognition you receive or the tax write-off, Gov. LePage’s plan does pose an interesting case study. By eliminating the income tax in Maine, will more money in a paycheck mean more money for charities? Or does the Northeastern sense of self-relaince run strong? Only time will tell.