The Charitable Contributions Deduction

Taxpayers who make contributions to approved charitable organizations can deduct those contributions from their income before computing their tax liability. In fiscal year 2014, the deduction lowered taxes by $47 billion, with over 93 percent of the benefits going to tax filers under the individual income tax rather than the corporate tax. Most taxpayers would benefit from removing the deduction and lowering tax rates since most taxpayers do not use the deduction regularly. The only economic justification for the deduction would be to encourage donations to organizations that provide public goods or quasi-public goods. It is unclear, however, that the charitable deduction actually encourages private sector provision of these goods.

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