Economics 101

States That Tax Less Give More, New Study Finds

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A recent report by the American Legislative Exchange Council (ALEC) found that states that tax more give less.

The report says:

States that raise taxes see a decline in charitable giving, and states that reduce taxes see an increase in charitable giving. The level and growth of charitable giving is strongly related to the rates and burden of a given state’s taxes. Charity is at least in part a function of a citizen’s ability to pay and as their pocketbooks grow, they tend to give more. This tendency is particularly pronounced when tax changes affect how much wealth individuals have to potentially give to charity.

According to the report, the most charitable states are as follows:

  1. Wyoming
  2. Utah
  3. South Dakota
  4. Oklahoma
  5. Texas

And the least charitable states:

  1. New Jersey
  2. Wisconsin
  3. New Hampshire
  4. Maine
  5. Rhode Island

Three of the five most charitable states, Wyoming, South Dakota, and Texas, are among the ten least tax-burdened states and the nine states with no personal income tax.

Of the least charitable states, New Jersey, Wisconsin, and Rhode Island are considered three of the ten highest tax-burdened states. New Jersey is also among the top ten states with the highest personal income tax.


Source: "The Effect of State Taxes on Charitable Giving"
Source: “The Effect of State Taxes on Charitable Giving

The report shows a higher percentage of growth in charitable giving between 1997 and 2012 for the average of the ten states with the lowest tax burden, as opposed to the average of the ten states with the highest tax burden.

Personal income tax is thought to be the most telling state tax policy. The contrast is even more stark between the nine states without a personal income tax and the nine states with the highest personal income taxes.

The report proposes that states with fewer taxes and a smaller government provide for public needs by giving more to charity to fill the gap.

William Freeland, research analyst at ALEC, suggests in an interview with the Wall Street Journal that churches and local private charities are often better equipped in caring for the poor than the government.

In a previous post, I argue why this may be the case:

The government plays an important role in securing individual rights and rule of law that make a just, free, and flourishing society possible. But one resource the government will never have is a personal relationship. Your church can know a person’s needs in a way the government cannot because your church is closer to the problem. Your church can love a person in a way that a government cannot because your church is closer to the person.

Freeland also points out that though there is a strong correlation between taxes and charitable giving, decisions to give to charity are influenced by other cultural factors too, such as whether or not an individual actually believes in charity.

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