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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  • Ron Newlin

    I scanned through the report, which was just about what I expected from ALEC — a selective interpretation of the statistics to support a predetermined ideology. What the report failed to address was the fact that 32% of the dollars that are counted as charitable contributions are donations to churches — many of which have *some* charitable outreach ministries, but most of which primarily serve their members. Nothing wrong with that; but it is hardly charity. And so the five states considered the most charitable include two states where the Mormon church is prevalent, and three in the “Bible Belt.” The five “least charitable” states are in New England and the upper Midwest — among the safest places in America to be non-religious. If you backed out church pledges from this data, and only looked at charitable giving that helps others, would the charitable giving in Utah and Texas look that much different than Maine or Wisconsin? ALEC doesn’t want to know. What we do know is that charitable giving has remained at 2% of Gross Domestic Product for all of the 50 years we’ve been studying it. Cutting the marginal federal tax rate from 71% to 28% in 1981 didn’t increase charitable giving at all; nor did increasing the top rate back up to 35% or 38.5% in the early 1990s decrease giving. The idea that lower state taxes increase charitable giving is wishful thinking or outright manipulation by an organization that is given millions of dollars a year to invent justifications for lower taxes.

  • Sue M

    The jolt of seeing ALEC in this article gave me pause, started me wondering. Charity is a great blessing and allows us to care for others. It’s a good thing to think about taking care of people, however, taxes also pay for many other things, such as infrastructure. It raises so many questions.

    What are the implications of states having lower income taxes? For example, would any person or church think of donating to state schools or roads? Would Bill Gates? How does a state with low to no state taxes such as Wyoming pay for these and what are the conditions there?

    Does anyone feel compassionate about their state highway? Where would the money come from if not the state? Federal taxes?

    I just don’t see charity substituting for the many things that states provide using income tax.

    Back to ALEC. Perhaps ALEC, on behalf of their corporate contributors, think it’s much easier to introduce legislation on a federal level rather than apply their influence at 50 state legislatures. If so, they are right.

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