Raising the most money possible from the wealthiest – the Irish show how *not* to do it

by Stephen Tall on October 13, 2011

Some 18 months ago, I welcomed the news that the Coalition Government had abandoned thoughts of messing with the Gift Aid scheme for charitable giving — there had been proposals, supported by some charitable organisations, to introduce a composite rate of Gift Aid that would have reduced the incentive for higher-rate taxpayers to maximise their philanthropy.

I was reminded of this by a story on the UKFundraising website today, Tax changes may have caused big drop in donations in Ireland:

Changes in Irish tax rules brought in in 2007 may be having the effect of reducing the amount of money which is donated to charity by high earners, according to a study undertaken by the Community Foundation for Ireland (CFI).

Announced in the 2006 Budget, the 2007 Finance Act introduced, with effect from 1 January 2007, measures to limit the use of certain tax reliefs and exemptions by high-income individuals, the ‘High Earners Restriction’. Such individuals had in previous years substantially reduced their tax liabilities by the cumulative use of various tax incentive reliefs. …

In 2007 donations which were granted tax relief totalled €3.35 million, but this figure fell by 35% to €2.4 million in 2009. … [CFI] called for a distinction to be made between tax relief on commercial activities and charitable donations as “there can be no benefit to the donor in the case of charitable donations”.

There are two important points to be made here:

1) Wealthy individuals do not choose to give (or not to give) to charity because of tax incentives: after all, philanthropy involves giving money away irrevocably so it is impossible to end up richer as a result.

2) HOWEVER, tax incentives may well make an impact on the scale of their generosity — which is precisely the kind of thing that governments (and charities) should be trying to encourage wealthy individuals to consider.

Why does this matter? Quite simply because the wealthiest citizens — those referred to as ‘major donors’ by fundraisers — have the biggest philanthropic impact.

In the last year alone, it is estimated that a staggering €22.7bn was given to charitable causes across Europe by major donors (ie, individuals or organisations worth at least €2m). An extra few per cent of such a large total makes a big, big difference!

So let’s hope that governments will make it as easy as possible for such folk to give away more and more money. After all, there’s some way to go — as I also noted 18 months ago:

… survey after survey both in the UK and in the US (here and here) has shown that, as a proportion of their income, the poor who give to charity are much more generous than the rich, giving away up to 4.5% of their income… The goal is clear enough: to get as many people giving what they can throughout their lifetime (and then leaving a legacy). The debate on how to get there rumbles on.