ABSTRACT
Countries around the world encourage individual donations through the income tax system in many ways, and there are interesting alternatives that have not yet been tried. In this chapter, I first show that three widely reported academic findings on tax design are wrong or misleading (a charitable tax deduction is not regressive, the traditional treasury efficiency test is incorrect, and the correct treasury efficiency test does not lead to social efficiency). Next, I discuss three threshold questions that must be answered before an efficiency case can be made for tax-favoring donations. I offer the personal view that, at least among economists, efficiency is overvalued in tax design. Then I catalog four dimensions of tax design for donations (who is eligible to receive tax-favored donations, what kinds of gifts are covered, what restrictions apply to taxpayers, and how favorable tax treatments are structured) and discuss policy tradeoffs in each dimension.
