Last summer, while walking the streets of Kingston, I encountered a wandering horde of business economists, and joined them for drinks. We got onto behavioural economics and financial decision-making, and one of the business economics folks started talking about the charitable donations deadline.
It would be a good idea, he argued, to move the charitable donations deadline from Dec 31st to the last day of February, to coincide with the RRSP (Registered Retirement Savings Plan) deadline. Many people prepare their income taxes before the RRSP deadline, in order to work out how much to contribute to their RRSP. If, after making RRSP contributions, a person still has a large tax bill, she could then increase her charitable donations, and reduce her taxes owing that way.
I'm pretty sure this idea would increase charitable donations. Right now I'm ignoring all of those emails with "Tax Deadline: Charitable Receipting" in the subject headline. I've got lots of other bills to pay. Income tax time is months away, so I'm not feeling any urgent need to reduce my taxes. Yet if I was staring at a large tax bill, the charitable donations tax credit would suddenly seem much more salient.
On the other hand, is nudging people to donate more to charity and pay less in taxes a good idea? This all depends upon the relative merits of government spending and charitable spending. Some charities operate more efficiently and effectively than governments. Other charities spend large amounts on fundraising, pay high salaries to staff members, pursue projects of dubious social benefit, and are generally fairly ineffective. (To find out how well any Canadian charity performs, check out Canada Revenue Agency's charities listing here: http://www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html).
On balance, I think I'm probably against encouraging people to substitute charitable donations for taxes, for three reasons. First, governments often have better information about spending priorities than individual donors. Take, for example, medical research. The Canadian Institutes for Health Research assess requests for funding across a wide variety of research areas. Experts evaluate the various requests, and fund the most meritorious proposals. The average donor gives to whichever health cause is most salient to her, or to whichever cause she cares about the most - breast cancer, prostate cancer, the heart and stroke foundation, cystic fibrosis. This seems to me to be a relatively ineffective way of allocating health care dollars.
Second, because governments are in a position to deliver broad-based programs, they are able to reduce administration costs, and achieve high take-up rates. For example, as an academic, I appreciate all of the donors who give to the university, and make it possible for the university to offer bursaries and scholarships to needy and deserving students. I give myself. Yet administering hundreds of individual scholarships, each with its own highly specific selection criteria ("best student in comparative economic systems" "best essay in a fourth year course" "needy Turkish-Canadian student"), is extremely time consuming. Universal government programs, for example, tuition rebates or loan forgiveness for students from low income families, have much lower administration costs per dollar of support given.
Third, charitable assistance not infrequently comes with ideological strings attached. I give to the Ottawa Mission and Cornerstone Housing for Women because they provide direct assistance to this city's most needy and vulnerable people. But should food and shelter be bundled with a subtle Christian message?
Though there is one good reason to move the charitable donations deadline: doing so would provide a really cool natural experiment for some behavioural economics researcher to look at.