How effective is a government charity tax policy?  It is axiomatic that philanthropy is a Good Thing, that citizens are more virtuous if they participate in philanthropy, and that governments should try to encourage their citizens to be virtuous. 

Well, not everyone thinks that philanthropy is virtuous.  In 'Of Human Bondage' Somerset Maugham said “it is pleasure that lurks in the practice of every one of your virtues.  Man performs actions because they are good for him and when they are good for other people as well they are thought virtuous: if he finds pleasure in giving alms he is charitable; if he finds pleasure in helping others he is benevolent; if he finds pleasure in working for society he is public spirited; but it is for your private pleasure that you give two pence to a beggar as much as it is for my private pleasure that I drink another whisky and soda”.  So maybe the philanthropists are not so virtuous after all, but surely charity is still worthwhile and governments should help it along?

A recent article caused me to question this shibboleth.  Atlantic Magazine published an article in April by Ken Stern 'Why the rich don't give to charity'.  In the US context Mr Stern reviews some of the
eye-popping philanthropic gifts made in the last year by our prominent rich and virtuous citizens, with the headline gift being Mortimer Zuckerman's $200m dollar gift to Columbia for a new institute named for him.  Mr Stern comments that you would expect, in light of all the fanfare and hoopla attendant on major philanthropic gifts that you would find that the rich and virtuous are giving away lots of their income and this is the result of tax policies pursued by benevolent governments.  In America, however, and I think the same is true in England, the most generous and therefore the most virtuous appear to be those who can least afford it.  The richest 20 per cent contributed only 1.3 per cent of their income to charity, whereas the bottom 20% donated 3.2 per cent of their income and the bottom 20 per cent presumably received little tax benefit.  Why is this and is this a failure of tax policy?

Mr Stern takes a somewhat jaundiced view of the motivation of philanthropists and quotes Paul Piff, a psychologist at Berkeley, who said “the rich are more likely to prioritise their own self-interests above the interests of other people” and commented that the rich “exhibit characteristics that we would stereotypically associate with, say, assholes”.  To paraphrase F.Scott Fitzgerald and Hemmingway “the rich are not like us, they are more selfish”. 

Looking back over the World Giving Index published by the Charities Aid Foundation, we find a similar pattern.  Although the United States has long been lauded as one of the most philanthropic nations known to mankind, according to the CAF survey only 60 per cent of the population actually give money to charity, and only 65 per cent of them help strangers (maybe they were warned by their parents not to talk to people on the street), whereas if we turn to Ireland we find that the percentage of the population giving money to charity is 72 per cent.  CAF uses some Gallup survey results to try to score the countries of the world, not only on their charitable giving (or rather the proportion of the population who tell opinion pollsters that they give money to charity) but then to use this raw data which includes people who say they help strangers (presumably these are the busybodies who shove elderly people in front of oncoming buses) to construct a rather grandly-named World Giving Index.  But nevertheless, there is behind some of this data what looks like a conclusion that, despite having some of the most generous charitable reliefs in the world, the United States is not the most generous or therefore the most virtuous nation in the world.  Poor people do not get tax reliefs and it does not seem to stop them giving.  In fact, the more tax reliefs we give people, the less they seem to give.  Is this the correct conclusion?

For those of us who work in both the tax and the philanthropy areas and who have campaigned for better tax reliefs, not just for rich people but for everybody, this all makes for rather depressing reading.  Should we just give up and join Somerset Maugham in pouring another whisky and soda?

Well, no.  That would be to ignore the evidence in front of us, the evidence from our everyday professional lives and to downplay the importance of the voluntary sector.  The voluntary sector covers a wide range of activities, some of it directly on the frontline of the relief of poverty and other activities that would clearly qualify as virtuous.  Other activities are less obviously virtuous – many would question the wisdom of governments encouraging large gifts to small elitist educational institutions, for example.  But nevertheless, the very essence of the voluntary sector is that it is responsive to the will and actions of the people who drive it, not just the rich philanthropists but also the charitable volunteers and the people whose conscience pricks them every time they walk down the street and see someone who needs help – the poor and the dispossessed.  What is important for society as a whole is that citizens should feel able, empowered and encouraged to take action to get involved and to do things to address needs that they perceive as important.  The prime virtue of the voluntary sector is that it is not state-driven and although it is regulated, its activities are not guided by some central planning committee or Treasury mandarin.  That is why the project to establish effective charity law in China is so controversial there.

Nobody should argue that tax reliefs are the prime driver behind volunteering or charitable giving.  There is no doubt in my mind, however, that tax reliefs and government policies can encourage philanthropy and do in practice enhance it.  I have no doubt that without the tax reliefs the rich would give even less.  The best example of effective tax relief is that relic of bygone tax policy, the Gift Aid basic rate relief given directly to charities.  This provides a cash boost from taxed income directly to lots of charities.  Although somewhat cumbersome in administration, it is effective.

Finding the right tax reliefs to stimulate charitable giving is always tricky.  The UK Treasury will usually point to failed reliefs as being evidence that they are not that effective and so we should not bother with any more complications to the tax code (those guardians of our tax laws have, of course, done such a good job of preserving the simple integrity of our tax system).  The fact that Payroll Giving is widely viewed as a flop should not, to my view, deter future governments from responding to initiatives from the voluntary sector for targeted tax reliefs.  Payroll Giving was ultimately a way for employers to bask in the reflected glory of their employees' generosity and reduces the key element that distinguishes charitable giving from paying tax – you can choose what to give it to and it is nobody else's business how generous you are.

Many of us know that at all income levels it may be only a small pinprick of conscience or a relatively light tax carrot that can actually get donors blowing the cobwebs off their wallets, but the tax relief has got to be targeted correctly.  That is why I will continue to support Philanthropy Impact in campaigning for lifetime legacies.