A taxing problem

In ‘Charitable Deduction Limit: Bad For Art Nonprofits?’ Elizabeth Blair suggests that President Obama’s deficit-reducing proposals to reduce the levels of charitable tax deduction for the wealthiest Americans could disproportionately harm arts organisations. "Arts organisations rely heavily on wealthy donors and they’re the ones that would be most affected by changes to the charity deduction", she wrote.

In contrast, in the UK there is talk of additional tax breaks to help boost philanthropy and to encourage a greater culture of giving. However, these discussions tend to focus on major donors and the higher net worth individuals. What we need in the UK is additional incentives to encourage and develop the numerically larger middle range of donors and potential donors.

Gift Aid is important of course but its future is still unresolved despite much discussion. Meanwhile there are other opportunities and anomalies that should be addressed, and the government’s Giving Green Paper largely missed this opportunity.

For example, we need to find an easier way for higher rate tax payers to donate their tax rebates, rather than pocket the additional 20% they get back from the tax man. Most would, I suspect be happy for this additional amount to be donated to charity, either immediately or at the end of the financial year.

Similarly we need to find a way to make it easier to give works of art during the donor’s lifetime.

There is also the muddle whereby people give who items to charity auctions are not, in general, allowed to do so tax-effectively using Gift Aid. The most effective method, ironically, is for them to sell the item and donate the cash to a charity or arts organisation. They get the most cash, but not the work of art.

Major donors are of course essential to arts organisations, but as Elizabeth Blair points out, they usually continue to give, seemingly unaffected by reductions in charitable tax relief. If we are to boost giving and tax-efficient giving at that, it is the middle donors who represent the major opportunity, and we should focus a little more on making it easier for them.