Why do we have tax breaks on donations?

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In this episode we explore the way that philanthropic donations are taxed. Why do so many governments around the world choose to offer tax breaks for charitable giving? What is the history behind this? How are tax breaks for philanthropy designed and implemented, and are they effective? Including:

• What are the possible theoretical justifications for a government choosing to offer tax breaks on philanthropy?
• What are the tax base rationale, the subsidy rationale and the pluralism rationale; and why is the latter the only rationale that really works?
• Did tax relief on donations in the UK only come about by mistake?
• Why did William Gladstone learn to his cost not to mess with charity tax relief?
• Do we have the history of DAFs all wrong?
• What role did WWI pragmatism play in the introduction of the US charitable deduction?
• Are deduction-based or credit-based systems of tax relief more effective (or fairer)?
• Why does the UK have a unique (and uniquely messy...) hybrid system?
• Is there a case for imposing lower limits (floors) or upper limits (caps) on tax relief for donations?
• Which cause areas and organisation types should be eligible for tax relief?
• What kinds of assets can be donated with tax relief?
• What are the specific policy aims behind a policy of encouraging philanthropy, and are tax reliefs a good way of achieving this?
• Why is the US charitable deduction currently under fire?
• What proposals have been made to improve the UK Gift Aid system?

Related Links:

• WPM article, "In an Ideal World, Would There Be No Philanthropy?"
• Philanthropisms podcast on Philanthropy and Social Justice
• Philanthropisms podcast conversations with Fozia Irfan, Amy Schiller, Krystian Seibert and David Clarke
• Nic Duquette's paper, "Founders’ Fortunes and Philanthropy: A History of the US Charitable Contribution Deduction"
• The history of UK tax relief on donations in Rhod's 2016 book "Public Good by Private Means" (p. 109)
• Discussion of proposed measures affecting charitable donations in 1922 Finance Bill, Hansard 20 Jun 1922
• OECD 2020 policy report on Taxation and Philanthropy
• CAF's 2016 report "Donation States: International comparison of the tax treatment of donations"