Like many parents in my community, I volunteer at my children’s school and for other organizations. It feels good to help and build connections with people. But time is precious, especially for working parents with children, even if we have a strong desire to help organizations that really need it. That got me thinking: Should we use tax policy as a lever to encourage gifts of time, as well as gifts of money?
According to economic theory, a volunteer already enjoys a tax benefit since she pays no taxes on the value of the time she donates. More than four in 10 public charities rely on unpaid volunteers. And an estimated 62.8 million US adults volunteered at least once in 2014 and donated 8.7 billion hours. That saved non-profits’ about $180 billion in wages.
Yet even as Americans increase gifts of cash and other assets, their volunteerism peaked about 15 years ago. Then, nearly 29 percent of Americans reported that they donated time to non-profits. By 2014, that share fell to just over 25 percent, the lowest reported rate since 2002. And the share is about half that of people who make financial donations. Even after adjusting for inflation, gifts of cash and other assets have grown nearly every year for the past four decades. Increasingly, we are giving our money but not our time.
Evidence suggests that the deductibility of charitable donations from taxable income increases giving. But an itemizing taxpayer cannot take a federal deduction for the value of time or services she gives to a nonprofit. Only gifts of cash and quantifiable assets are deductible.
I asked friends in my middle-to-higher-income community whether they’d be more likely to volunteer if they could get a tax credit for their donated time. Only two of the 10 who responded said they would. But one friend noted an inherent problem with the idea: If you gain financially, “that would not be volunteer work then, would it? And just who would be estimating the value of my time?”
Nonprofit Quarterly’s editorial advisory board member Michael Wyland raises the same questions, and more: “What is a volunteer’s time worth, both generally and in specific circumstances? Who decides, and how is that value documented? What kind of accounting controls would charities have to implement? What kind of documentation would a taxpayer have to maintain? Who wants to write those regulations, much less interpret them and attempt to comply with them?"
Still, states have turned to tax credits and deductions as a way to reward and perhaps retain some volunteers, especially those who substitute for certain government employees. In Ohio, House Bill 143 would give volunteer firefighters, EMS personnel and peace officers a tax rebate. They’d get $500 annually for each of their first five years of service, $1,000 for years 6-10, and $2,000 annually if they serve 11 or more years.
In Minnesota, where 62 percent of the 28,000 EMTs and paramedics are volunteers, lawmakers are considering bills to establish a $500 nonrefundable tax credit for first responders who commit to longer durations of service. These initiatives raise a different question: Are policymakers trying to encourage volunteerism or replace government employees with very low-cost unpaid workers?
Can we motivate more people like me and my friends (and most other Americans who have not completed over 100 hours of training in life-saving techniques) to donate more of our time? The relationship between giving money and giving time is a topic in need of more research as the Urban Institute has noted, but two studies offer a possible answer.
A 1996 paper by TPC’s Bill Gale, James Andreoni (now at the University of California, San Diego), and John Karl Scholz of the University of Wisconsin-Madison examined the determinants of charitable contributions of time and money using a novel theoretical and empirical framework.
They found that gifts of time and money are economic complements, at least partially: If Congress eliminated the tax deduction for money gifts, people would be less likely to contribute assets or time. If Congress expanded the deduction to non-itemizers, both monetary gifts and volunteerism would increase.
Gale and his colleagues showed that eliminating the deductibility of charitable giving would reduce financial contributions by 5.7 percent and volunteerism by 0.7 percent. Extending the charitable deduction to non-itemizers could increase monetary donations by 3 percent and volunteer hours by 0.6 percent.
A 2015 paper by Kimberly Yao of the University of Pennsylvania also found that giving money and donating time are economic complements. And she found the relationship was strongest for donors with higher incomes, and who are married with children, female, older, more religious, more Democratic, and consider themselves as having high social status. Those with the most time to give, such as young, unmarried, or retired people, were not necessarily more likely to volunteer.
Perhaps policymakers could encourage more people to donate time if they strengthened incentives for them to give money to charities. But Congress recently went in the opposite direction. As my TPC colleague Howard Gleckman has explained, the Tax Cuts and Jobs Act reduced that tax incentive to donate to charities for most donors, except for those with higher incomes—those already most likely to donate time.
Maybe more of us would donate time if the revenue code allowed everyone—including non-itemizers—to take a charitable deduction, as long as they give more than a certain share of their adjusted gross income.
As a wise person once told me, we give money—and time—because we can. Should we use tax policy to encourage us to give more of it?
The Tax Hound, publishing once a month, helps make sense of tax policy for those outside the tax world by connecting tax issues to everyday concerns. Have a question or an idea? Send Renu an email.
