People Respond to Incentives

I normally don’t do politics, but I found this comment from President Obama during his recent press conference particularly irksome:

People are still going to be able to make charitable contributions. It just means if you give $100 and you’re in this tax bracket, at a certain point, instead of being able to write off 36 (percent) or 39 percent, you’re writing off 28 percent. Now, if it’s really a charitable contribution, I’m assuming that that shouldn’t be the determining factor as to whether you’re giving that hundred dollars to the homeless shelter down the street.

Two comments:

1. People respond to incentives.

2. The fundamental point is not about the decision to give or not to give, but rather how much to give. In other words, people think at the margin. So while they might not decide to abstain from giving to the homeless shelter, they might give less than they would have otherwise.

3 responses to “People Respond to Incentives

  1. It IS at the margin – the last $100 to the homeless. Pres. Obama may be wrong empirically, because he assumes the supply of charity is inelastic, but there is no “theory problem” here.

  2. Even worse. The government can then take over caring for the homeless and put their people in charge.

  3. Obama is correct that it won’t stop me from giving $100 to the homeless shelter down the street. He is however doing a big disservice to the people of the United States by not allowing the charitable deduction of the big donations like hospital wings and libraries and research grants. These are the charitable donations that are going to dry up. these large donations are made partly as tax shelters and not merely the need to be charitable.

    I enjoy your site because I can understand you most of the time. Being just the average person and not an economist I sometimes get bogged down when an economist is trying to explain a concept to me. So if I can understand it I can then go back to my own blog and explain it to other “challenged” people just like me who read my blog. So Thank you. Brenda Bowers

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