Nonprofit Newswire | Will an Increased Tax on the Wealthy Reduce Giving?

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July 16, 2010; Source: Minnpost |  This op-ed from the head of a conservative think tank suggests that Minnesota gubernatorial candidate Mark Dayton’s plan to increase state taxes on the rich will cause a reduction in charitable giving. Mitch Pearlstein, the president of the Center of the American Experiment, uses as his example one of his donors who plans to move to Florida, a state without an income tax.

He imagines that that donor will shift his charitable giving to Florida nonprofits. He asks nonprofits, “Aren’t you . . . a bit nervous that his proposed tax policies will provoke some of your much bigger donors to scram Minnesota, resulting in financial losses for your organizations substantially larger than the few hundred or few thousand dollars he kindly gave each of you in ’09? If individual contributions represent a hefty portion of your revenues, how could you be not at least a shade scared?” He also suggests that increasing taxes on the rich will actually result in lower tax revenues, citing the experience of Maryland’s “millionaire’s surtax” from 2007.

Though he acknowledges that most people don’t uproot their families based on an increase of a point or two of state income taxes, his op-ed is premised on the idea of rich people who might “scram” from the state. Usually, the argument is that higher tax rates lead to increased charitable giving as wealthy donors seek alternatives to paying the taxman.

When the Bush Administration whacked the estate tax, charities estimated a downturn in charitable bequests. Pearlstein’s argument reverses the thinking, imagining motivated wealthy donors with disposable income freed up for charitable giving in no-tax Florida. The heir to a fortune himself, Dayton is one wealthy guy whose charitable giving hasn’t given up on the supposedly high tax Gopher State. Who’s right? Pearlstein or Dayton.—Rick Cohen

  • TJ

    NJ tried and lost 300 million in tax revenue from taxpayers who changed their tax home. Most people view government as perhaps well intentioned, but wasteful spenders. There is a point where even Minn is not enough of an attraction, so you change your tax home.