This policy brief summarizes the findings of a larger report on potential tax incentives to increase charitable giving in Puerto Rico. Improved incentives for private charitable giving would strengthen nonprofit organizations in Puerto Rico. Taxpayers may choose between a 100 percent deduction for contributions over 3 percent of adjusted gross income (AGI) or a 33 percent deduction for contributions with no floor. Deductions may not exceed 15 percent of AGI. Removing the 15 percent ceiling would be a relatively cost effective way of encouraging more giving.
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Improved incentives for private charitable
giving would strengthen nonprofit organizations
in Puerto Rico. Because of the
public benefits provided by a strong and
vibrant nonprofit sector, policymakers are
interested in identifying ways to increase
the private financial support received by
these organizations. This study investigates
options for reforming current tax
incentives in Puerto Rico to stimulate
additional charitable giving. We summarize
current laws and charitable giving in
Puerto Rico, review studies by economists
on how tax incentives affect giving, and
present and estimate the effects of alternative
ways to structure the deduction.
We estimate that lifting the current 15
percent ceiling on contributions would
increase contributions by more than the
revenue loss to the Puerto Rican Treasury
and would, therefore, be a more costeffective
way to pay for additional services
of charitable organizations than increasing
direct government grants. Reforms
that instead modify or eliminate current
floors on contributions would add less to
contributions than the revenue loss. Such
changes would, however, make it easier
for taxpayers to understand and claim the
deduction. By increasing the number of
taxpayers who would take advantage of
the incentive, simplification could increase
charitable giving by more than our estimates,
which consider only the effect of the
improved financial incentive.
(End of excerpt. The entire brief is available in PDF format.)
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