On January 12, a massive earthquake struck Haiti. The earthquake measured 7.0 on the Richter Scale. Devastating aftershocks followed. The confirmed death toll is 150,000 people and the Red Cross estimates that nearly 3 million people will be affected by the disaster.

By comparison, Hurricane Katrina, considered to be the largest natural disaster in the history of the United States left 1,836 people dead.

Less than two weeks after the earthquake, on January 22, 2010, Congress pushed through a provision to benefit those that donate to Haiti relief efforts. The provision would allow taxpayers who itemize deductions to deduct charitable donations to qualified Haiti relief organizations on their 2009 tax returns. The donations must be in cash or cash equivalent. This means cash, check, credit card or debit card contributions – as well as text message donations. In kind donations, such as donations of water or medical supplies, won’t count for purposes of the accelerated deduction; those deductions will have to be claimed as they normally would, on a taxpayer’s 2010 return. To qualify, contributions must be made after January 11, 2010, and before March 1, 2010.

The new law is modeled after a 2005 law that allowed taxpayers to take deductions for donations made to charitable organizations providing Indian Ocean tsunami relief on their 2004 or 2005 tax returns. The death toll from the tsunami was said to be nearly 170,000 with more than 100,000 additional people listed as missing.

As with Haiti, the infrastructure and poverty contributed to much of the devastation in the Indian Ocean. In both cases, much of the tragedy had happened before the first winds blew or the first tremors started. And that made recovery so much more difficult – and important.

So maybe the rationale behind these tweaks in the law is that it’s okay to create an incentive to support certain charitable causes over others because the need is so great? Greater than what? Every other cause?

Don’t get me wrong. I’m all for charity. I donated for Haiti. I donated for the tsunami. And I donated for Katrina. In fact, I support a lot of charities. This isn’t tooting my own horn – I happen to think that I’m like most Americans. We are, as a rule, a pretty generous people. In fact, the Giving USA Foundation estimates total charitable contributions given by Americans in 2007 to be $306.39 billion; about 75% of those contributions were given by individual donors.

But I don’t think that changing the rules for Haiti make sense – anymore than they did for the tsunami. And not because Haiti isn’t important. I *get* that it is. But more because I think it sends a weird message about our tax policy. It says that today, we value those donations more than we value others.

Here’s some food for thought:

3.1 million people die of AIDS every year; 20,000 of those are in North America.

  • This year, about 562,340 Americans are expected to die of cancer, at a rate of more than 1,500 people a day. Of particular interest to me since my grandmother died of breast cancer, an estimated 40,610 breast cancer deaths (40,170 women, 440 men) were expected in 2009.
  • In 2008, an estimated 11,773 people died in drunk driving crashes.
  • And an estimated 100,000 children in the US go to bed hungry on a typical day.

    So, why aren’t we ramping up the donation rules for RED, Komen, MADD, or Feeding America? Are those causes just not dramatic enough?

    I think that’s part of it. I think folks are willing to help out after tornadoes, hurricanes and natural disasters because those events are so big and terrible and singular. And except for Pat Robertson, most people believe that the victims of those disasters had nothing to do with them.

    But you don’t see these dramatic telethons for drunk driving. Or the Coast Guard mobilizing for AIDS relief. And you definitely don’t see Congress saying, “Let’s change the rules” for any of those causes. Why is that?

    What does it take to make Congress blink? Is it a body count? A dollar amount? The number of cameras that are rolling?

    Whatever it is, I don’t get it.

    Congress uses tax policy to affect behavior all of the time. It’s why we have a home mortgage interest deduction (to encourage us to buy homes), a new car sales tax deduction (to get us to buy new cars) and a tobacco tax (to punish us for smoking). Social engineering through tax policy isn’t new.

    But I’m a little stymied as to what the tax policy is behind the Haiti vote.

    On January 18, the Red Cross reported that they had received donations of $112 million for relief related to Haiti. By Tuesday, charitable organizations were reporting donations in excess of $220 million targeted for Haiti relief. The new law was passed on Friday, days after those numbers were spiking because… why exactly? Taxpayers weren’t giving enough? That clearly wasn’t the case.

    In fact, in the middle of a recession, taxpayers have proven that they didn’t need an extra incentive. They were opening their hearts and their wallets to the people of Haiti because they cared. Prioritizing Haiti in this way – saying that we’re willing to make an exception in this case – isn’t doing anyone any favors.

    Or am I getting this all wrong?

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    Kelly Erb is a tax attorney, tax writer and podcaster.


    1. For the most part you hit the nail on your head. It does not seem to difficult to see that people respond to the immediate, what is in front of their face and on tv rather than the ongoing issues that are no longer “news”. AIDS being a very good example of that. It is expected that about a third of Africa’s population has HIV / AIDS and we never hear about that… Still, I dont see the negative in allowing people a break for donating to Haiti with the relief needed being so immediate. Even if it makes you say “huh” when looking at the big picture.

      • But what’s the tax policy angle here? It can’t really be to make people give more – before the law was passed, people were already giving. And on the day the law was passed, the telethon (which I’m sure would have pulled in dollars regardless of any tax break), raised nearly $60 million. Why retro this one and not, say, food banks? That need is pretty immediate these days.

    2. Your confusion seems to stem from a belief that Congress only enacts tax legislation for reasons of sound tax policy or social incentives. Neither appears relevant in this case, as Congress is most likely acting out of a political motive. Haiti is a global tragedy that the country is clearly concerned about (based on pervasive news coverage and very generous donations). The tax incentive provides Congress with an opportunity to score several political points: 1) They are caring and concerned individuals and therefore good people; 2) they are capable of responding to tragedy by taking some kind of action; 3) they are in touch with what is going on with the world and want to “help” citizens who are concerned with this issue. Each of these provide political points to an institution that regular polling shows American’s believe is full of corrupt, irresponsible individuals who can’t get anything accomplished. Now it remains debatable whether the Haiti tax credit successfully wins these political points or whether Congress should abuse the tax code to score political points (although even a cursory review of the Code will show that they clearly do often) but it isn’t that confusing to see why politicians would attempt to exploit this tragedy for political gain by passing legislation that doesn’t make for sound policy but makes for good politics.

    3. Maybe it encourages “major” donors to make larger donations for “their” own benefit, and ditto on Will’s comments. It’s good PR for corporate types without the bite. It also seems they can concentrate the money coming in to a particular timeframe so that charitable organizations helping in Haiti can expect a certain amount of capital inflow to determine how to distribute the resources in the best way.

    4. I have a question about earmarking… Does the donation have to be earmarked for Haiti? I saw someone on twitter complain that they wouldn’t donate to the Red Cross because they wouldn’t earmark for Haiti, so they donated to Medicins Sans Frontiers instead (I might have that backward, but you’ll see where I’m going). Can the tax deductibility apply if you give to a qualified Haiti relief charity, even if it’s not earmarked for Haiti? So if the Red Cross is the example, they do a lot of important work in lots of places. I would rather support them broadly so that they can allocate their resources however they think best. But because they are a Haiti relief organization, would that count for the deduction?

      (PS: I ask this question out of academic curiosity. Not seeking legal advice!)

      • That’s a great question. If you contribute to a general fund, a charity may use your gift for any purpose. If you specifically earmark the gift yourself (this happens at a lot of smaller organizations), then the organization must use your donation for the purpose that you designate.
        With respect to Red Cross, you can do that on their website by clicking “Haiti Relief and Development” when you make a donation. Otherwise, the Red Cross does not generally earmark unless specifically advised. This was one of the biggest criticisms of the organization, post 9/11. In their defense, this is the way that most nonprofit organizations operate.
        As to the deductibility, the IRS has indicated, “The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti.” That implies to me that you should earmark the gift, either on the web site or via text for it to “count” for the special rules. However, I don’t know how hard nosed the IRS will really be about this with respect to larger, well known organizations like Red Cross with massive relief efforts in Haiti.

    5. There are a couple of differences with both the tsunami and the earthquake: both happened right at the beginning (or in the case of the tsunami, days before) the beginning of the calendar year, so there is a reasonable argument to be made that taxpayers couldn’t have seriously considered giving to these efforts in their year-end giving in the same way they could have considered/did consider the other issues you mentioned. By extending the deductability into the previous tax year, there is perhaps an incremental impact on the giving, though I think you’re right to point out that it’s probably minimal.

      It’s also true that with the exception of hunger relief, giving to these causes will save/improve lives right now, while disease research funding and issue advocacy are much more speculative causes to support.

      However, I’m curious what benefit the taxpayers really receive from this, and what the federal expense is. It’s just moving the deductability from one tax year to another, right? From the federal expense perspective, it’s minimal expense for minimal gain, which makes the political motivations much more prominent in legislators’ minds.

    6. Robert Young Reply

      You are correct on tax policy. It makes little sense to prefer some causes over others. From the perspective of political policy, however, it is a way to bring assistance quickly to a problem without spending money directly out of the Treasury. Sure, tax revenues will go down as a result of the deduction, so it affects fiscal policy, but it seems less like spending money out of the budget and having a political debate about where the revenue comes from to pay for this aid. In a way, it is an incentive to direct empowerment of the taxpayer to choose where to make their donation. It will take a lot more than a change of control (Democrat or Republican) in Washington to end this game.

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