This article demonstrates that tax reforms raise costs of charitable contributions in the context of appreciated property, suggesting policy adjustments.
The Tax Reform Act of 1986 increases the cost of charitable giving by reducing marginal tax rates and imposing an alternative minimum tax on contributions of appreciated property. Prior studies indicate that charitable donations are very sensitive to changes in marginal tax rates; as the after-tax cost of giving increases, the amount of contributions declines. This article demonstrates that the after-tax cost of giving will increase substantially under the new law. Further, imposing the alternative minimum tax on contributions of appreciated property amounts to an unannounced change in tax policy. A proposal to alleviate the harsh consequences of the alternative minimum tax on contributions of appreciated property is suggested.
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O'Nell et al. (1989) studied this question.
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