What happened to the tax incentives for small contributions that Congress passed in 1971?

The 1971 tax bill offered taxpayers a choice between deductions and credits. Donors could claim 50 percent credit for donations up to $25, or deduct the first $50 of donations from their taxable income. Over the next fifteen years, Congress repealed the deduction and doubled the credit twice.

We do not have enough data to gauge the success these incentives had in increasing the number of small donors. Participation was at its highest in the years after the deduction was repealed in 1980, averaging about 5 percent. But we do not know how many of those taxpayers were new donors making small contributions because of the tax credit, and how many were big donors who would have given anyway.7

Congress expressed doubts along these lines when it repealed the credit in 1986, as part of President Ronald Reagan's tax reform. Citing IRS data, Congress said that a "significant percentage" of those claiming the credit probably would have made contributions without it, and pointed out that the credit was not an incentive to those who made so little money that they paid no income tax at all.8

The same is probably true at the state and local levels, where tax credits for small contributions are still popular. At the federal level, though, the only part of the 1971 public funding law that is still in force is the one that created the Presidential Election Campaign Fund.

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