Canada used to have a tax deduction system, but moved to a tax credit system in
1988.1 This article looks at taxpayers’ behavioral changes as a result of this move.
Although this article looks at the Canadian experience, the policy implications
are universal. The results of this research would be of interest to policy makers in
the United States and other countries that currently have a tax deduction system
and may wish to change to a tax credit system.
The United States uses a deduction system, but the benefits are only available
to taxpayers who itemize their deductions. In 2001, President Bush originally
proposed to permit taxpayers who do not itemize their deductions to deduct their
charitable donations. However, this provision seems to have been withdrawn early
on in Congress.2 Also, there has been some discussion as to whether the U.S.
should move to a tax credit system (Adams, 1997; Ombwatch, 1997). If the tax
reduction proposal had included a provision for a tax credit for all taxpayers, this
provision may have survived in Congress. Although currently there is no U.S.
federal tax credit for charitable giving, several states do have such tax credits,
albeit against state tax only.3