Think about it.  Some people like to donate money to charities.  And when they do the government gives them a tax deduction.  This encourages people to donate more as it lowers their tax bill.

Larger employers make it really easy for their employees to donate too.  You sign up to give, probably to the United Way, and the donation is taken straight out of your paycheck.  You get the tax deduction right then and there.

But some people aren’t so lazy.  They actually get off their asses and go offer up their time, for free.  It’s called volunteering, and while I would guess due to the high levels of unemployment, more people are volunteering, it’s probably not a proportional increase.  If people are going to do something good, they are much more likely to write a check than they are to lift more than a finger.

I’m not judging, I’m much more likely to donate myself.

Given that times are trying, and donations are probably lighter than they were 5 years ago, the government should be encouraging more people to volunteer.  Charities could probably use the help, and lots of people looking for work could use an extra incentive to stay productive.  Why not offer up a tax deduction for volunteering?  A married couple with one person volunteering and the other working could make out pretty good in this scenario.  And someone unemployed could keep more of the pittance from the government by volunteering a few hours a week.  It wouldn’t take much to get people off the couch.  You could even limit the benefit to 5 hours a week or something.  But the government is very clear about this, you can’t deduct volunteer hours (table 2).

But how do you value a volunteer hour?  Fortunately, people already do that.  While the number varies by region, as a national average it’s north of $20 an hour.  That’s right, volunteering just one hour of your time is worth more than $20 to a charity.  So in the strictest sense, a charity shouldn’t care if you donate $20 or donate an hour of your time.  The government shouldn’t care either.  You should either get a tax benefit for both or neither.  It’s like a similar disparity in the government subsidy for mortgage interest but not rent.

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Well let’s not get ahead of ourselves.  Just because a paragraph makes sense on the first read, doesn’t make it definitive.  I thought about this all weekend and know I’m not the first person to come up with it, so there has to be a reason people don’t get a deduction for their time.

Assume you make $20/hour and $160/ day.  One day you decide you might volunteer an hour; but on second thought you might just work through the day and donate an hour’s wage.  Either way, you leave the day with only $140 (worked 7 hours, or worked 8 and donated 1 hours wage) and the charity gets a $20 benefit.  That’s the justification.  If you worked 7 hours and volunteered 1 while also getting a deduction for your time, then you’d be looking at $120 in taxable income while actually taking home $140.
Now, I wrote that and still have to reread it to make sure I actually understand it.  Essentially, when you are taxed, you aren’t being taxed on the value of your time.  The value of your time to a volunteer is $20/hour.  But no one actually gets $20 so there is nothing to tax. You are only taxed on what people are willing to pay for your time.  If they aren’t willing to pay for your time (or can’t, or you don’t want them to), then there is not tax benefit.

But inefficient tax policies have never stopped the government before.  Even if the math doesn’t work out, I think it might be good policy to give people the opportunity to reduce their tax burden by volunteering.  Maybe just for the under and unemployed.  It keeps people’s skills up, likely increases networks, and the greatest inefficiency of the last decade is have 10-20% of an able-bodied population doing nothing simply because no one will pay them.

Image: striatic, did you notice the door?

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  By The Weakonomist 		The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice.

categories: economics, government, personal finance