Is there an incentive for entities to take advantage of tax deductions that don't direclty benefit them?

Question

I'm trying to validate or correct a perception I have.

I believe that there is a financial benefit for entities (companies or people) to take advantage of tax deductions that don't directly benefit them (ie: donating to a charity that they are not part of).

My shakey reasoning was that a government would be willing to reduce the amount of tax they would collect from an entity if a similar amount was reinvested into the economy (entity donates to a charity => charity purchases goods and services from the community).

After reading this post Could a sizeable charitable contribution bump me into a lower income tax bracket? it seems that there isn't any financial benifit in an entity to spend income on tax deductable goods and servies that doesn't direclty impact them.

Is this correct?

Answer 1

Canada has a tax credit for donations to charitable organizations, but the credit is for a percentage (less than 100%) of the amount donated. Similarly in the United States, charitable donations reduce one's taxable income but do not reduce the tax owed by the full amount of the donation. In rare cases, there can be 100% credits for certain donations (for example, the U.S. state of Georgia offers a 100% credit up to a certain amount for donations to Student Scholarship Organizations).

The government does want to incentivize charitable donations, not because the charity spends money and stimulates the local economy, but because charitable organizations perform important services for the community and rely on donations to survive because their work is not profitable. Tax credits or deductions provide that incentive to people who are already otherwise inclined or at least interested in supporting those charitable causes. But you can never end up making money by donating to charity. You'll always end up with less money (or in the rare case like the Georgia SSO donation credit, the same amount of money) as if you did not donate. The incentives simply make the cost of donating to charity less because you'll end up paying somewhat less in taxes.