Adam Chodorow (Arizona State) presents Staying Well While Doing Good: A Proposal to Merge Healthcare and Charitable Giving Tax Incentives, 2010 U. Ill. L. Rev. ___, at San Diego today as part of its Tax Speakers Series. Here is the abstract:

This Article considers two unrelated tax provisions – the charitable deduction and the exclusion from income of amounts contributed to Flexible Spending Accounts (FSAs). Significant debate exists regarding the proper characterization of these provisions – either as necessary to the proper definition of income or a tax incentive. However, regardless of the position taken, virtually all agree they are underperforming. Prior attempts to fix these provisions separately have failed. This Article proposes increasing the efficacy of both by combining them and allowing taxpayers to donate unused amounts left in their FSAs at the end of the year to charity.

Amending the law in this way will increase the efficacy of both provisions by increasing the availability and financial incentives for the former and reducing the financial penalty associated with the latter. Perhaps more important, the proposal takes advantage of the “mental accounting” insights discussed in the behavioral economics literature to increase the attractiveness of the incentives without increasing the “rate” implicit in allowing a deduction or exemption. The net result is a more cost effective tax provision. This proposal thus serves as a model for Congress as it considers the design of other tax provisions.