Organ Donation Tax Credits: A Life or Death Proposal?

In early March, a rather unusual pair of bills landed in the New Jersey Assembly. If enacted, these bills would make New Jersey the first state in the country to provide a “no strings attached” tax credit for providing blood or organ donations. The bills, A4664 and A4665, provide:

• A $100 state income tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. to anyone who donates blood, platelets, or plasma four or more times in a taxable year;
• A $1,000 state income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. credit to a resident who donates a part of their liver, lung, kidney, or some amount of bone marrow; and
• A $1,000 state income tax credit to a deceased resident who was a registered organ donor whose organs were used in a human transplant. The refund would be applied to the decedent’s income tax for the last year of their life.

Tax credits directly reduce the amount of tax paid by the donor dollar-for-dollar, while a tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state and local taxes paid, mortgage interest, and charitable contributions. reduces the amount of taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. . Hence, a $1,000 credit has a much greater impact than a $1,000 deduction on the net amount of tax paid.

There is an issue of whether all of this is legal under the National Organ Transplant Act, which will be discussed below. Assuming that it is, the major goal of the New Jersey legislation is to increase donation rates in the state, which could get expensive. If all eligible New Jerseyans took advantage of the blood donation incentive, the state would pay out approximately $700 million in tax credits annually. Currently, 34 percent of New Jersey residents are registered organ donors. Even if registration doesn’t increase, the state would need to pay about $2.3 billion (over, one hopes, many years) to cover existing credits. To put that in perspective, total state revenue is projected to be around $34.8 billion for fiscal year 2017.

However, there is little historical evidence linking financial incentives to increased donation rates. According to the National Kidney Foundation, nineteen states offer tax incentives to cover costs related to organ donation, ranging from $5,000 to $10,000. Some states also offer credits to employers to cover expenses related to donor leave. These incentives are structured to reduce taxes by the amount of expenses, so that the donor cannot receive a monetary gain from the procedure. A study examining fifteen states from 2004 to 2008 found that no significant increase in donation rates occurred following the implementation of tax deduction incentives. Traditional tax credits for donation also haven’t spurred obvious growth in donation rates. For example, Idaho offers a tax credit for up to $5,000 of expenses. If less than 10 percent of Idahoans became live donors, the nationwide demand for kidney, liver, and lung donations would be met.

While the New Jersey proposal would be different, since the full credit is applied regardless of donor costs, the amount is small compared to the costs of procedures.

A study of donation expenses found that kidney donors averaged $3,780 in costs for open surgery, adjusting for inflation since the time of the study publication. The maximum expense found in the literature comes out to $35,376 when adjusted for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. .

While the credit may offset some of the costs of donating an organ, it is far more likely that it won’t cover all the associated expenses of donation. These expenses include transportation, lost wages, personal medical bills, and other related costs, all of which can quickly pile up. Ameliorating most of the costs has not driven donation growth in other states—New Jersey wouldn’t become an exception even if it offered a comparable credit.

The unique design of New Jersey’s tax preference for organ donation might offer a greater incentive to low-income residents than would a traditional tax deduction or nonrefundable tax credit. A deduction doesn’t provide a significant incentive to donate an organ for someone who has income that doesn’t meet the threshold for filing. A refundable tax credit creates participation incentives for those of all income levels. Coercion doesn’t manifest under reimbursement credits since the taxpayer can only have their costs offset. However, opponents worry that the proposed credits could create a situation where a New Jerseyan facing financial difficulties donates an organ to get a cash refund.

This highlights one of the largest obstacles to the proposals: the legality. Under the National Organ Transplant Act, it is illegal to buy or sell organs. If the tax credit is interpreted as payment for an organ, the legislation would violate this federal law. Deduction incentives and reimbursement credits avoid this scrutiny by acting as expense reimbursements, and by not offering a dollar-to-dollar payment to the donor. The legality of the New Jersey plan is unclear because the proposed tax credit might result in a monetary benefit for donors.

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