People were mainly just annoyed that rather than getting a free phone or some cash as a gift, they instead got the ability to choose a charity to receive a donation from Google (which has "value" but not monetary or physical value to the employee). The expected to receive a phone/cash so it felt like less compensation/bonus when they didn't receive it.

I doubt anyone was thinking about donation related tax breaks or anything like that. It was simply "sure I will have Google give $500 to this food bank, but why don't I get a new phone or cash bonus?"