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The virtues of inegalitarian American philanthropy
This fascinating article raises the question of whether charity is worthwhile and how charity -- "imposing" the desires of the rich on social priorities and wealth redistribution -- fits a theory of social justice. In particular, why should the charity of the wealthy receive such significant tax breaks or even be seen as morally legitimate? Henry Farrell adds much more.
I am a fan of the tax break for American philanthropy for several reasons:
1. Organized religion is the biggest beneficiary. Religious organizations help poor people, help shape a unique and vital American ethos, and encourage people to have more children. The demographic effects alone probably makes this self-financing. ($40 billion in foregone revenue is one estimate.)
2. The arts receive about five percent of U.S. charitable donations. I am more than willing to stomach this degree of anti-egalitarianism in the non-profit subsidy, and yes we do get more beauty for it. Furthermore the alternative of more direct government arts funding would not work out well in the relatively Puritan United States, even if you think it has worked well in Europe.
3. Philanthropy for higher education is a major reason for American strength. Note that American higher education a) benefits the entire world, and b) is a major reason why we are richer than Western Europe (wasn't there a recent NBER paper on measuring this effect?) The tax break is a politically acceptable way to subsidize elite intellectual activities -- which benefit virtually everyone -- yet without having government control those activities.
4. Allowing and encouraging people to give away their money causes them to work harder. Demonstration effects spread the power of this subsidy by creating social networks which favor philanthropy.
5. The general proliferation of non-profit institutions makes America a much more innovative and diverse place, intellectually and otherwise.
6. Relying so much on private philanthropy chips away at the dangerous attitude that there are clearly defined social priorities to which everyone must pay the same heed.
But do read the NYT article and Henry's post for very different perspectives.
I thank a loyal MR reader for the NYT pointer.
Posted by Tyler Cowen on September 11, 2007 at 01:31 PM in Philosophy | Permalink
Comments
I branched out this year, and found half a dozen organizations that support "marine reserves" (no-take areas in the oceans).
I believe that reserves are the only workable answer to market failures in ocean fisheries.
Posted by: odograph at Sep 11, 2007 1:53:24 PM
OK, it is worth something, but is it worth $1.76 on the dollar, which you just reminded us to not forget is the real cost of all this?
Posted by: Robin Hanson at Sep 11, 2007 2:00:57 PM
"OK, it is worth something, but is it worth $1.76 on the dollar, which you just reminded us to not forget is the real cost of all this?"
D'oh!
Posted by: Keith at Sep 11, 2007 2:17:58 PM
Watch that stuff about intellectual subsidies. I think it was Schumpeter that said capitalism sows the seeds of its own destruction by subsidizing intellectuals.
Posted by: jtoour at Sep 11, 2007 2:22:09 PM
Wow, I blogged about this article last week with a much cruder take on the subject (what a shock eh?). The main problem seems to be the same as always:
statist liberal types wanting to spend other people's money for "the general good".
http://mungowitzend.blogspot.com/2007/09/does-government-really-own-everything.html
Posted by: angus at Sep 11, 2007 2:30:29 PM
Note how the article runs together the concept of a subsidy with the concept of a tax break. It's subtle but important. Letting people keep what they earn for reason X is not the same a redistributing money to them for reason X.
Furthermore, the entire article has a tone which suggests that central distribution is likely to be more rational than private giving. It often contrasted what private charity actually does with what government could do. But this seems to commit Will's fallacy of asymmetric idealization. Maybe the government will spend the money on necessities, but more likely is that it will spend some money on those things and the rest of it on something else. Charity is imperfect, but do we really have reason to suspect that government as it actually works will be more effective dollar for dollar than private charity as it actually works?
Posted by: Selfreferencing at Sep 11, 2007 2:32:05 PM
I don't think you read the article:
"Roughly three-quarters of charitable gifts of $50 million and more from 2002 through March 31 went to universities, private foundations, hospitals and art museums, according to the Center on Philanthropy at Indiana University."
which contradicts your point 1.
Luckily, the rich tend to be highly educated and the highly educated tend to not be religious.
Posted by: paul at Sep 11, 2007 2:34:19 PM
Perhaps an underlying theme in the article is that individualized giving lacks central direction and that - in virtue of this - is prone to producing irrational outcomes. Such an idea, I think, is natural to the human mind but nonetheless fallacious.
Posted by: The Garbageman at Sep 11, 2007 2:35:27 PM
Seeing that saving and investing is equal to indiscriminate charity so, eliminate the income tax and fund the Fed Gov through a sales tax and this debate goes away.
Posted by: Floccina at Sep 11, 2007 3:00:12 PM
Tyler,
What's the appropriate rate of tax write-offs to charitable donations? Is it magically one? If charitable giving is so good, shouldn't we give, say $1.10 of tax deductibility per $1 of charitable donations?
Also, if we didn't have the tax deductibility of charitable donations, this doesn't imply that government will spend more (although it may): the government may choose to tax less. Thus, the comparison of the money spent in different ways should take this into account.
-Kevin
Posted by: Kevin Postlewaite at Sep 11, 2007 3:19:55 PM
Commenter Tom S. on Crooked Timber says it all: "I guess Mozart wrote some okay stuff, and he was the creation of a patronage system, but I still like to think there are better ways of promoting the arts and the sciences." http://crookedtimber.org/2007/09/08/gift-economies/#comment-210069
as for me, a system that funded Mozart is a system I can support.
Posted by: DK at Sep 11, 2007 3:35:35 PM
I question the virtue of allowing tax deductibility for pecuniary donations, but not for the value of time contributed to charitable causes, which is especially problematic given your points 4 and 6. This clearly discriminates against philanthropic activities by the lower income, who have less to give away and more time (in an opportunity cost sense) to participate.
This also brings me around to another dilemma, which is what is different about producing something for oneself versus producing something for exchange that merits the taxation of the latter but not the former?
Posted by: Mike at Sep 11, 2007 3:41:11 PM
I question the virtue of allowing tax deductibility for pecuniary donations, but not for the value of time contributed to charitable causes, which is especially problematic given your points 4 and 6. This clearly discriminates against philanthropic activities by the lower income, who have less to give away and more time (in an opportunity cost sense) to participate.
Actually, time donated is deductible in the sense that you don't have income to report, having foregone it. Look at it like this: Suppose you work for a day and earn $200. You give the $200 to charity and take a deduction, so your taxable income is $200 less than it would be if you hadn't made the donation. Now suppose you volunteer for a day, passing up the chance to earn $200. Again, your income is $200 less than if you had earned money and not made a donation.
In both cases you effectively donated a day's work to charity. In both cases this reduced your taxable income by $200, and hence lowered your taxes. One important difference is that when you donate time you get this effect regardless of who you donate it to, while in the case of a cash donation it only counts for tax purposes if you give it to an approved organization.
Posted by: Bernard Yomtov at Sep 11, 2007 4:15:07 PM
OK, DK, report for duty as a Moravian serf.
Posted by: jaywalker at Sep 11, 2007 4:17:44 PM
What if private giving crowds out public giving more than one-to-one? Think of a simple theoretical framework in which 3 citizens with typical (e.g. Cobb-Douglas) utility functions choose how much to give to charity, with the median voter determining the level of taxation and thus public spending on the public good/good cause. In that case, one dollar spent on charity means that the government's spending on said good cause will decrease by more than a dollar: the median voter has an incentive to free-ride on the givers.
You can find some maths here: http://bluematter.blogspot.com/2007/05/does-private-generosity-harm-greater.html
Think, for example, what would happen if citizens voluntarily chipped in to reduce the budget deficit:
'If the median voter knows that the higher the size of the deficit the more some citizens will voluntarily chip in, how do you think his decision on the size of the deficit will be affected? Yes, you conscientious citizens, you just made running a larger deficit the most appealing proposition.'
Posted by: bluematter.blogspot.com at Sep 11, 2007 5:22:25 PM
I do not think having more children is a plus .The demographic effects in the past may have been positive but we are living on earth with limits. The capital invested in church buildings in my community may approach that in the public school buildings. Very little in the church plate goes to benevolence.I question the position that religion is an economic/sociological positive in the USA or elsewhere .If so,which religion is best ?
Posted by: Lowrie Glasgow at Sep 11, 2007 5:29:07 PM
The article makes a great point that much charitable giving does not go to the people we immediately think of when we talk about charity. Much of the donations to education and the arts, laudable as it is, is basically gifts from the rich to the rich. It does not deal with the truly unfortunate. Is a $200 million endowment to an MBA school really the same as a $200 million donation to the impoverished or sick? It's definitely a debate we should have.
But I don't think we should eliminate tax breaks for it. The article is one its weakest grounds when it claims that lost tax dollars is the same as if the government had spent tax dollars on it. That is a bizarre mindset. I know plenty of people who would be upset if the government took money out of their pocket (the taxes they paid) to support certain things, but would have no objection to someone else spending their own money and getting a break for it. Yes, the government revenue is down, but none of his money was spent.
So the debate is good. Something else to consider are "fruadulent" charities where most money does not go to help the cause, but to maintain a bureaucracy. That is a severe problem.
Posted by: Chris Durnell at Sep 11, 2007 5:57:44 PM
How disinterested of Tyler Cowen to support philanthropy. The fact that his job wouldn't exist were it not for the $23 million in donations (that we know of) by the Koch family doesn't influence his attitude, I suppose.
One of my many "fans" cited my essay on abolishing philanthropy.
I've had some further thoughts. If a person is giving away money for altruistic reasons then the action shouldn't depend upon getting a tax break. In fact most people who support charities fall under the deductible limits and can't take their contributions off their taxes anyway. So the tax break only affects those in the higher economic strata. In addition the tax deduction is worth more to them. If a person gives $100 and they are in the 5% bracket they get $5 back. A person in the highest bracket gets $35.
Someone complained that I'm telling people how to spend their money, but I never said that. My "cure" for excessive philanthropy is to ensure that people can't amass such huge fortunes to begin with. I know this is anathema to libertarians, but is (or was) the norm in much of western Europe until recently. The "cure" was via progressive taxation and effective estate taxes. You can earn as much as you are able, you just have to pay taxes on it at such a rate as to prevent the creation of a plutocracy.
The libertarians can disagree, but they will have to tell me what the benefits of allowing a plutocracy to emerge are. As I've said before too much concentration of wealth leads to undemocratic political institutions. Perhaps some don't think this is important, but we in the US claim we do.
Posted by: robertdfeinman at Sep 11, 2007 5:58:14 PM
The brokenness of any morality that holds that the federal government should not "subsidize" foreign aid by letting US citizens alleviate third world poverty simply bowls me over.
Posted by: michael vassar at Sep 11, 2007 5:59:32 PM
"Philanthropy for higher education is a major reason for American strength."
It’s also a major reason for increased tuition bills and pumped up wages for professors. Has any school in the history of education received a gift and decided to lower tuition? That’s funny. Keep on giving those schools money and tax breaks and subsidies - what happens - constantly increasing tuition. Philanthropy and tax breaks ain’t working for this one.
You want more people to attend college: lower the price. That won’t happen with government subsidies which – as history has shown – only cause tuition to go up.
Posted by: RTS at Sep 11, 2007 6:02:01 PM
Why don't we stop for a moment and consider specific elements of our real structure of taxation: "Is it Income? Is it Taxable Income? Whose income is it?" per Stanley Surrey. That brings us to the subparts of: Exemptions, expenses, deductions and credits. Why do each of those exist, what is their function in structuring taxation and its impacts? Here we are considering a subset of deductions, the "Charitable Deduction." Why is that part of the structure? Many noble reasons are on offer. Let us look at something more pragmatic:
It has been written, "The art of taxation is to pluck the most feathers from the goose with the least squaucks." Deductions are carefully chosen by the political pluckers to reduce squaucks. "We won't take all of those feathers nearest your sensitive parts, if you have already plucked them for others!" The strongest motivation is not to get plucked at all.
Posted by: R. Richard Schweitzer at Sep 11, 2007 7:09:42 PM
It seems highly likely that the earth can't sustainably support the current or near term projected (say 9 billion) human population at anywhere near the present US standard of living, so I'm not sure why you think encouraging people to have more children is such a great idea. We should be encouraging people to have fewer children.
Posted by: Jeffrey Miller at Sep 11, 2007 7:15:18 PM
Yikes. If someone in government tells me how I can or cannot give my own money away, I'm moving. I'm ashamed to pay federal taxes as it is, and there is no way I'd give away my excess money to any current government in the United States, unless it was necissary to maintain basic law and order.
The libertarians can disagree, but they will have to tell me what the benefits of allowing a plutocracy to emerge are. As I've said before too much concentration of wealth leads to undemocratic political institutions. Perhaps some don't think this is important, but we in the US claim we do.The burden of proof for those who seek the power of government should always be to show that such power is necissary beyond a reasonable doubt. I don't think this is too much to ask, do you?
What is wrong with allowing very wealthy individuals to emerge? They often give away most of their wealth, pass on a lot more of it to their heirs, and spend some. A good number of lasting philanthropic institutions were started by exceedingly wealthy individuals. Wealthy individuals cannot "corrupt" democracy any more than wealthy organizations can, especially with current campaign finance laws which allow organizations to contribute more easily.
The problem isn't economic interests influencing government as much as it is special interests influencing government. Its true that today most of these special interests are economic interests, but it wasn't always this way. The church used to have huge sway over government (and some would say it still has too much, but its greatly reduced), but the first amendment mostly put an end to that. There are plenty of individuals who have undo influence on government for reasons not directly related to wealth.
Self-made wealthy individuals also tend to be very productive, and anything which discourages them from producing should probably be questions. True, some rent-seekers don't make their money in honest ways, but that begs the question of why the economic system allows them to get away with their actions.
Posted by: G at Sep 11, 2007 7:24:29 PM
Given the deleterious effects of organized religion on the world, any policy that benefits it ought to be suspect.
Posted by: Scott O at Sep 11, 2007 8:00:24 PM
"Philanthropy for higher education is a major reason for American strength."
I consider American education to be a bit bloated.
I have no statistical evidence to back me up, just a sense. Money goes to were the talent lies, and a lot of that talent is in academia.
still, many wealthy people donate large amounts of money to their school predominately due to sentimental reasons.
Posted by: thehova at Sep 11, 2007 8:18:07 PM
