The virtues of inegalitarian American philanthropy

by on September 11, 2007 at 1:31 pm in Philosophy | Permalink

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.

1 odograph September 11, 2007 at 1:53 pm

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.

2 Keith September 11, 2007 at 2:17 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!

3 angus September 11, 2007 at 2:30 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

4 paul September 11, 2007 at 2:34 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.

5 Floccina September 11, 2007 at 3:00 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.

6 DK September 11, 2007 at 3:35 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.

7 Bernard Yomtov September 11, 2007 at 4:15 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.

8 bluematter.blogspot.com September 11, 2007 at 5:22 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.’

9 Chris Durnell September 11, 2007 at 5:57 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.

10 michael vassar September 11, 2007 at 5:59 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.

11 R. Richard Schweitzer September 11, 2007 at 7:09 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.

12 G September 11, 2007 at 7:24 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.

13 thehova September 11, 2007 at 8:18 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.

14 robertdfeinman September 11, 2007 at 10:26 pm

G:
Stating things as truisms doesn’t make them so. I’ve been maintaining for some time now that the wealthy have an undue influence over public policy.

I didn’t cite them this time, but you can easily find the information yourself. I suggest starting with sourcewatch and mediatransparency. They gather information about the sources of funding of various charitable institutions including think tanks.

There is also the work done on the influence the super wealthy have had in framing the estate tax debate. There is a nice paper on this which lists those who have contributed the most to the effort.

Now if you want to claim, for example, that Exxon has more effect on policy than, say, Scaife we could discuss this. You would need to bring some data to the table, however. Let’s assume that Exxon is more influential. Is this to be preferred to having the government more in control, as directed by democratic means? Who elected Exxon to anything?

I don’t know why libertarians have such problems with government regulation when they seem not to be worried about the consolidation of power in the private sector. For the past 100 years the people involved have been the same ones as they move from government to industry and back again. Do they suddenly become irresponsible when they join the government? Are they suddenly power mad?

The only control we have over anything in this country is via the democratic process. Corporations are not subject to democratic control. In the present state even stockholders have no real say in how firms are run.

You have to do more than disagree, you have to present evidence.

15 G September 12, 2007 at 12:33 am

I don’t know why libertarians have such problems with government regulation when they seem not to be worried about the consolidation of power in the private sector. For the past 100 years the people involved have been the same ones as they move from government to industry and back again. Do they suddenly become irresponsible when they join the government? Are they suddenly power mad?

Libertarians have problems with power not voluntarily given, it doesn’t matter where or what it is. They don’t want the rich to be able to hijack government for their own purposes any more than major religions can. If economic interests are divested from government, what can the rich do? They are limited to effecting public policy for non-economic ends, which immediately reduces the scope of their interests.

I don’t doubt the super-wealthy do what they can to secure their own interests (whatever those interests may be). Everyone does, the wealthy just have more effect. As long as power exists to be taken, people will scramble for it. The internet will obviously make the marginal value of campaign contributions drop off much more quickly in a decade or so, but it certainly doesn’t seem un-libertarian or un-democratic to actually have decent campaign finance laws until then. That would seem to be a far more direct way of reducing the influence of money interests on politics.

Though if you look on OpenSecrets.org, much of the major political givers seem to be unions. I don’t know the total break down of it, but 7 out of the top 10 givers are unions. I expect this is partially because unions are more politically correct than business cartels, but I’ve always been perplexed at how much better unions seem to organize than businesses do.

The only control we have over anything in this country is via the democratic process. Corporations are not subject to democratic control. In the present state even stockholders have no real say in how firms are run.

If we had any sort of direct democracy, I might agree to that a bit. But we don’t. What is congress’s approval rating, something like 18%? It was over 50% for a while after 9/11, but quickly tanked. According to Gallup, their approval is usually bellow 50%. Last I checked, and minus state-supported businesses, consumer choice stilled decided what goods and services succeed in the marketplace. Even wireless phone providers, which do not operate in a free market and have horribly confusing and hated contracts, have a 68% approval rating by their customers. Microsoft’s is 70%. I suppose it is accurate to say that people don’t have much power over other citizens of their country without the democratic process. But I don’t think thats a bad thing at all.

16 Rob Reich September 12, 2007 at 3:09 am

Really interesting discussion here. Some of my research is cited in the NY Times article — showing the deeply inegalitarian patterns of giving to K-12 public schools and districts — and I want to add a few words of counterargument to Tyler’s thoughtful and thought-provoking list.

First, let’s be clear about what the core issue is. Contra G at 7:24pm, the article does not discuss whether the state should interfere with the ability of people to give money away. The issue is whether the state should subsidize the liberty of people to give money away. If libertarianism is at heart about fiercing protecting the liberty of the individual and sharply circumscribing the power of the state to intervene in the lives of individuals, then the libertarian should call the tax incentive for charitable giving by its appropriate name: government intervention in the lives of individuals.

(By the way, the state does, in certain circumstances have good reasons to limit the liberty of people to give their money away. Campaign finance restrictions, for instance. But the point is that the default position ought to be unfettered liberty to dispose of one’s property. If the state interferes, it must have very good reasons to do so. In parallel form, if the state wants to subsidize the libety of people to give money away, it must also have very good reasons to do so.)

So what are the reasons in favor of state subsidy? Tyler offers up six.

Lots to say about them, but what I’m surprised to find here (as a philosopher amidst economists) is that there is practically no discussion about whether or not the subsidy actually shakes off more charitable dollars than would otherwise be the case without a subsidy. Is the tax break an incentive to give more than one would, or is it just an honorific pat on the back for the charity one would do anyway?

The basic lesson from the econ literature, as far as I can discern, is that there is a lot of disagreement about how powerful the tax incentive is, but general agreement that it is far, far less powerful than initially thought. The strongest predictor about whether someone will give money away? Whether the donor was asked by someone he or she knows. The tax break plays a role, but not so significant for many, perhaps most, people.

So I second Kevin’s question to Tyler: what’s the optimal rate of the subsidy? Maybe the subsidy is actually inefficient.

And moreover, if subsidizing is so good, then why not extend the charitable deduction to all tax-payers and not just itemizers, who constitute a minority of all tax returns.

17 londenio September 12, 2007 at 4:23 am

This post was illuminating. The best post of the week, I think. Tyler, you should start some system of “Post of the Week”. The “Post of the Week” could be decided from some kind of voting system or other measure (number or comments? Number or websites that link to it?).

18 Josh September 12, 2007 at 6:53 am

“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?”

Robin, this can’t be right. I see the point that the government must raise the lost taxes elsewhere. But it also has less to do, presumably, since some amount of charity is now handled by the private sector that the government would otherwise try to “assist” with.

19 robertdfeinman September 12, 2007 at 9:57 am

G said: “Libertarians have problems with power not voluntarily given, it doesn’t matter where or what it is. ”

I don’t know how to interpret this. Does it mean that “G” didn’t specifically agree to the present tax policies? Our present tax polices are the result of decades of negotiation between various interest groups. The public’s interest is ostensibly represented by their elected officials. So perhaps “G” means that we don’t have a government that reflects the majority’s positions. In that case we have a flawed democracy.

I think what “G” means is that he, personally, doesn’t like paying taxes and that he doesn’t want to have to acquiesce to something that he doesn’t agree with. That’s the fundamental flaw in democracy: the tyranny of the majority.

The present state may be as the result of the rise of a plutocracy as I claim, or the rise of a corporatocracy as many liberals claim or even the rise of transnationalism due to globalization.

In each case the cure is more democracy, not less. If you don’t like the current policies, support candidates who favor your position. Get out and work for them, or run for office yourself.

On the main topic of this thread, there was a dicussion the BBC Worldservice Daily Business Review on philanthropy. The person who ran a charity for abused children objected to the micromanagement by some donors and felt that they were imposing conditions which made them feel good, rather than leaving how the money should be spent up to those in the field.

The representative of the philanthropists felt that since it was their money it was appropriate that they set “goals”.

20 AZ September 12, 2007 at 10:53 am

I have 2 questions:

One is for robertdfeinman, who I know has written a lot on various topics at his site because I’ve read some of them. I don’t have time to search through everything you’ve written, but when exactly would you say this process “I’ve been maintaining for some time now that the wealthy have an undue influence over public policy” began? To be clear, when did the wealthy begin having an undue influence over public policy (I’m assuming in the USA)? The last 20 years? The last 50 years? The last 100 years? Has it always been present, and it has just become more exaggerated recently? I just want to know.

Two:

Does anyone really think that a progressive tax code will keep all people from acquiring large fortunes? Aren’t some people able to get around the tax code?

21 robertdfeinman September 12, 2007 at 2:38 pm

AZ:
Assuming you are really interested in the answer. I’ll give the 20,000 ft overview. There are many books on the (economic) history of the US. A helpful librarian can find you a couple aimed at the issues that most concern you.

There was a rise in the undue influence of wealth starting in the mid 19th Century with the growth of the railroads. Most of the big railroads were controlled by a very small group of individuals. Since things like the SEC didn’t exist the opportunities for fraud were almost unlimited. Lookup Jay Gould to say how a master of watering stock worked.

These railroad magnates bought up politicians and got legislation favorable to their interests passed, such as their ability to use eminent domain to seize land to use as right-of-ways for the railroad. This was also abused. They also set rates on freight which squeezed the farmers of the midwest and led to the rise of the Populist Party. Do a search on “robber barons” and you’ll get a list of the principal actors.

This movement ended conclusively in 1929, but their power started to erode with Teddy Roosevelt. The 17th Amendment provided for the direct election of senators (1911) and cut down on the ability to buy politicians. This was the first “golden age”.

The second golden age started with Reagan and had two reasons for its rise. The first was the culmination of a long succession of anti-union actions which eliminated the counter balance to ownership power. The second was the restructuring of the tax laws which allowed the wealthy to hold on to more of their wealth and also allowed corporations more leeway to use new financial tactics. This was when all the various tax shelters, creative accounting, option grants and other such came into play.

Things have gotten so out of hand that there is beginning to be a little pushback, but I don’t see a second TR among our leader politicians, so I assume things will continue as they are for awhile longer. A sharp drop in economic activity might cause change sooner rather than later.

22 Kevin Carson September 14, 2007 at 3:29 am

Justice is much better than charity. If we had a real free market, without privileges, income disparities would be a lot less in the first place. And with higher incomes resulting from the increased bargaining power of labor, workers would have more resources to support their own self-organized charities, the kinds of mutuals described by Kropotkin and David Beito.

Frankly, I’m tired of the kind of “philanthropy” that involves the local Rotary Club yahoos wearing a pink ribbon or kissing a pig. If those people didn’t rig the market in their favor, we wouldn’t need their stinkin’ charity.

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