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Wednesday, December 20, 2006

Are All Charities Created Equal?

More from Robert Reich. He asks, should charitable giving that doesn't directly benefit the poor be tax deductible?:

Cost of Giving, by Robert B. Reich, American Prospect: 'Tis the season to be jolly and also to make donations to your favorite charity. This year's charitable donations are expected to total more than $200 billion, a new record. Some 80 percent of them are made now, in the final weeks of the year.

But lots of charitable dollars -- especially from the wealthy... -- are going to culture palaces: to the operas, art museums, symphonies, and theaters where they spend much of their leisure time. They're also going to the universities they once attended and expect their children to attend, perhaps with the help of ... "legacies."

These aren't really charitable contributions. They're more like investments in the lifestyles the wealthy already enjoy and want their children to have, too. They’re also investments in prestige -- especially if they result in the family name engraved on the new wing of the art museum or symphony hall. ...

This year, the U.S. Treasury will be receiving about $40 billion less than it would if the tax code didn't allow charitable deductions. ... I can see why a contribution to, say, the Salvation Army should be eligible for a charitable tax deduction. It helps the poor. But why, exactly, should a contribution to the Guggenheim Museum or Harvard University? Not long ago, New York City's Lincoln Center had a gala dinner supported by the charitable contributions of the leaders of the hedge fund industry... I may be missing something here, but this doesn't strike me as charity. I mean, poor New Yorkers don't often attend concerts at Lincoln Center.

It turns out, in fact, that only an estimated 10 percent of all charitable deductions this year will be directed at the poor. ...  At a time in our nation's history when the number of needy continue to rise, when government doesn't have the money to do what’s necessary, and when America's very rich are richer than ever, we should revise the tax code and limit the charitable deduction to real charities.

Update: Thinking a bit more about this, what if the arts, etc. are public goods? E.g., what if the tax deductions are not intended to help the poor, but instead to help to rectify market failures in the provision of the arts? If that's the case, then a deduction to support the arts (and perhaps poor artists) can be justified on the basis of overcoming these market failures. Also, as noted in comments, there are other charities that cannot be classified on a rich-poor basis, e.g. the humane society. The public good argument comes into play here as well.

    Posted by on Wednesday, December 20, 2006 at 07:20 PM in Economics, Policy, Taxes | Permalink  TrackBack (0)  Comments (40)


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