The Charitable Deduction

The IGM Forum asks an odd question. Agree or disagree with the statement

Reducing the income-tax deductibility of charitable gifts is a less distortionary way to raise new revenue than raising the same amount of revenue through a proportional increase in all marginal tax rates.

Janet Currie writes

The wording implies that distortion is bad, but the point of the charitable deduction is to encourage charity, ie to “distort” behavior.

Angus Deaton agrees with the statement, but adds

If minimizing distortion is your target, though seems like a very odd one.

In fact, the consensus seems to be that this was not the right question.

For more on the charitable deduction, you might look at this Hudson Institute event.

For me, the difficulty of assessing the charitable deduction concerns the relevant margin. If the relevant margin that it affects is the mix between profits and non-profits, then I would rather see more firms driven by profit. Non-profit to me means not being accountable to consumers, and that is not a good thing. On the other hand, if the relevant margin is the mix between private charity and government-run charity, then I do not think that shrinking private charity to grow government charity is a good idea.

4 thoughts on “The Charitable Deduction

  1. I, too, would like to see a reduction in not-for-profit enterprises. But when I play it out in my head, I don’t see how true charities could be effectively run for profit. If your model is to aggregate funds and coordinate volunteer work, wouldn’t the need for profit create unhealthy incentives? There doesn’t seem to be a paying consumer involved, so how would for-profit charities work?

  2. “On the other hand, if the relevant margin is the mix between private charity and government-run charity, then I do not think that shrinking private charity to grow **government charity** is a good idea.”

    There is no such thing as “government charity.”

    The human relationships conducted through the mechanisms of governments are not based on “Caritas.”

    Individuals and groups engaged in charity or eleemosynary actions do so from motivations that are not attributable to the mechanical functions of governments.

  3. The larger problem I see is that many of the things that qualify as charities do no net good.

  4. Benevolent charities may have lower overhead and be more effective than government, but the overhead of charities is of another sort, that of charities that serve no social beneficial function or one of minimal benefit, particularly ones used for social signalling. More government is preferable in these cases.

Comments are closed.