In Praise of Charitable Deductions

1 Oct

Perhaps I’m misreading what’s intended as a narrow critique of a sub-set of charitable giving, but I think Ezra Klein’s support for this Robert Reich article is mistaken, as Reich’s proposal goes too far in his desire to support “real” charitable donations, not to mention that it would result in Very Bad Things for arts funding in America. I’m also surprised that Megan McArdle didn’t highlight some of the consequences to universities and the arts if Reich’s proposal of limiting tax deductions for non-poverty related non-profits to 50% of the donation was implemented (I assume she’s read her friend Tyler Cowen’s Good and Plenty).

Klein and McArdle rightly focus on the spectacle of Manhattan charity galas, which give patrons a chance to throw back some vintage wine and imported champagne with artists and celebrities–and then write an expensive party off as a government endorsed contribution–but I think this is as far as the critique can be taken, for two reasons. The first is that deductions are an indirect subsidy to lots of people who aren’t rich, including the middle class, artists, and those that benefit from the research done by universities, which might end up including poor people. The second is that if we eliminate these indirect subsidies (or make them costlier), some of the slack is going to be picked up by demands for direct subsidies, which would be bad for the arts.

Although rich folks may donate to universities to get their C average son or daughter into an elite institution, that money also helps kids whose families earn less than $40,000 receive free tuition from Harvard (and reduced tuition for those earning between $40,000-$60,000), which means greater social mobility for talented but financially strapped students. Not all of the donations are of the “now name an arts building after me” variety (and if major enrollment is any indication, most alumni are likely to fork over money for a science building or simply contribute to a project the university or college has already proposed).

The greater problem is that in place of the funding supplied by private donations, people might start demanding that those funds be replaced by direct subsidies like the NEA or some other centralized entity (actually, the NEA doles out its funds in the form of institutional grants–having done away with direct grants–but I’m worried about a general trend) which would choose the artistic winners, making for a less diverse artistic market.  For all you poets out there¹, imagine asking your parents or non-poet friends to describe a poem for you.  It sounds like some terrible cross between 19th century Romantic verse and tortured love poems as read by a sentimental teenager at a coffee-house open mike, right? Okay, now imagine those same people have to vote for officials whose job is to determine the head of this centralized agency.  Result: Dr. Seuss becomes your Poet Laureate², and the local dandy/Victorian literature enthusiast gets a $20,000 grant to write poems about the “the love o’er which I swoon/ and moves the heart betwixt my ribs”. Yikes.

In short, you’d be eliminating a lot of good donations provided by people who know a thing or two about the field to which they’re donating (e.g. the arts or research for a particular disease) or things people might actually be interested in using (thus matching supply with demand).  Though only 10% of donations go directly to the poor, I’d bet the other 90% benefit the poor (in terms of education and scientific research) by subsidizing public goods.

¹ Hey Keith.

² Though much beloved, he is, unfortunately, dead.

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2 Responses to “In Praise of Charitable Deductions”

Trackbacks/Pingbacks

  1. Yes, (Insert Ivy League School Here) Is A Charity « Matt Zeitlin: Impetuous Young Whippersnapper - October 3, 2007

    […] If you want to know why charitable gifts to support the arts should also be fully deductible, let Corey Spaley explain. […]

  2. Trickle-Down Charity | After Corbu - October 14, 2007

    […] Pax Americana, in defense of deductable charitable donations for the arts: The first [reason] is that deductions are an indirect subsidy to lots of people who aren’t rich, including the middle class, artists, and those that benefit from the research done by universities, which might end up including poor people. The second is that if we eliminate these indirect subsidies (or make them costlier), some of the slack is going to be picked up by demands for direct subsidies, which would be bad for the arts. […]

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