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03/15/2009

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jonm

The most substantive claim above is "that charitable donations to Americans create more utility than charitable donations to people in poor countries, because the latter donations reduce pressures for desperately needed political, economic, and social reforms".

As the prima facie utility of charitable donations to people in poor countries, assuming reasonable efficiency, is clearly much greater than the prima facie efficiency of giving to Americans, this claim requires that all or nearly all the benefits of such giving are diluted by factors like those mentioned. On the influence of these factors, I commend the work of Bruce Bueno de Mesquita.

Plainly Zimbabwe, which has performed exceptionally poorly by a wide range of health, educational and economic measures, is a country where the risk of supporting a corrupt government is very high. ZANU-PF has a history of controlling food aid to increase its hold on power by, for example, claiming that foreign food aid was provided by them, and threatening opposition areas with not receiving aid. They are also adept at using other forms of rent-seeking, such as expropriating land, mining revenues and foreign exchange. Whether the pluses of aid outweigh the minuses is impossible to say in general, although one might be able to do so in some cases (cash going into government coffers would clearly be a no; vaccination programs controlled by third parties seem likely to be a yes).

However, it is clearly absurd to judge most donations to very poor countries by the standards of Zimbabwe. It would be more reasonable to take a recipient country of middling quality of government as a base case for discussions like these.

Chris Lemens

What can this sentence possibly mean?
"I suspect, moreover, that charitable donations to Americans create more utility than charitable donations to people in poor countries . . . ."

This implies that making comparisons of utility across individuals is somehow valid. We can observe utility preferences of an individual, in the form of a preference or indifference curve. But we can't make any valid comparison of the utility that one person attaches to a dollar vs. the utility that another attaches to that dollar.

Now, we can make a valid comparison of the utility that I (or you or some other person) attached to a dollar spent on domestic charity vs. foreign charity. And we could even say that, though the actions of our government, we can observe the utility that a pretend-person called the government attaches to a dollar spent on domestic charity vs. foreign charity. But that's just a way of dressing up the observation that it is a political decision, which is not helpful in making the political decision.

sam

These arguments against tax exemptions for foreign charitable giving could easily apply to domestic charities, as well. Where is the "rigorous analysis of the net benefits of charitable contributions" for domestic charities?

One of the major attractive qualities of tax deductions for charitable giving is that individuals are given the power to chose what to support, regardless of whether the public or government agrees. I don't support the NRA, but some people do, and I shouldn't be able to decide whether NRA supporters get tax deductions.

Also, I concur with jonm above: the huge utility of feeding an individual who will starve to death or preventing malaria by handing out mosquito nets outweighs the harm of possibly supporting an inefficient or reckless foreign government. There are many cases in history demonstrating that a government can kill its own people without the help of charities.

Finally, with the global economy making the world smaller day-by-day, there may be an argument that foreign donations can benefit Americans more than many domestic charities. Giving a starving child enough food to survive to maturity means that there is another individual with the ability to contribute his or her labor or mind to the global economy. Immunizing third-world residents can lead to the eradication of deadly diseases. Educating poor children around the world means a smarter, more productive population. These efforts will benefit us all, more so than sending a check to a library in an already rich country.

David Drake

Agree with JonM and Sam. If we wait around for governments to change, millions of people will continue to die. There is so much more "bang for my buck" in the undeveloped and developing world.

neilehat

I'm glad too learn that I'm not the only one who thinks (I was beginning to think I was turning into a Curmudgeon) that Foreign Aid, Public or Private, can and does result in the short circuiting of natural social action via revolution in many countries held in the grips of corruption and held down by various Aristocracies that exist in such regimes. Perhaps a more pointed question to ask is, "How much of that Aid actually gets through to the individuals in need as opposed to going to "feed and uplift" those Aristocracies in control"?

When it comes to Aid, Foriegn or Domestic, I've always believed that, "Charity should always begin in one's own backyard". As for the tax incentives, those can easily be adjusted to favor Private Domestic Aid over Private Foreign Aid.

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s

Remittances and charitable giving amount to over $600 billion in foreign aid. At a time when America and Americans are hurting, we should end the deduction for any donation that does not stay in the US.

http://www.latimes.com/news/education/la-me-pomona-school13-2009mar13,0,5729334.story

Anonymous

As Becker says in his post, the limitation of deduction to foreign charities smells of protectionism, and even a bit of nationalism.

The posters who argue that foreign donations are inefficient because of foreign corruption are confusing aid with donations.

Properly placed, a foreign donation can fuel the creation of jobs and provide education to a population that otherwise would be left at the mercy of their government. Providing education and money can fuel changes within these countries, because the populus can be given a source of information outside government propaganda. Some might argue that these organizations will not thrive because the government will put down such any efforts that could potentialize destabalize their power. I would agree with them, in some countries, but in many more there are emerging countries on the brink of democracy and free markets, and foreign aid can help them over the hurdle.

The argument Becker makes regarding the displacement of government aid by charitable contributions is even more compelling for the deduction allowance.

Posner, you made a post a while ago alluding to these views you express in this post. I am disappointed with your small-minded view of this issue. As one poster stated, $1 spent in some countries provides several meals, whereas in the US it barely buys a cup of coffee. How can you argue more good is accomplished by keeping funds domestic?

There is a strong argument made about verifying foreign charitable organizations proper usage of funds. However, you propose disallowing deductions for domestic donations, which can be verified more easily, who channel funds abroad. You are limiting a person's freedom to chose! You! The champion of free markets! The argument that this may undermine US policy is smoke and mirrors...like the drug commercials that used to say smoking marijuana was akin to supporting terrorism. I almost question if you have some underlying xenophobia which is deeply saddening, especially from someone who champions free trade.

Money and education is power. Without these tools, the third world countries are doomed to the grips of corrupt governments that are equipped with modern weaponry. Gone are the days of revolution by the general populus with pitch-forks and muskets. Update your world view.

hm

This is not directly related to this topic but I would very much enjoy having the views of Judge Posner and Professor Becker in a future posting on the following just published NBER white paper.


8. New Keynesian versus Old Keynesian Government Spending Multipliers by John F. Cogan, Tobias Cwik, John B. Taylor, Volker Wieland - #14782 (EFG)

Abstract:

Renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy. Because of modelling uncertainty, it is essential that policy evaluations be robust to alternative assumptions. We find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust.
Government spending multipliers in an alternative empirically-estimated and widely-cited new Keynesian model are much smaller than in these old Keynesian models; the estimated stimulus is extremely small just when needed most, and GDP and employment effects are only one-sixth as large, with private sector employment impacts likely to be even smaller.

neilehat

Anon, A sematic quibble about donations vs. aid?

I know of one Charitable Organisation (donations?) That wanted to get into an African Nation, which will remain unnamed, and supply much needed food and medicine to a starving and heavily infected rural population. To do so, they had to supply their own trucks and helicopters to move the supplies into the areas where needed. These trucks and helicopters had to be designed and built to Military Specifications and purchased from only the President's Brother in Law's distributorship (MB as a matter of fact). Also, as a part of the deal, all drivers and pilots had to be Natives, with close political ties to the President and trained by the Charitalbe Organisation. Furthermore, all these vehicles had to be left behind after the crises had subsided. Surprisingly, those same trucks and helicopters and personnel came in quite handy when the President had to go into those same Rural areas and "ethnically cleanse" them.

I won't mention that it took seventy percent of that Charitable Organisations funds to buy transport. Corruption? It affects both "Aid and Donations". Keeping and enriching a brutal Dictatorship in power. Wouldn't that money have been better spent at home?

s

Africa has had wars, slavery, poverty, and violence for millenniums. (Africa had wars, slavery, poverty, and violence before the Europeans arrived and they still have wars, slavery, poverty, and violence today.) No amount of money will stop the wars, slavery, poverty, and violence until the Africans love their children more than they love war.

Africa has tons of natural resources and so does Latin America. The world has poured trillions into Africa, Mexico, and Latin America, but the continents/countries are still violent, corrupt, uneducated, poor, etc. In Three Cups of Tea, Greg Mortenson built schools in Pakistan and Afghanistan. Currently, schools in Pakistan and Afghanistan are being blown up or burned down. It would have been better for people to donate money for college scholarships in the US, than to throw money away on schools in Pakistan and Afghanistan.

Our house is burning down and we are sending our water and firefighters overseas. Does anyone hear our cries? Does anyone feel our pain? Does anyone care about the United States anymore?

We would be appalled if a mother allowed her children to starve while the mother fed homeless people in the park, yet that is what is happening in the US. Too many groups/charities/religious organizations are sending money and resources overseas meanwhile:

47 million Americans do not have health insurance
30+ million Americans go hungry every day
The US has a $10+ trillion dollar debt (more than the combined debt of all of the countries in the world)
Millions of Americans are homeless
Our educational system needs immediate help
Our health care system is collapsing
Social Security and Medicare are going bankrupt
Our inner cities are war zones
Our roads and bridges need fixing
We are in the midst of an economic meltdown and our banks are on the ropes
And the list goes on…

Taxpayers can no longer shoulder the burden of more taxes and our government can no longer afford to lose billions of tax dollars from charitable donations that are going overseas.

We have so many needs in America that it is almost criminal to neglect America’s needs while helping other countries. We do not have the money or resources to fix the rest of the world. We do not even have enough money and/or resources to take care of America.

Danial

In addition to the first couple of comments, it's important to note that a percentage of foreign aid actually has NO chance of hurting the targeted countries through the easing of pressure on the inadequate political regime--this kind of aid actually helps in ways that the political regime CANNOT. I am thinking of building women's schools in Northwest Pakistan and Afghanistan--how exactly are organizations that do this hurting future girls in the region, even if their aid solidifies the current political actors? These are war-torn areas in which the actors have no power anyway. The only ones affected by a lack of aid are the girls that receive no education.

Joe

I still tend to think that the U.S. has a lot more than many other countries in terms of services and aid to the poor. I would feel more inclined to give internationally.

Anonymous

9:39am Anon here.

You are all using examples of extremely corrupt societies. When I spoke of donations, I used the caveat PROPERLY PLACED. There are small organizations out there that operate beneath the governments radar (not that they are illegal, but they are small enough so in many cases it is not worth the governments time). In other countries, the government is not particularly controlling, but the population is still poor (i.e. Thailand).

It is these countries that should be targetted for aid. Small organizations with limited overhead where donations go to aid the locals rather than administrative costs or funding governments. These types of organizations exist.

You are using extreme examples to avoid facing realities.

neilehat

Realities? Where is it written in stone and passed down across the ages that it is the fundamental obligation and responsibility of the U.S. to supply Aid and help to the World? Especially, when we've got our own problems to deal with at present. It's time the Nations of the World grew up and took responsibility for themselves instead of running to "rich" Uncle America to solve their problems for them.

Anonymous

Mr. Posner writes in part:

..[Americans] do [receive an income tax deduction] for giving to domestic charities that donate abroad (provided they don't just donate to foreign charities).

I have to say this sentence concerned me since I have worked with charitities that seem to do just this.

What exactly does 'just donate to foreign charities' mean in this statement? Does anyone have a link to the law or IRS regulations that would back this up and explain it more fully?

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neilehat

Anon., A "Foreign" Charity is a Charity that is based and headquarted in a Foreign country. Whereas, a "Domestic" Charity is one based and headquarted in the U.S. ( a very fundamental distinction). The tax break is allowed to individuals who donate to Domestic Charities, the parenthetical remark that follows is a caveat, in that the Domestic Charity cannot apply all of it's Donations that it has received to a Foreign Charity. Although, the tax deduction is still allowed if only a portion of the donations it has received are donated or transferred to Foreign Charity and the remainder remains in the U.S..

I hope this long winded explanation clears up the issue. Aren't the intricacies of the Tax Law interesting (HO-HUM)?

Anonymous

Thanks for the reply neilehat, but I still have essentially the same question.

I understood that tax deductions are only available when made to US based charities.

The caveat remains my concern. I have never heard before this a domestic charity that sent or granted all of their donations to foreign charities would cause them to lose the tax deductibility for their donors. I did some brief searches on the IRS website and could not find anything that confirms this. I still would appreciate a link to the applicable US Law or IRS regulation that does.

Also, assuming that it is true, what exactly would constitute 'all'? You say that as long as a portion or remainder of the donations collected stays in the US, the charity is OK. So let's hypothetically say that a US based charity raised $100,000 in donations in a certain year, and turned around and donated $99,999 of that to a African Aids prevention organization that was based in a foreign country. Is the $1 retained enough that the whole $100,000 stays within the tax deductible rules? I have rarely seen tax rules that would result in situations like that.

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neilehat

Anon., As for the details on the overseas break point, you'll need to get down the latest Tax Code from the shelf and review it. I just don't have the time any longer. We're much too busy trying to modernize and revamp the Nation's Energy Production and Distribution Systems and Structure. How about some Donations for us. This stuff is incredibly expensive to engineer, design, purchase, construct, and operate.

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Heidi

While a number of responders have already made several valid arguments against this blog’s views of the utility of generosity that benefits foreigners versus Americans, it is important to note that there are more fulsome and accurate US charitable giving numbers available which have significant implications on understanding the full picture of global economic engagement and private philanthropy.

It is likely that this blog’s reference to the sum of $300B total US charitable giving are taken from the 2008 survey Giving USA; its overall giving numbers cite that organizations in the international affairs sector receive 4.3% of total giving. This calculation excludes the amounts given overseas by the grant-making of foundations and corporations.

As the 2008 edition of Giving USA notes, a more comprehensive analysis of international giving numbers is provided through the Hudson Institute’s Index of Global Philanthropy. This annual publication is now the gold standard on private giving abroad.

Hudson’s Center for Global Prosperity (CGP) (http://gpr.hudson.org/) has pioneered research in the field of private philanthropy to the developing world. Through research partnerships with the Foundation Center, the Partnership for Quality Medical Donations Committee Encouraging Corporate Philanthropy, the Urban Institute’s Center on Nonprofits and Philanthropy, and the University of Notre Dame, the Center has established that US private international giving amounted to roughly $34 billion in 2006, or 10% of total US charitable giving rather than the 5% this blog cites. This number includes giving from foundations, corporations, religious organizations, colleges/universities, and private voluntary organizations (PVOs). Further analysis and details are in the Index, which is viewable on the website.

Additionally, while this blog’s definition of “third world” is unclear, CGP’s calculations show that the aforementioned $34B of US private philanthropy goes solely to Development Assistance Committee (DAC) recipient countries. These countries are classified as having low and middle incomes – Israel is not included in this list. With regard to the Gates Foundation, Gates provided roughly $2 billion in 2006 to international causes. This amounts to 6% of $34B total US private philanthropic flows to the developing world, not 40% as the blog sites.

Finally, while we agree that there is not much to the threat of private donations abroad to US foreign policy, this is not necessarily due to the government’s ability to forbid giving. Rather, the threat is minimized by the fact, to which the blog refers, that US official development assistance is oftentimes already a minority shareholder in the portfolio of global financial flows when understood within the broader context of total private, official and remittance flows to developing countries.

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