March 15, 2009
American Charitable Deductions Abroad-Becker
Pressures for both increased government and private assistance to poorer nations may well result from this recession because some nations that can least afford a setback may suffer the most due to reduced demand for their exports of commodities and other goods. In considering the topic of private charitable giving to other countries, Posner stresses one of the economic rationales for tax exemptions of charitable giving; namely, that tax deductions are a recognition of the interdependence among individuals in the benefits from charitable activities, such as those by hospitals or schools. If many individuals and organizations benefit when recipients of their charity has more resources, each donor will tend to under give because they do not take account of the benefit to other donors from their donations. That is, giving by any individual or organization produces a positive or beneficial "externality" because it adds to the welfare of other givers.
Another important rationale for tax exemption of charitable contributions is to decentralize giving away from the government and toward the private sector. Just as government grants to hospitals and other beneficiaries crowd out giving to these beneficiaries by private foundations and religious organizations, so too does private giving reduce the need for government giving. For example, when private universities obtain support from wealthy individuals and foundations, this allows them to compete more strongly against public universities, and thus reduces the need for as much public funding of higher education. This "crowding" out of government giving may be valuable because private donations are generally better thought out and more efficient than public grants and aid.
Both arguments seem to apply rather fully to giving to foreign charities as well as to domestic ones. Private giving to help foreign hospitals, doctors, schools, or individuals reduces the need for foreign aid by the US government to the same type of organizations and individuals. This is preferable because government foreign aid invariably goes through other governments, and hence tends to be centrally controlled, and subject to government inefficiencies and corruption. Private giving is more effective at getting the assistance to those who need it.
Giving by an American individual or organization to foreign charities also creates an externality to other givers and to others who benefit as well from such giving. There is a positive externality even if one counts only the benefits produced to other Americans, as long as many American individuals and organizations benefit from the giving to particular foreign charities.
That both arguments for tax deductions are applicable to foreign giving makes a case for also allowing giving to foreign charities to be tax deductible. There is, however, one important argument against doing so: the difficulty of determining whether foreign recipient charities are legitimate and acceptable charities. If such giving were deductible, American individuals or businesses might try to funnel assets into fake foreign "charities" that they control in order to reduce their taxes. Such tax evasion may be relatively easy for American authorities to determine for American charities, but extremely hard for them to pinpoint in poorer countries with limited data and few investigations of fraud. It may also be difficult to determine if foreign recipient organizations are spending the contributions received from Americans on desirable purposes rather than in promoting terrorism and other activities detrimental to US interests.
Still, I tend to support allowing at least some tax deduction for giving to foreign charities. Otherwise, it may be just another form of protectionism, where American services and goods are favored over foreign services and goods. Since protectionist arguments take many disguises, it is likely that some of the opposition to allowing tax deductions for foreign charities is due to the desire to impose tax disadvantages on the "import" by American individuals and organizations of foreign "goods".
Posted by Gary Becker at 5:18 PM | Comments (24) | TrackBack (0)
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I do not like tax breaks for any "charitable giving." How do tax breaks for charities that support Isreal (a country that steals land from its own people) help American taxpayers? How do American taxpayers benefit from tax breaks for giving to the Catholic church; a church that spends hundreds of millions of dollars defending child molesting priests?
Posted by John Booke at March 15, 2009 7:33 PM | direct link
A serious disadvantage of the proposal to eliminate tax breaks for donations to U.S. charities that in turn support foreign charities is the added bookkeeping imposed on the U.S. entities, especially on e.g. small churches. I give to my church, which uses some of its resources to support a hospital in Mexico, a missionary in Zambia, a seminary teacher in Prague ... One might also argue that the change interferes with traditional religious imperatives. More detail, please.
Posted by David Moore at March 16, 2009 12:00 PM | direct link
Judge Posner's comments are disappointing in that America cannot be thought by a serious person to be in an economic event comparable to the Depression. People have not seen their savings destroyed in widespread bank defaults. Compared to the failure to bail-out the Bank of the United States, the '08 and '09 steps to deal with the credit panic issues appear well-measured. While unemployment is relatively higher than in recent recessions, it does not approach the level of 1930 and 1931. Hunger is a non-event because of the elaborate safety net. Most individuals are not turning to non-market solutions in order to deal with problems. Indeed most polls demonstrate greater concern about excessive government spending, than desire for increased. And ideas like the National Inbdustrial Recovery Act are only discussed in remote corners of academia. While Republican failure on enhanced Mexican immigration is disturbing, we have not enacted a no-nothing immigration bill, nor have we stumbled into a full-blown protectionist stance as in Smoot Hawley despite the stimulus bill Buy American provision or the Administration's Mexican trucker debacle.
So both the actual economic situation and the policy measures going forward ought to give confidence to any believer in the free market and rational choice.
The thought that increased tax revenues are desirable in any peace time context is contrary to everyything we've learned about government expenditure--it will alwaqys be a little more than we can afford. And it will always push out more productive private spending.
As the country heads into the retirement years of the baby boomer generation, substantial deficits may be the only way to produce agreement about expenditure reduction.
Posted by Sam Vinson at March 19, 2009 3:47 PM | direct link
Judge Posner's comments are disappointing in that America cannot be thought by a serious person to be in an economic event comparable to the Depression. People have not seen their savings destroyed in widespread bank defaults. Compared to the failure to bail-out the Bank of the United States, the '08 and '09 steps to deal with the credit panic issues appear well-measured. While unemployment is relatively higher than in recent recessions, it does not approach the level of 1930 and 1931. Hunger is a non-event because of the elaborate safety net. Most individuals are not turning to non-market solutions in order to deal with problems. Indeed most polls demonstrate greater concern about excessive government spending, than desire for increased. And ideas like the National Inbdustrial Recovery Act are only discussed in remote corners of academia. While Republican failure on enhanced Mexican immigration is disturbing, we have not enacted a no-nothing immigration bill, nor have we stumbled into a full-blown protectionist stance as in Smoot Hawley despite the stimulus bill Buy American provision or the Administration's Mexican trucker debacle.
So both the actual economic situation and the policy measures going forward ought to give confidence to any believer in the free market and rational choice, at least in comparison to the early '30's.
The thought that increased tax revenues are desirable in any peace time context is contrary to everything we've learned about government expenditure--it will alwaqys be a little more than we can afford. And it will always push out more productive private spending.
As the country heads into the retirement years of the baby boomer generation, substantial deficits may be the only way to produce agreement about expenditure reduction.
Posted by Sam Vinson at March 19, 2009 3:50 PM | direct link
If our politics and government were rational and we had, say, a flat tax, all of these points would be moot
Posted by Jim at March 21, 2009 5:19 PM | direct link
Speaking as someone who has lived outside the USA for a decade, I find it morally reprehensible that gifts to "domestic" charities are deductible but those to "foreign" charities aren't. From my perspective, a "foreign" charity is one that is located a short walk from my home-- which is also a short walk away from my job, where I earn 100% of my earned income.
Somehow, when it comes to my income, the US is happy to tax it with no hesitation over its "foreign" status, but when I donate money to a charity whose office is located in the same neighborhood as my source of income, suddenly its foreign status disqualifies it.
How about a little consistency here?
Posted by Mike at March 27, 2009 6:43 PM | direct link
Posted by Anonymous at April 5, 2009 5:37 AM | direct link
Posted by العاب at April 5, 2009 5:38 AM | direct link
Posted by bnta1.com at April 5, 2009 5:39 AM | direct link
Posted by Anonymous at April 5, 2009 5:41 AM | direct link
It is ridiculous to tax Americans on earnings derived outside of the U.S., yet not allow deductions to non-U.S. charities. It's clear to see how it could be taken advantage of, but it wouldn't too difficult to come up with an approved list by the IRS.
Posted by Adult Toys at April 7, 2009 11:34 PM | direct link
I am not sure I agree with your assumption that individual charitable donations are more efficient than government directed ones. It is possible that individual charitable donations have outlier motivations, are subject to more idiosyncratic bureaucratic obligations, and are directed to areas of personal interest to the donor that have little social utility. The efficacy of charitable donations should be judged by their social utility, not their utility to the individual donor, but it is the individual donor's utility that motivates the donation. The wealth holder's individual utility (because the wealthy are different) is far less likely to match the larger group's social utility than spending directed by a group (even Congress) that more closely matches the characteristics and interests of the larger social group. Encouraging individual charitable donations through the income tax deduction has resulted in such interesting anomalies as the huge taxpayer subsidy for the Gate's redirection of wealth to African charities, the accumulation of wealth by already wealthy private universities, and redirection of health research to high profile celebrity supported disease research away from less well known but more lethal diseases.
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Hello,
Fred and Henry are Kenyans looking for a charitable organisations. We have just read from you posting and we are interested to hear more from you about your organisation.
Thank you so much for the good work you are doing to God's people and may His continue to bless you and the rest that you are working with.
Thanks.
Henry and Fred.
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