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.

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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.

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.

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.

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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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.

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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.

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.

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?

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.

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.

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.

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.

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.

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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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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)?

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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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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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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donations from the United States, even if made by private individuals and foundations rather than by the government, build good will toward Americans.

I should think especially if made by private individuals. No one feels much gratitude for a government cheque.

until the Africans love their children more than they love war

S, the US curretly has more foreign wars going on than almost every country in Africa. Do Americans love war?

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Ha! The diversity of opinion on this issue shows the strength of America with some, even many, finding good reason for charity abroad while others do not. I'd conclude that our policy, including, the indirect deductibility is just about right and is one thing that we need not change.

As in the scriptures of many religions we likely reap more than we sow.

Whether it be $300 bil. total or $34 bil. private international, that's still a significant junk of change leaving the Country and Economy. I wonder what such sums would do for the National Infratructure and Domestic Employment on an annualized basis?

Neil: good observations, as usual. But with "globalism" and being such a mighty economic power with but 5% of the world's population, it seems that to some extent the entire world is our playground.

Apparently we're running at 65% of capacity so were we to want to run at 80% or higher as in the late 60's I'd say we need a LOT of consumers to buy our stuff. Say 20% of GDP? or $3 trillion/year or so.

Not that our charitable giving is a direct means of ginning up viable trading partners, but the game must begin somewhere.

Ha! Perhaps? Just as our corpies have gone "over there" to lead them into production by example etc..... that part of our role is to go to various "saver" nations and get housing and mass distribution of consumer items going.

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Jack, Isolationism? You bet! Let the S.O.B.'s drown in their own miserable swamps. I'm tired of draining and stabilizing theirs, while my own keeps getting deeper and wetter. ;)

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Neil: Ha! Let's not get too provincial in the wake of our cadre of ethically impaired corpies having exported the greatest Ponzi scheme and associated world depression the world has ever seen!

"We" think of ourselves as the world's good-guy neighbor Sam but with 5% of the population hogging/wasting a quarter of the world's energy production and spewing a similar percentage of the pollution, ignoring our massive trade deficits "financed" by unsustainable borrowings that fueled the "NINJA" loan fad, a military machine that outspends the rest of the nations combined, "led" by an adolescent diplomacy that understands little of the surrounds muscle, others may not see ourselves in the quite same light.

Instead, perhaps we're basking in the fading rays of what we built during WWII, the Marshall Plan, and helping to stand up both Japan and Korea after the wars; all of which seemed to have helped us as well as them.

One area we could and should improve is taking back our trade policies from being designed by "our?" mid-ocean based corpies. Ricardo's concept of "relative advantage" was meant to lift living standards through mutually advantageous trade rather than to "compete" on a wage, working conditions, and environmental race to the bottom. If the strongest nation is to be the world's Eagle Scout our trade policies should reflect a vision decency instead of an immature lust for cheap imported goods regardless of the overall cost to mankind.

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Jack, Don't forget to add the latest "Econ. Fad" I heard about yesterday, "Ponzimonium". A new fundamental Econ. Principle developed by "our" Mid-ocean Corpies. BTW, have you heard that a large percentage of that Bailout money that went to AIG has ended up in the hands of European Banks. Now why can't those European Countries bailout their own Banks? It looks like the old Marshall Plan has morphed into the new Marshall Plan and once again we get too pickup the tab.

It looks as if a complete restructing and revamping of the entire International Banking System is in order (which includes Foreign donations, Public and Private). If we're going to solve this crisis of Capitalism and to keep it from occuring again.

Thanks for mentioning that the foreign gifts of the Gates foundation are not tax deductible. On the one hand, it is Mr. Gates money; on the other, when I spend money which is for the maintenance of 'my people,' it's taxed; so I'm glad there is this limit in the code.

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Neil: I suppose another view of our money bailing out European banks is that they relied upon AIG to insure their financial instruments. A quandary, eh? is AIG an entity of the world whose failure should be shared by all? Or is it a US company operating abroad that defaulted on its obligations. Yup! That does point to reworking the entire financial system of the world. It's a bit beyond me but I suppose world-wide contracts have been limited much as foreign policy by most nations reluctance to share sovereignty.

Ha! "the crisis of capitalism!" I think the one thing right, left, and center capitalists would agree upon (at least in abstract with no tempting pork ladling opps near at hand) is that the most powerful aspect of capitalism is that of directing scarce resources to the most productive and highly demanded endeavors. But, as we've seen a lot easier said than done.

Beyond the obvious scamming of finding ways to carve off chunks of capital rather than directing it to productive enterprises, it seems to me our whole housing policy has gone astray and is a major distortionary factor in our economy.

Decades ago it seemed like sort of a good idea to make mtg interest deductible on modest homes. (Median home prices across the US, pre-bubble are under $200k) Then, remember we had to either re-invest the cap gains until age 55 or so when we could take up to $250k as a one time cap gains freebie.

Today, mtg interest is deductible up to a million and we can take the cap gains anytime. My guess is that no one is watching for how often or how much either.

Cool deal eh? ONE place where we can "invest", deduct the mtg interest bringing holding costs below the rate of inflation, have a nearly "free" home, and not have to pay cap gains when we sell the thing to our neighbor at the inflated price.

But for this handy game wouldn't more of us boomers be forced to find better and more productive investments?

Well......... I don't know if that's right either, corporate bond rates have remained low for a long time so perhaps that is an indication that (as Buffet has lamented) there is more cash around than viable investment opportunities.

But one thing is sure; more house than we need is NOT a productive investment and given energy realities (and that new home buyers spent all they had on gew-gaws and largely ignored buying even the common energy conserving upgrades) they're just another lose-lose-lose drag on our economy as even natural gas is being shipped across oceans and our scarce dollars spurring those economies instead of our own.

Ha! I was just in a new 4,000 sf model home all decked out as if state dinners were to be held there often, high ceilings, huge windows and all, and felt like I was in a museum for dinosaurs of a bygone era. The target for this home is that of regular two income working folk who will likely be right up against what they qualify for and the loss of one job will put them in dire straits.

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