This is one of those unintended consequences that pop up whenever government tries to “fix” things or “even things out” or “make things more fair,” whatever that means. In this case, increasing the marginal income tax rate for high-income earners increases their incentive to give to charities, at least from a tax point of view. I’m not suggesting that people give only to get the tax write-off, but it helps. Especially if the write-off is worth more today than it was yesterday.
Benjamin Zycher, writing at Investors Business Daily, makes a very good point: more charity, less government:
Most such activities are obvious: medical services for the indigent, educational services for the disadvantaged, support for the arts, and the like. But such organizations serve a deeper function as well: They act as an important buffer between the citizenry and the state.
A buffer indeed. I was appalled at hearing some “victim” of Hurricane Sandy decrying the fact that the government hadn’t sent her any money (yet) to help her rebuild her life. I’m sure she is happy now that the government (the House of Representatives) has just approved a bill, taking some $50 billion of other people’s money and forwarding it to her, just because she needs it.
But that’s precisely Zycher’s point: charities help us, in general, become less dependent upon government largesse, and help us retain some measure of self worth and independence in the process. Says Zycher:
Government by its very nature is coercive: Tax, spending and regulatory policies inexorably generate wealth transfers among groups, thus creating winners and losers. These effects induce individuals and groups to find routes around the constraints created by government policies, increasing the incentives of government to impose further rules, and so on.
But private charities are not only more efficient in helping people like this “victim” with monies given voluntarily, but they reduce her dependency on government. Zycher puts it well:
Private organizations, on the other hand, by definition are voluntary; and as they compete with government agencies in the provision of various services, they have powerful incentives to protect their activities and freedoms from efforts by government to expand its powers.
Naturally, government officials understand this and want to reduce the tax incentive and thus charities’ ability to restrain government by limiting such tax deductions. But at the moment, charities are doing a good work, in more than just the usual way, and I’m thankful for that.