I’m a good person and, in this season of giving, I find myself inclined – like all other good people – to donate a little money to those less fortunate. I thought this year an animal rights organization or Wikipedia might be worthy of my money, for example.
But then Mark Zuckerberg outdid me by donating $45 billion to charity and I feel like the hundreds of dollars I might spend are not enough.
Except, of course, he really didn’t. He gave that money to an LLC and one reason to donate is to avoid paying taxes, even if he claims he’s still going to pay it. While giving money to a company may not seem that generous, it is far less misleading than giving it to a charity that squanders it. For a great example of the latter, I cite Mark Zuckerberg donating $100 million to Newark, New Jersey, schools. He apparently learned his lesson from the disaster and that’s why he wants to control this money in an LLC.
The moral of the story is that business leaders are good at making profits and usually bad at nonprofits. It’s simple logic. So given that they’re bad at it, why do we let them donate so much money to charities and incentivize this with huge tax deductions?
One fix to the tax avoidance problem is to tax wealth, not only income. We don’t do this for lots of reasons I won’t get into. The other big issue is with our culture of worshiping charities. America loves the concept of charities, but there are many problems with allowing charities to be tax-exempt and allowing tax deductions for donations.
First, most charities aren’t good at what they do. This is a simple, sad fact I learned after years of volunteering at non-profits. If you send a dollar to a cause and it’s not a well-known organization, chances are a good portion goes to the executive board, lawyers, helpers, staff, plane flights and God knows what else. Nonprofits are by definition not driven by profit and thus can be very inefficient. I worked at a nonprofit once where people played games on their computers all day and watched movies, while ostensibly taking home large salaries for donation-funded and government-funded research.
Second, even if they are good at what they do, the government is much better at it. Sure, we love talking about how useless Congress is and how government wastes money on arbitrary research and military spending. In the end, though, we vote for that. This is a democracy. The government is at least constantly trying to improve its bureaucracy because there are consequences if it doesn’t.
Third, the government is fairer. The largest amount of charity in America goes to churches. The tax system subsidizes this through the tax-exempt status of religious institutions and the tax deductions for donation. No matter how you cut it, this is the government subsidizing religion. And there is no effective regulation for this. Jon Oliver, in an exposé on televangelism, showed how easy it is to claim a weekly comedy show should be a tax-exempt religious institution because the IRS does not audit churches.
Finally, high tax is better than high charity. The government is better at redistributing wealth to people who need it, not the people who are the most vocal or the most religious. Citizens in countries that do provide more government services like France and Sweden (and also have much higher tax rates) are less likely to donate to charity. But there, the government takes care of a lot more than it does here.
Making charities pay some taxes and getting rid of tax deductions for donations, at least for the wealthy, is a controversial idea. It is certainly going to have a big impact on charities and probably shut many of them down. But I don’t think it will affect big names like the Human Rights Watch, Amnesty International or the Humane Society that do add a separate value from services the government can provide. If people really still want to give, they will, and they may even choose to do it in untraditional ways, like Mark Zuckerberg. But new laws might get rid of the waste and raise more tax revenue.
I’m getting ready for the season of giving right now and I am planning on paying forward to the community. Maybe my act of kindness, though, should just be deciding to work for the government instead of a law firm when I graduate.
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