Some of my favorite critics of health reform are fond of appealing to charity, rather than government, as the solution to the problem. There’s a notion of personal liberty in there somewhere. Something along the lines of: “I should be free to give of my resources charitably as I see fit. I should not be forced to have a portion of my resources taken from me by government taxation and redistributed in ways that I may or may not deem appropriate.”
Okay. I can agree with that. Well, to a point anyway. The problem is that people don’t thoroughly think through their positions. Sometimes this is of the blatant “Keep the government’s hands off my Medicare!” variety. Other times, it can be more subtle. For example, people rarely consider that those things that are tax-deductible or tax-exempt are actually being subsidized by the federal government. I guess that may stem from our tendency to be self-interested, and consequently to view the tax-deduction as a way to reduce the bill we, ourselves, have to pay. However, we’d do well to remember that every equation has terms on each side of the equality sign. Your savings is someone else’s loss.
This is true no matter what is tax-deductible. If it’s a deduction for making energy efficient improvements to your house, the government is subsidizing that. If it’s the fact that your health insurance benefits are paid with “before-tax” income, the government is subsidizing that (to the tune of $250 billion it turns out). And, of course, my charitable friends are able to deduct those contributions to the American Cancer Society, Habitat for Humanity, even their church tithe, on their income taxes. If you’re a couple of steps ahead of me, you’re realizing that that means that the federal government is subsidizing places of worship. So much for the separation of church and state people love to rally around.
What it comes down to is this: If you really want your charity to be charity. If you really don’t want the government telling you how to spend a portion of your money. You’d do well to advocate for such things as discussed here to lose their preferential treatment in the tax code. After all, as it stands, some portion of your tax dollars are going to support the subsidy of someone’s favorite charity, which you may not support at all. Of course, if donations to charity were no longer tax-deductible, something tells me that we’d find out quickly just how charitable our nation truly is.
Note: This post was inspired by a fairly recent post by Princeton economist Uwe Reinhardt.