Should the government be subsidising charitable giving?

Key points from my response to the Charity Tax Commission call for evidence

Justifications for the government to fund good causes  through the mechanism of ‘donation-driven subsidies’ rather than the standard democratic policy process; counter-arguments

There is a broader public policy and philosophical question about whether the government should be subsidising charitable giving. Even if the elasticity does not meet the ‘gold standard’, and it would be less costly for the government to directly fund the charities, one might still argue that it is better that these resources and this process is occurring through voluntary action.  (On the other hand, even if the elasticity is above one, there are reasons why we might not support such a subsidy; e.g., we might think that the things people donate to are not the most vital societal priorities).

Classical economics argues that income taxes have some distorting effect on the labor market decisions, leading to departures from efficient choices, although it is unclear in which direction this impacts the labor supply. We could consider whether tax privileging charitable giving, which to some extent gives people more sense of choice and direct control as to where there money goes, has less of a ‘distorting’ effect on labour supply choices. As a simply described example, I might be more willing to work additional hours if I could choose which charity to allocate half this money to rather than knowing the government would make this choice for me. One underexplored question is whether voluntary a ‘big society’ that relies on voluntarism, perhaps under some social pressure, will lead to more efficient labour market choices. (I raise this issue in a conference paper considering historical modes of giving and provision of public goods; see Reinstein, 2014).

There are other justifications for this. It may be argued that getting people involved in philanthropy (even if this is partly driven by reduced prices of giving through tax incentives) is itself a positive good, or may lead to positive spillovers (e.g., as people educate themselves more about social problems and responses).

There is also a case to be made that charitable giving funds projects and initiatives that would be controversial to fund through taxation, but which are nonetheless extremely and valuable. (Holden Karnofsky of GiveWell and the Open Philanthropy Project) has permanently made this argument, for ‘neglected’ causes, either because they are controversial in some way (e.g., birth control in the previous century), or because they involve a low probability but high impact risks, such as the threat of out-of-control artificial intelligence.

 

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