Obama’s perverse assault on private charity

| December 14 2012
Christopher Cook

Individual Americans are among the most charitable, if not the most charitable in the world. Just how much do they give?

This much:

Every year, religious institutions, charitable organizations and philanthropically inclined individuals and corporations give of their time, talents and financial resources to assist those in need. This benevolence is an essential part of the fabric of our country as well as a compelling reminder of the social welfare voluntarily produced by our free-market economy.

According to data compiled by the Atlas of Giving, Americans gave $346.1 billion to charity in 2011 — a 7.6 percent increase from the previous year. That’s an astounding figure when one considers that median household income declined by 1.3 percent last year after adjusting for inflation.

Americans help those in need — even when times are tough. In the process, they generate a nonprofit economy that accounts for nearly 6 percent of our gross domestic product and 10 percent of our workforce, according to the latest data from the National Center for Charitable Statistics.

Those amazing levels of giving happen in spite of the fact that the government sucks 2.3 trillion dollars out of the private economy each year. How much more would people give if they weren’t being taxed so high? What great things could be accomplished?

Well, for one thing, there would be more employment in the private charity field. This would mean more jobs

A) because more money to private charity means more jobs

B) because less money sucked out of the private economy means more jobs.

This, in turn, would mean fewer people would need charity, and the extra money could be spent on productive things that create even more employment. Instead, the government sucks huge amounts of money and pumps it into highly inefficient programs.

How much money?

“President Obama has thrown money at anti-poverty programs at an unprecedented rate,” according to a 2012 policy analysis by Michael D. Tanner of the Cato Institute. “In fact, since President Obama took office, federal welfare spending has increased by 41 percent, more than $193 billion per year.”

All told, welfare spending in 2011 topped the $1 trillion mark, according to a report issued earlier this year by Republicans on the Senate Budget Committee. This same report also revealed that spending on the top 10 welfare programs has doubled as a share of the federal budget over the past three decades — while the dollar amount of these programs has grown by 378 percent after adjusting for inflation. These are startling numbers — and leaders of both parties share the onus for them. Even more startling, however, is the massive “efficiency gap” that exists between private-sector charities and government-run welfare bureaucracies.

How much more efficient could the private sector be?

A lot more:

According to a 2007 report by economist James Rolph Edwards, “administrative and other operating costs in private charities absorb, on average, only one-third or less of each dollar donated, leaving the other two-thirds (or more) to be delivered to recipients.”

Not surprisingly, government doesn’t even come close to achieving this level of efficiency. Citing research by Mr. Tanner and others, Mr. Edwards’ report concludes that “public income redistribution agencies are estimated to absorb about two-thirds of each dollar budgeted to them in overhead costs, and in some cases as much as three-quarters of each dollar.”

Why is the private sector able to meet the needs of the poor so much more efficiently? That’s easy: Competition.

“Most private agencies are under strong pressures to operate efficiently and keep costs low,” the report notes. “Benevolent citizens naturally wish a large fraction of their donations to reach the needy, and many will not keep donating to an agency that does not accomplish that. Donors can select among private nonprofit charities, and competition between charities for donations tends to [ensure] efficiency.”

In a government monopoly, there is no competitive pressure — hence no incentive to maximize efficiency.

In spite of all of this, Barack Obama wants to reduce the charitable deduction. This would, of course, comport with his goals:

Naturally, such a cap would result in less charitable giving and cause job losses in the nonprofit sector. Mr. Obama isn’t worried about that. After all, the less money the private sector is able to donate to the needy, the closer the president moves us toward a public-sector monopoly on welfare.

There is an argument to be made that deductions and tax credits constitute unequal treatment of different cohorts, and thus should be done away with in favor of tax policies that treat everyone the same (such as a flat tax of 10% with no deductions, carveouts, etc.). But that is not what Obama is proposing, and that is not why he is proposing it. Obama’s goal is the MegaState (“everything inside the state, nothing outside the state, nothing against the state”) in which government handles all welfare, charity, health care, retirement, etc. For him, this is not about equity, it’s about statism. As such, this assault on private giving is highly perverse.

Here’s a radical thought for a better solution. Imagine a robust movement towards private charity, one in which conservatives and libertarians work openly together to revitalize the civil society and inject massive new life and abundance into the private charity movement. The centerpiece, policy-wise, could be something along these lines: For every dollar you give to a private charity, your tax bill is reduced by a dollar. Instead of a donation being worth 15% or 30% of itself, or whatever bracket at which that money would have been taxed, you get a one-for-one return.

In this scenario, the government is essentially saying that as long as the money is going to help people in need, they are fine with it going to private charities. They could come up with a maximum percentage cap to make sure that we can keep the lights on at the Capitol and float aircraft carriers, but then other than that, you can choose whether you want the government or private entities to perform the charity.

Too radical? Or maybe just the right medicine?

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