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Ezra Klein and Tax Deductibility

So, y’all who read my blog often know I’m rather fond of Ezra Klein.  Usually, I find most of what he says convincing.  Last night, getting home in the wee smalls after a nice Friday night on the town, I quickly checked his blog before going to sleep.  I’d had a couple of wines- but not too many.  Anyway, this post was one of the early ones for the days, and one bit in particular really irritated me.

I may try to do this semi-regularly, may not. But there were some interesting nuggets buried in yesterday’s press briefing. As you might expect, the basic frame of the questions was something like “OH NOES! TAXES!” One particularly odd exchange centered around the White House’s proposal to raise money for health care by limiting itemized deductions for the rich. Limiting itemized deduction affects, among other things, charitable deductions, leading one reporter [Update: Chip Reid of CBS, according to comments] to argue “charitable groups are not going to get the kinds of funds they need, particularly when people are suffering.”

Charities do good work, but is there some charity out there providing universal health care — or the actuarial equivalent — and I just missed it? And if not, then predicating this question around the plight of the needy is a bit of a strange approach. People are, as Reid says, suffering. Would they prefer guaranteed health care or university endowments?

That struck me as remarkably parochial and narrow-minded.  Sure, universal healthcare for Americans is really important, and the system surely needs to be reformed, but attacking the means by which organisations that genuinely do good work around the globe are able to secure funding seemed to me absurd.  So I left a comment:

You’re being a bit parochial there, Ezra. Charities might not be providing universal health care, but they are providing essential care in regions in the world where there is currently none- on top of providing other essential services. To dismiss charitably donations as simply university endowments is misrepresentative and glib.

Immediately after writing the post (and I blame my error on the hour, not the wine), I shut off my computer and went to sleep.  Imagine my shock when, after finally managing to get out of bed this morning, I turned on my computer and found that Ezra had responded to my comment.

Glib? Sort of. But university endowments are actually the single largest recipients of charitable giving (after religious organizations which, rightly or wrongly, I consider tithing more than charity). So though I agree the line is a bit glib, the point is not: Not all charity goes to benefit the needy. In fact, the majority doesn’t. The vast majority of the new money in health care goes, for better or worse, to cover the uninsured. So which is more focused on the needy?

Now, I actually agree with much of that.  But, given that the post had moved way down the page in the hours I’d been asleep, there wasn’t really the chance to further my argument.  I did add a cursory comment at the end, but I’ve been thinking about the issue more today, and I have far more to say than would fit in a comments section.

And, after all, what is a blog for if not this.

First, I think that Ezra is artificially combining two problems.  The first is that the American government needs to find a way to fund health care reform.  The second, which I actually think is somewhat incidental to the original post, is that the laws regarding tax deductions in the US are fairly generous.  The Obama administration, and Ezra by extension through his post, have suggested limiting the amount one can deduct for charitable donations.

Ezra [glibly!!] dismisses criticisms of this plan, saying “And if not, then predicating this question around the plight of the needy is a bit of a strange approach. People are, as Reid says, suffering. Would they prefer guaranteed health care or university endowments?”.

So two problems exist: they need funding for health care and people are deducting too much.  Why not just limit the amount they can deduct, solving both problems.

Because it causes another.

Yes, people are suffering.  Yes, they would probably prefer guaranteed health care over university endowments.   But predicating the question around the plight of the needy is NOT a strange approach. Because most of the world’s neediest people are not going to be effected by universal health care being achieved in the US.  So it is fair to raise some concern about the charities that do good and important work internationally being negatively effected by the proposed cap.

The money does need to be found.  But there is great risk in finding it this way.

Oh the other hand, transforming the rules surrounding tax deductibility could be a better approach.  In Australia, I think we have a fairly good model of the rules around tax deductibility.  First of all, donations to religious organisations are not tax deductible.  I know proposing that change in the US would be political suicide, but I do think it’s a much better model.  In Australia, being tax-exempt does not automatically entitle an organisation to be able to receive tax-deductible gifts- there is a separate set of rules and a separate registration process for the latter.

But, more interestingly, the rules governing what you can get for giving a charitable donation in Australia are very strict.  Any time a donation has a transactional element- you get something in return for giving a gift- the donation is no longer tax deductible.  Also, gifts in kind are not tax deductible.

Rather than raising revenue through discouraging large charitable gifts, I think reforming what constitutes a charitable gift is a better approach.  Because, while Klein asks “So which is more focused on the needy?”, he’s really only talking about needy Americans.

One thought on “Ezra Klein and Tax Deductibility

  1. I just don’t see why universal health care and tax deductions for charities need to be mutually exclusive. The US could probably afford universal health care if they stopped invading countries for just one year! The could fund public education and public health … they could stop funding so many important things. The ways they spend taxes there are just mind boggling, people don’t seem to realise that this is THEIR money and THEIR government is supposed to spend it in the ways that THEY choose.

    Anyway you are right and I read Ezra’s full post … the lives of needy Americans are made to be worth more than the lives of needy people elsewhere in world.

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