Taxation and its discontents

N.B. the nonprofit section of a posting by Michael O’Hare on the Reality-Based Community blog:

[Some people suggest] a 25% income tax only on income above $100,000 . . . . [This] throws a bomb into the system of charitable non-profit
enterprise that, with all its defects, is a virtue of how Americans
have organized our society. It removes the implicit subsidy (deduction
of gifts from income) for giving to charities, churches, education, and
the arts from everyone below the $100K cutoff, and reduces it for
everyone else from the current top rate of about 40% (including state
deductions) to 25%. In other words, the price of a gift of $1000 from
middle-class people will go from (say) $800 to $1000, and for rich
people it will rise 25%, from $600 to $750. The overall result will be
a severe contraction of charitable giving and hence of the services
provided by nonprofits, so if we want those services, they will have to
be provided the way Europeans do, by government. Without some assurance
that this will happen – and the politics of such an expansion of the
public sector are quite daunting – and a lot of assurance that we will
really be happy if a large fraction of, for example, higher education
and the arts are nationalized and become provided by a bureaucracy, a
scheme like [this], despite its appeal on some grounds, needs to be
dealt with very gingerly.

Take-aways from this?

  • Remember to assess flat-tax and other simple-minded solutions to the problem of public resources with an eye towards their impact on the work of our sector.  Assessing them requires considering not merely the virtues of hoped-for outcomes but the likelihood of their achievement: "The politics of such an expansion [of public services] are quite daunting."
  • Be prepared to segment the nonprofit sector in your thinking, so you can ask whether, e.g., you want the government to be the primary supplier of the arts as well as of health care.  The Nonprofiteer doubtless is one of the few lefties working in the arts community* who opposes public funding of the arts.  If artists are going to fight with patrons (and they always are), wouldn’t we prefer that those patrons not have armies with which to enforce their preferences?  And if artistic creation is one of the most profound expressions of individuality (as it is), why would we want to subject it to the dictates of the community?  And, conversely and finally, if artistic creation is primarily individual expression (as it should and must remain), why should the community be charged with its costs?–Or, as the Nonprofiteer used to think while sitting at artists’-colony dinner tables and listening to her fellow residents bitch about their lack of government support, why should Jesse Helms’s hardscrabble dirt-farmer constituents pay so well-educated white people don’t have to hold down jobs? 

———————-
*As reporter and cultural critic, though she also did the obligatory time as a fiction writer.

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3 Responses to “Taxation and its discontents”

  1. Sam Davis Says:

    Flat taxes promote dynamic economic growth, which in turn provides more money for giving to nonprofits and otherwise improving the country without the money being funnelled through, and having a big chunk remain with, government.

    Any number of European countries have moved to a flat tax for this reason, as well as notable others around the world.

    I suggest the “progressive taxationists” pay attention. Without a free, wealth-and-income creating economy, there is no largess for humanitarian purposes.

    Attacking flat taxes as “simple minded” borders on ad hominem; it is at the very least an attack which references no data, and indeed cannot because data from such flat tax countries as Ireland, Estonia and others show that it works well.

  2. Nonprofiteer Says:

    There’s likewise no evidence that progressive taxation interferes with wealth creation or prosperity, but I don’t therefore regard your opposition to it as ad hominem. Rather, I’m interested to see that you rest your argument at least in part on the use of flat taxes in European countries, most of which also provide cradle-to-grave social welfare programs. Given your stated politics, I doubt the European experience would move you to recommend adoption of those. But we all use whatever evidence supports our value system–and, as I’m referring to myself as well as you in that observation, I trust you won’t regard it as a personal attack.

  3. Sam Davis Says:

    Late response: No, I don’t regard it as a personal attack.

    A note: European countries have had cradle-to-grave social nets for a century, or more. There is evidence to show that, as they moved toward ever-more confiscatory tax rates to pay for those nets, their economies suffered dramatically.

    This is why Sarkozy in France is attempting some modest market reforms. This is why Estonia and the Czech Republic are becoming the economic powerhouses of Eastern Europe. It’s why Ireland has become the “Celtic tiger”: lower, flat rate taxes together market-friendly public policies.

    In contrast, France, the Scandanavian countries and some others, with draconian tax rates and anti-market policies, have slumbering economies with little growth and even less opportunity for those outside the “official system,” such as Muslim North African emigrants in France.

    So, the data and evidence do indeed support the position that a system of progressively-higher tax rates for higher income groups suppresses economic growth. Europe has some excellent examples of that, as noted, perhaps the best is Ireland, formerly one of Europe’s poorest countries vs. France, which is in serious danger of catastrophic economic crisis if fundamental pro-market reforms are not made soon.

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