Still More on Vouchers vs. Credits

(My previous posts on the topic of how to fund school-voucher programs here.)

Adam Schaeffer joins the conversation:

VerBruggen contends that it is dishonest to use tax credits instead of direct government spending.

If that’s true, why don’t we voucherize charitable giving?

The feds should eliminate the charitable tax deduction and send out the average (tax-forgiven) amount donated per adult to every citizen in the country to donate as they wish! Would this be more honest? Is there no fundamental difference between these two approaches?

Sure, some people would complain about how their tax dollars were being redistributed to, say, support abortion clinics or the Catholic Church or PETA. They would carp about how they, as taxpayers who earned that money in the first place, should be the ones to direct their money to the charity of their choice. They would complain that pooling the money and doling it out to people who didn’t earn it to use at their own discretion, according to some criteria determined by the government, is unfair and wrong. Are these just technicalities?

My answer: Yes — with a caveat, an observation, and what I humbly propose to be a better idea.

Currently, the government subsidizes — by forgoing money it otherwise would have collected in taxes — some fraction of all tax-deductible charitable giving. And worse, unlike credits for school vouchers, deductions for charity quite likely raise taxes for everyone; vouchers divert children from public schools into much-more-efficient private schools, whereas much (most?) deducted charity spending does not offset government spending in the slightest.

So, taxpayer money is already allocated, in effect, to causes that many taxpayers don’t like. Voucherizing the total amount of the deductions wouldn’t change that, and would make the subsidy transparent. Of course, making it clear to people that they’re subsidizing things makes it more likely they’ll get mad about subsidizing things. But either way, they’re subsidizing things.

The caveat: Voucherizing the tax subsidies for charity would remove the incentive to donate. Unlike a dollar-for-dollar tax credit (“donate” $1, get $1 off your final tax bill), tax deductions (donate $1, pay taxes on $1 less of your income) actually do encourage people to forgo some of their own money. In fact, given that the highest income-tax bracket — your bracket, unfairly, affects how much of each donated dollar you recoup in tax savings — is 35 percent, at least two-thirds or so of all tax-deducted charitable giving is foregone by individuals, not the government. (Then again, I don’t believe it’s the government’s place to encourage charitable giving to begin with, so I’m not particularly troubled by this.)

The observation: This would essentially allocate the funds through something like direct democracy; one person, one voucher. I could see a case for allocating the money instead based on how much people pay in taxes — kind of a “forced charity” the way Social Security is, or was supposed to be, “forced savings.” With the program as Schaeffer presents it, people who don’t pay taxes would get to allocate tax money to any charity they wanted, which creates a sort of charity entitlement.

The better solution: End charitable deductions (and most other deductions!) entirely. If you want to give $100 to support a cause, you should forgo the full $100 to do so.

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