What is a Charitable Contribution?

Robert Shiller writes,

We trust one another, and not just the government, to make important decisions and to take action. Self-reliant does not mean selfish: while it is important that we manage our personal finances responsibly, we also have a deep tradition of giving to others. Many of us believe that we have obligations to others that only we can interpret, through our own consciences.

Pointer from Mark Thoma.

My question concerns how we define a charitable contribution. For example, only non-profits qualify to receive charitable contributions. I see no reason for this to be the case. I do not think that non-profit is inherently more ethical than for-profit.

Another way to define a charitable contribution would be as money donated for which you receive nothing in return. But donors get psychic benefits in return for contributions. So you could say that you are being charitable if you get nothing tangible in return. Does that mean that if I take a yoga class or go to a psychotherapist that I am making a charitable contribution?

I think that it is possible to come up with a definition of charitable contribution that works. It has something to do with the intent to provide tangible benefits to others. My contribution to a school for at-risk kids differs from my taking a yoga class in that regard.

Consider four things you can do with your income: spend it on personal consumption; invest it for the future; donate it in order to provide benefits to others; or pay it in taxes.

If we had a pure consumption tax with no charitable deduction, then the privileged activities would be investing for the future and donating to charity in the present. In that case, I would not be too inclined to give people an incentive to donate to charity in the present.

I am still trying to think through this issue.

4 thoughts on “What is a Charitable Contribution?

  1. I define charity as something that is given with no strings attached.
    This is how I separate charity from paternalism.

    Example:
    Food stamps and public schools are paternalistic.
    A negative income tax is charity.

    There is a continuum between charity and paternalism. The more strings the less charitable the giver is being. Food stamps are more charitable then food handouts but less charitable then cash.

    Same with school vouchers, they are more charitable then public schools but less charitable then cash.

  2. Something that bothers me about the current system is its bias toward institutionalized charity rather than individual, or ad hoc, charity.

    If one knows the family down the street is having a hard time, giving them money to pay their gas bill is not legally “charity”, but giving the same amount to a non-profit institution that performs the same function is.

    It goes beyond the mere legal technicalities into shifting the popular perception that the first truly is not charity at all, or a lower order charity than does the institutionalized form. Somehow I doubt Maimonides would agree.

  3. Paying taxes is part of a larger group not mentioned in your 4 things you can do with your money–have it stolen.

  4. “If we had a pure consumption tax with no charitable deduction, then the privileged activities would be investing for the future and donating to charity in the present.”

    A pure consumption tax doesn’t “privilege” investing for the future. On the contrary, a consumption tax is actually neutral between between present and future consumption — whereas an income tax is biased in favor of present consumption. The reason is that an income tax taxes future consumption twice — once by taxing the principal, and again by taxing the interest. (To put it another way, an income tax changes the slope of the intertemporal budget constraint, while the consumption tax does not.)

    I’m less sure about the charity part, but I suspect a similar argument applies. Under a pure consumption tax, buying a meal for myself is taxed at the same rate as buying a meal for someone else (say, a homeless person). If the government also taxed the transfer of wealth from me to the homeless person, that would alter the slope of the interpersonal budget constraint in a way that’s biased in favor of consumption on myself.

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