Tuesday, February 03, 2009

It's The Though That Counts - Part 1

So it turns out that your average liberal grips his wallet with the white knuckle intensity that he otherwise only display when gripping the wheel while passing an eighteen wheeler on a mountain curve in a snow storm with his one baby (one must be sensitive to over-population, you understand) screaming from the discomfort of the soiled cloth diaper (reduce, reuse, recycle!) and the complete lack of legroom in the back of the Cooper Mini (or is it a Mini Cooper?). I say average liberal - the ones I know personally well, like Professor Vic, are quite generous.

Once in awhile you come across a book that does nothing to confirm any prior bias, but better yet makes your bias even stronger in ways you didn’t anticipate. Who Really Cares is a book about charitable giving in the U.S. I confess to having believed that, although conservatives were probably no less generous in their charity versus liberals, they were certainly not any more generous. But the story of Who Really Cares is that conservatives are far and away more charitable than liberals. As the author Arthur Burns puts it: “This book has shown that one of the greatest political hypocrisies of our time is the pious sloganeering about liberals in America being more compassionate than conservatives. The stereotype is false and it is a disservice to our country.”

Burns ingeniously invokes the “two Americas” dichotomy made popular in another context by John Edwards (you know, the one America that has an extramarital fling when their spouse is in remission from cancer, and the other that doesn’t). Rather than focusing on the haves versus the have nots a la Edwards, he focuses on the gives versus the give-nots, harkening back to Jimmy Carter, who also lamented two Americas – one that was giving and one that was not. Turns out the stingy Scrooges that Carter was referring to one were those who voted for him. Even this week Obama lamented the stinginess of the American people, in the context of suggesting that he seems to have turned it around. Well, it needed turning around for his constituency, but apparently charity is old hat for the average McCain voter.

About 75 percent of American households give time and money to charitable causes, while the other 25 percent do neither. There are four factors that do much to predict giving: 1) attitude toward the government’s role in redistribution; 2) being a member of a church; 3) family size; and 4) personal entrepreneurship. Those who believe the government should play a large role in redistributing income don’t tend to give money or time to charity, whereas those who think government should not play such a role give plenty of both. If you took two people – one who thinks government should redistribute and who never attends a church, and another who thinks government should stay out of redistribution and who attends church on a weekly basis, the bible thumpin churchgoer is 3 times more likely to give money, and tends to give 100 times more as a percentage of his income. Lest you think it is all going to some rabble-rousing evangelist, when you take away their church contributions, they still give 50 times more.

Witness the parsimonious giving of Al “it’s not cheap to send your kids to Harvard” Gore, or to that for Vice President Biden, equally stingy in his private giving. The Obamas gave less than the average household as a percentage of their income prior to his books becoming bestsellers. Bill Clinton gives a lot now that he is rich, but famously valued his used underwear at what could only be considered an unreasonable premium when donating to goodwill as Governor of Arkansas (especially considering the high likelihood of DNA stains). But even his current generosity is because he’s trying to close the gap between himself and Carter in the conspicuous do-gooder camp of Democratic ex-presidents. I will believe in his charitable impulses if I see him give up a cheeseburger to a homeless guy in Harlem when the McDonald’s has closed.

Ah, yes, but the liberal supports higher taxation for the rich for purposes of redistribution, and this is true even if they are rich. So isn’t a rich liberal being charitable when he voluntarily advocates to be taxed at a higher rate? No! For a couple of reasons. Number one, rich liberals only pay their taxes when they are nominated to a cabinet position in the Obama administration. Two, we’ve just gone through 7 years (and are in the midst of another year) where Bush cut taxes for the rich, including rich liberals. If they were so distraught about the effect of tax policies on the plight of the poor, they could have taken their tax savings and donated them. But instead they merely kept their overall tax burden the same by cheating less on their taxes.

It should be noted that this is what normal people do – that is, there is a charity “crowding out effect” from taxation; when taxes go up, people reduce their charitable givings; the converse is that when taxes go down, people tend to increase their charitable givings. Consider what this means – when Ted Kennedy wants to legislate giving away $1 to a cause, and he goes to raise the $1 in additional taxes, the $1 extra of taxes crowds out private giving. So net-net, less than $1 is transferred. But it’s worse than that, because when he goes to raise that $1, he taxes something, and when he taxes something, people avoid that something if they can, leading to what economists call the deadweight loss from taxation. So in economic terms the cost of collecting that $1 is higher than $1 because the tax alters behavior. So maybe now we are talking about $1.20 cost to provide a net transfer of $0.95. But it’s worse than that, because when government is offering $1 to people avoiding certain activities (like work), there is an additional cost, because you may only qualify for the $0.95 transfer if you don’t take the job that pays you $0.50, so now we are talking about $1.20 cost to provide a net transfer of $0.45. But it’s worse than that, because when the government transfers money, it needs an entire city of bureaucrats to do it, and these guys need to be paid, administrative costs are much higher as compared to private charity. So of the $0.95 that gets transferred, maybe only $0.70 reaches the intended recipient, leading to a net transfer of $0.20 at a cost to the taxpayer of $1.20. But it’s worse than that, because it goes to a charity of Ted Kennedy’s choosing – which probably is the complete opposite of what you consider a charitable cause. So the utility that you personally see in the $0.20 transfer may even be negative – that is, you may actually want to pay a positive sum to support the exact opposite cause.

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