Published: Fri 11 March 2016
By snmishra
In economics .
In the US, and in many other countries, charitable contributions are tax deductible. I take advantage of this tax deduction, like any rational person would do. But when I apply the same rationality to charitable contributions, I believe the net effect is quite detrimental.
The ostensible purpose for tax deductions is to encourage to people to support causes that support society. Unfortunately, there are three main reasons, the actual result is quite different.
First, charitable contribution places the power to decide in the wrong hands. Instead of the people needing the help or the organizations making a difference on the grounds, the power to decide what will be done is with the donors. This leads to colossal waste resources. For example, many charities need to money to sustain long term efforts at improving resiliency of the people they serve. Instead most of their money comes in lumps at the end of the year, or after a natural disaster. Charitable deductions let rich people set the agenda, instead of the needs of the poor.
Second, most of the tax-deduction is actually given out for contributions to museums, religious organizations, sports charities (such as NFL), and universities. These contributions do not, in general, improve the services available to those most in need of help. If instead the tax expenditure were directed at services that actually helped those in need, we wouldn't see such heartbreaking rates of poverty.
Third, it's a big waste of time and resources for the people who prepare their taxes and the government in tracking down that the contributions are actually legitimate.
Let's hope that we get rid of this backward system that largely achieves the opposite of what it set out to do. But until then, I'll keep taking my deductions. I should note, in passing, that I don't give money to educational institutions, museums, or religious organizations.