The IRS Scandal and How to Fix It. Forever.
The right says: “This is terrible, someone should pay!”
The left says: “This is not really a scandal at all. It’s business as usual. All we really need is to put the right people in charge, and everything will be fine.”
I think the left has the stronger factual case, but the weaker normative one. The IRS really has been politicized forever. It’s targeted feminists for being lesbians (and lesbians for being lesbians). It targeted Christians for being too anti-communist — or maybe too Christian, I’m not sure. It went after left-wingers under Nixon, right-wingers under Kennedy, and before that, it went after newspapers — yes, newspapers — that didn’t like the New Deal.
Before us now is one instance of a huge, nonpartisan, generations-long problem: the party in power uses the IRS for political ends. It happens all the time. Clearly, the temptation is just too great. Sometimes it’s a question of getting the right people into place, but I don’t think that’s true in this instance.
Here’s my proposal: Abolish the tax deduction for all nonprofits and nonprofit giving, political and otherwise, and lower taxes across the board to compensate. The effects of doing so will be widespread and — I think — positive.
Obviously there’s no more IRS meddling of the type at hand. That much is very, very certain.
Especially edgy charities, political and otherwise, can breathe a little easier, and we may get more of them. That should be very interesting. We will likely see more micro-charities and fewer mega-charities, an effect of removing the fixed overhead costs of bureaucratic compliance. I am uncertain whether that will mean less efficiency from duplication of effort, or more efficiency from local knowledge. But throw in the deadweight costs of tax compliance — borne by everyone who pays taxes — and it’s probably for the best.
Also, the net effect of the reform on income distribution is almost certainly good in its own right. Overwhelmingly, the largest beneficiaries of the tax deduction for charity are the rich. The deduction is regressive in its effect, allowing the rich to spend their money tax-free on pet projects, political or otherwise, in a way that is of course closed to ordinary people.
“But wait,” you say, “don’t charities help the poor?”
Some of them do. But then again, a lot of them don’t. There are many ways to give, and not all of them are soup kitchens or shelters. Giving to opera, or to your already-rich alma mater, is every bit as tax-deductible.
In all, it might well be best to leave this money with the working poor. They clearly need it, so leaving it with them from the getgo is likely more efficient. Increasing the returns to work is always a good idea, because it brings people into, or back into, the labor force. From the standpoint of the wealthy, charitable giving is a status good, so it’s unlikely that we will see significant reductions in giving from the wealthy, particularly for the arts or for political advocacy.
Lastly, do recall the the gross inefficiency of most charities at actually helping people. I have to conclude that abolishing the tax deduction for all charities and nonprofits would be… an act of charity.