Thursday, February 26, 2009

Taking Aim at the Independent Sector?

If a government increases the marginal tax rates on its citizens, will that lead to more or less money being donated to non-profit organizations (churches, charities, and so forth)? In the United States, that has been an interesting economic question because, for people who itemize deductions (mostly higher income individuals), such donations are tax deductible. Therefore, a change in marginal tax rates has offsetting effects. For example, when marginal tax rates decline, individuals have more money to contribute to charity, but the value of the tax deduction goes down (effectively increasing the “price” of the deduction). Empirical evidence has been ambiguous as to whether one of the effects dominates the other.

If the reports in today’s newspapers are correct, we may have the opportunity to have a “natural experiment” in this regard. Apparently, the Obama administration is proposing to increase our top marginal tax rates but to “cap” the corresponding deductions for charitable contributions as if the marginal tax rate had not changed. If this happens, Americans would have less money to contribute to non-profit organizations, but without the favorable “price” effect.

If I were involved in a non-profit organization that relied on donations, this proposal would make me feel like the deer in the classic Far Side cartoon who was born with a bull’s eye on his chest. “Heck of a Birthmark, Hal”, another deer comments to him. If the Obama administration has a deliberate goal to reduce Americans’ contributions to churches, charities and other non-profit organizations, this proposal would seem to fit the bill. But, that’s a testable proposition; perhaps there are general equilibrium effects to the overall economy that will countervail. I’m always ready to look at the data.

Monday, February 23, 2009

Long Live the "King"

One of the things on my "should have written about" list is my intense admiration for "King of the Hill," by comedy genius Mike Judge. I couldn't have done any better than today's article by David Forsmark at NRO. He says everything I've always wanted to say about this great series. The one episode that will always stick in my heart is when Hank has to choose between keeping his promise about helping out at his church's children's group and watching his beloved Dallas Cowboys.

Monday, February 16, 2009

Enforcing Jim Crow

Jeff Jacoby has a concise but detailed recounting of the fact that Jim Crow laws in the segregated South were the creation of governments.