Obama Ignores His Tocqueville

In his 1835 masterpiece, Democracy in America , Alexis de Tocqueville, reported on his observations of the American scene after an extensive tour of the new Republic. One of his most profound insights had to do with the genius of Americans in the formation of institutions that mediate between large, distant government and the solitary, insular individual:

Americans of all ages, all conditions, and all dispositions constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds, religious, moral serious, futile, general or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; in this manner they found hospitals, prisons, and schools. If it is proposed to inculcate some truth or to foster some feeling by the encouragement of a great example, they form a society. Whenever at the head of some new undertaking you see the government in France, or a man of rank in England, in the United States you will be sure to find an association.

Americans in the 20th and 21st centuries will recognize this phenomenon whether it be in their own participation in the American Lung Association, Lion’s Club, PTO, Red Cross, Salvation Army or the Nature Conservancy (TNC).

Indeed, the TNC is the largest land conservancy or trust in the world. It is also emblematic of a tremendous movement in the United States today. According to the Land Trust Alliance, the land trust movement doubled in size between 2000 and 2005, in both number of organizations and acres of land protected. Today, private philanthropic dollars protect an area 16 and a half times the size of Yellowstone National Park.

Unfortunately, the Obama administration is on the brink of un-doing this private sector success story, along with even more important work done by educational, religious, health, cultural and social welfare organizations dependent on private philanthropy.

Writing in Wednesday’s Washington Post ("A Deduction From Charity "), Martin Feldstein, the estimable professor of economics at Harvard and president emeritus of the National Bureau of Economic Research, described the magnitude of the change proposed in President Obama’s plan to limit the tax deductibility of charitable contributions.

Basically, the proposal will "effectively transfer more than $7 billion a year from the nation’s charitable institutions to the federal government."

Moreover, the high-income taxpayers who are the supposed target of this measure "are likely to cut their charitable giving by as much as the increase in their tax bills, which would, ironically, leave their remaining income and personal consumption unchanged."

The Center on Philanthropy at Indiana University predicts a decline in giving of 2.1 percent, with donations by the highest-income households reducing their giving by 4.8 percent or $3.87 billion.

"In effect, the change would be a tax on the charities, reducing their receipts by a dollar for every dollar of extra revenue the government collects," says a mystified Professor Feldstein. "I suspect that the administration officials who drafted this proposal did not understand that it would have this perverse effect."

Neither does President Obama. In his press conference this week, he claimed, "I mean, if you look at the evidence — there’s very little evidence that this has a significant impact on charitable giving."

The new tax change would apply to those undeserving married couples earning more than $250,000 (and single people earning more than $200,000). You know who you are.

As Feldstein explains, a high-end earner paying a 35 percent marginal tax rate now lowers his or her tax bill by 35 cents on every dollar contributed to a charitable organization. Evidently, the economic literature indicates that, on average, every 10 percent reduction in the cost of giving raises the amount that a person gives by about an equal percentage. So, again, the high earner increases his or her donation by 35 percent, given a 35 percent deduction.

The kill-joys at the White House and Treasury would limit the amount the high-income earners can deduct to 28 percent. "This raises the cost per dollar of giving from 65 cents to 72 cents" or 10.8 percent, thereby reducing total giving by such donors by nearly 10 percent.

Feldstein plays around with the numbers to show how this all works out in practice to the detriment of the prospective charity that is dependent on voluntary donations. He calculates that by 2011, the year the Obama administration plans to implement this new tax rule, private giving would decline by more than $7 billion. And this is on top of the losses sustained by most charities due to a collapsing stock portfolio.

Feldstein, a world-class economist sticks to his knitting — to a fault. He does not raise the fundamental philosophic question that should also be part of this debate over the tax code and private charity. Specifically, how do we as a nation weigh the balance between a free and independent society and culture versus an ever-growing, interventionist government that now intrudes into every aspect of private existence and, most notably, the economy?

Tocqueville prized America’s preference for voluntary associations because it provided a balance, a corrective to overweening government and allowed for the attainment of common goals through the collaboration and hard work of private individuals, families, and communities, free to pursue their own vision of the good life. Government was a necessary, but hardly sufficient condition for the good life.

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  • c-kingsley

    … says a mystified Professor Feldstein, “I suspect that the administration officials who drafted this proposal did not understand that it would have this perverse effect.”

    I suspect they intended this “perverse effect.” As far as I can tell, a statist wants to be the charity to end all charities. Need a place to live? There’s a government program for you! Hungry? There’s a government program for you! Need an education? There’s a government program for you! Sick? There’s a government program for you!

    “… That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.”? Nah! WE make governments to take care of the people, because they can’t do it for themselves.

    Private charities compete with the government, and give people some other place to go. Statists don’t like that kind of competition. Look how they fight private schooling. The D.C. voucher program has been ended. They’re fighting Catholic health care — threatening the right of doctors to refuse to perform abortions.

    This is just a quick way to harass all the charities in one easy step.

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