MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Posts Tagged ‘Charity’

Charity: Should You Donate Aid to Japan?

Wednesday, March 16th, 2011

We have all seen the horrifying pictures from the quake and tsunami in Japan. Many affluent individuals are wondering whether it is a good idea to donate money to Japan helping out the victims.

Felix Salmon, a blogger at Reuters, says no: His main argument is that Japan is a wealthy nation and there are other, better causes on which the money would be much more effectively spent even though these causes get less public attention.

Tyler Cowen, an economics professor and blogger, says yes. He argues that with Japan the chance that the funds are usefully deployed are much higher than normally with aid. He also adds that it is not realistic to expect that people will donate to another cause instead of donating to Japan.

Both sides make valid points. On balance, I think Tyler Cowen’s point that people won’t give to a substitute makes the strongest argument.


Responsible Wealth vs. Responsible Spending

Monday, February 8th, 2010

A friend of mine has drawn my attention to an initiative called „Responsible Wealth”. It aims at the top 5% of income or wealth in the US that “care about economic justice” and asks them to donate some or all of the tax savings from the tax cuts of the Bush and Clinton administration to “tax fairness organizing”. This raises the question if the top 5% do not already pay a fair share of taxes already? To assess this question I looked at data of the Internal Revenue Service (IRS) to get a better idea of the role of the Top 5% in income generation and tax payments:

As it turns out in 2007, the top 5 percent of tax payers earned 37.4 % of adjusted gross income paid 60.6 % of all federal individual income taxes. In comparison to 1992 (when Clinton came in office) the Top 5% had a share of 28% of the total adjusted gross income and a share of 45,9% of all federal income tax. No shift in the relation between share of total gross income and share of tax paid during the Clinton/Bush era. Just for comparison: The bottom 50% of adjusted gross income in 2007 had a group share of 2.9% of income tax.

While “fairness” is always in the eye of the beholder and one can always argue about the “fairness” of single cases and tax cuts I do not see the overall point of the Responsible Wealth Initiative. If the top 5% of the taxpayers account for 60% of all tax payments and the bottom 50% for 2.89% I find it hard to argue that the wealthy do not already “care about economic justice”. Even more so when taking into account that the wealthy in the US spend each year between 2-3% of their investable assets for charity.

I fully agree that the living conditions of the poor can and should be improved, but for me it isn’t a matter of the wealthy being irresponsible, but instead, a matter of the government spending their huge amount of tax money responsibly. The solution to take more and more money from those who generate economic development in order to increase public spending and improve ecomomy is too populist and shortsighted. It would be much more useful for this purpose to demand more effective investments of tax receipts by limiting the influence of lobby groups, streamlining bureaucracy and thinking beyond the next election day.


Is Philantropy Politically Incorrect?

Sunday, August 2nd, 2009

Traditionally the US government has encouraged charity by exempting donated Dollars from income tax. Yet in February the Obama administration has proposed to reduce the charitable tax deduction for the highest two income brackets by as much as 30%. The economist Martin Feldstein has calculated “thatPresident Obama’s proposal to limit the tax deductibility of charitable contributions would effectively transfer more than $7 billion a year from the nation’s charitable institutions to the federal government”.  Feldstein has also estimated the impact of the tax increase on the overall amount of charitable spending. He suggests that spending could decrease by 10%.

Increasing tax on philantropy is one thing. But there are other assaults on charitable organizations. David Billet writes in Commentary Magazine:

“The most notable campaign against the philanthropic status quo has been waged by the California-based Greenlining Institute, a nonprofit that seeks greater “racial and economic justice” by attempting to force greater minority representation in government, commerce, and higher education, mostly by publicly shaming or suing companies into doing the right thing… After a Greenlining study found that a mere 3 percent of private grant money in California went to minority-led causes, the group waged a concerted campaign on behalf of state legislation to require foundations with assets over $250 million to disclose the race, gender, and ethnicity of board members, staff, business contacts, and individual grantees (at one point sexual orientation was also included), and to report the amount and percentage of grants to organizations in which 50 percent or more of board members and staff were minorities.”

It seems that there is a line of thinking in the government that charitable tasks are the responsibility of the government and that private organizations have no right to play a role in the area of social justice. At least, the role of private organizations, charities and philantropic societies must be controlled and regulated by the government. Tax policy is only one means to do that.

What do you think? Should the government monitor charities more closely and tax the wealthy contributors more heavily? Comments are open.