The Foundation for Economic Education (FEE), in today's online edition makes the case that charity can replace taxation altogether in the provision of charitable goods and services -- in this case, health care and education to the poor.  Here are the salient points of the argument along with my counterpoints:   

However, is publicization (of health care and education) through state activity the only or best way to provide those services to the poor? Do we have alternatives? How about charity? Couldn’t charity replace taxation?   It could—and with solid advantages.  There are four main reasons why this is the case: moral, political, financial, and psychological 

1.  The Moral Case.   Are taxes so different from charity? Well, pulling out our wallet to donate money to a non-government organization (responsible for offering health or education) is different than opening our pockets for the revenue guys who threaten us: “If you don’t pay your taxes, you will end up in prison!” We have here a strong moral difference between a forced act and a voluntary act: taxation is coercion, while charity is benevolence.

In fact, rich countries that adhere to a welfare state model and (of course) high taxation are not the most generous ones. According to rankings from the Organization for Economic Cooperation and Development (OECD), France has the highest tax-to-GDP ratio in the world (46.2 percent), followed by Denmark (46 percent) and Belgium (44.6 percent).  When we check the Charities Aid Foundation (CAF) World Giving Index, France is 72nd on the list of generosity, Denmark is 24th, and Belgium is 39th. On the other hand, Ireland’s tax-to-GDP ratio is 22.8 percent, and the United States is 27.1 percent. Ireland is fifth on the CAF World Giving Index, and the United States is fourth. Interesting, isn’t it?

Editor's response:  Maybe those who live in welfare states confidently expect that the state will take care of all health and education needs and thus feel no compunction to donate.  Ever think of that!?

2.  The Political Case.   There is an enormous risk in allowing the expansion of the state's forces, even when we are talking about areas as important as health care and education. Public education opens a highway to the imposition of cultural hegemony through indoctrination. If education is provided by several independent entities (sponsored by charity), it is harder to control it. The government gains the power to tell us what to eat and drink, how to ride or drive, what we can do or not, and more.  But when education is centralized in the state’s hands (afforded by taxes), it easily becomes an ideological apparatus, making the dreams of Antonio Gramsci and Louis Althusser come true.  Once public forces take the responsibility for providing health care, life is made subject to explicit calculations of state power, featuring what Michel Foucault and Giorgio Agamben called biopower or biopolitics: Life itself becomes an object of concern for power. As a result, individuals see the demise of any boundaries against public intervention in their lives. The government gains the power to tell us what to eat and drink, how to ride or drive, what we can do or not, and more.

Editor's response:  Now this might be a legitimate point but only for a small group.  There are a plenty of schools, a distinct minority to be sure,  that do not accept any federal funding "in order to preserve their liberty and independence . . . Government aid comes with government strings, whether it goes directly to a school or directly to its students. To avoid these strings, a school must decline aid both to itself and to its students. That is, it must decline to participate in government-sponsored student loan and grant programs.  Most of the schools on the list refuse not only federal but also state and local government aid."  But this small minority of schools hardly proves that the majority would forego taxpayer support in exchange for "liberty and independence" made possible by charitable donations.  For their part, hospitals are regulated in all sorts of ways, and not just in exchange for accepting medicare or medicaid payments.  They might eschew government financial support but health and safety concerns will always justify their lack of "liberty and independence."  

3.  The Financial Case. We will set here an audacious premise: Private entities sponsored by charity are normally more effective (they are cheaper or have a better cost-benefit profile) than public entities. They can do the same with fewer resources.  For example, in Brazil, we have public and private universities. Research shows that a student in a Brazilian private university costs 60 percent less than in a public university. Maybe poor countries could do more with less money if they invested in the private sector and thought about how to promote charity instead of relying only on public services and taxation.  Perhaps if the government demanded less (coercively), people would give more voluntarily.  The 2016 IUPUI survey asked wealthy people what they would do if taxes were eliminated. What do you think they said? Seventeen percent indicated they would increase the amount they give to charity, and 6 percent said they would dramatically increase (72 percent would stay the same, and just 5 percent would reduce the contribution). In 2013, the figures were even more in favor of charity: 47 percent would stay the same, 31 percent would increase, and 18 percent would dramatically increase.  Considering this—rich people would give more money and we can do more with less (investing the money donated in the private sector)—why can't we believe charity is a financially feasible alternative? As a famous politician’s slogan goes: Yes, we can!

Editor's response:  I almost stopped at the assertion that private charitable entities are cheaper and have better cost-benefit profiles.  We are talking about education and health care remember.  Private universities, at least in the United States, are pretty much out of reach for even upper middle class students without tax payer funding.  The people who cannot afford private schools can generally afford public schools.  Second, private charitable hospitals are just as expensive, if not more than for-profit hospitals.  And with the meshing of patient payment options, I am not sure there is any real price differentials between charitable and non-charitable hospitals.  See this post and this post from last week.  

4.  [The Psychological Case]  Several social psychologists, among them Elizabeth Dunn, argue that people who give money to charity are happier than those who don’t. And we can see the benefits of giving spike when people feel a real sense of connection to those they are helping and can easily envision the difference they are making in those individuals’ lives.  For example, UNICEF is such a big, broad charity (doesn’t it resemble the state?) that it can be hard to realize how our small donation will make a difference. What’s the matter? The  emotional return on investment is eliminated when people give money to UNICEF (imagine what happens when we “give” the money to the state). This suggests that just giving money to a worthwhile charity (or to the Leviathan) isn’t enough. We need to be able to envision how exactly our money is going to make a difference.  One could say we need to find a way to show the results of tax collection and make the state better at providing public services.  The IUPUI survey confirms this statement. Discussing the motivations for charitable giving, donors provided three main reasons: (1) they believed in the mission of the organization (54 percent); (2) they  believed their gift could make a difference (44 percent); (3) for personal satisfaction, enjoyment, or fulfillment (38 percent).  Furthermore, the study showed that people have the most confidence in individuals (87 percent reported either “some” or “a great deal”) and nonprofit organizations (86 percent reported “some” or “a great deal”) to solve societal or global problems. Sizeable proportions of interviewers held “hardly any” confidence in the legislative branch (58 percent), the executive branch (46 percent), and state or local governments (41 percent).  One could say we need to find a way to show the results of tax collection and make the state better at providing public services (in a cost-benefit analysis). Well, even with these improvements, what about the moral plea? Will we keep acting by force? And if one thinks people pay taxes voluntarily, what about the political plea? Will we keep making room for interventionism? Even though taxes defenders refuse to admit it, these questions remain without satisfactory answers.

Editor's response:  Hmmmmmm.  So people would be happier giving to charities because they could more easily track the use of their charitable dollars than they can with forced extractions through taxation.  Ok, so Hansmann's market failure theory to explain the nonprofit firm works to explain why some nonprofits are patronized even though the resulting public good may be incapable of measurement.  Does this mean we would end up having more willing donors than reluctant taxpayers though.  Free rider much?

This article is probably . . . well, a waste of time on a slow news day.  Or am I being too harsh?


Darryll K. Jones