Wednesday, December 19, 2012

A Proposed Cato Fund Raising Letter

Yesterday, I commented on senior Cato fellow Daniel Mitchell's call for the elimination of the tax deduction for charitable giving.

In a column at LRC, Gary North highlights some of the stated reasoning behind Mitchell's proposal:
[Mitchell] says that charitable giving remains at 2% of gross income, no matter what the policy[...]

His argument is clear: marginal tax rates have no effect on giving. None.

Let’s think about this claim. At a top bracket rate of 36%, for every dollar donated, Uncle Sam leaves 36 cents on the table. Mitchell says that it will not affect giving by adding 36% to the cost of giving by the rich.

In short, all modern economic theory is wrong. At 36% more costly, the same amount of charitable giving will occur.

Put differently, price is irrelevant to the rich. He is quite open about this.

These are people who can not only afford to give up the tax break, they would very likely give to charity without the deduction. They would still face tremendous cultural pressure to write charitable checks, as well as the prompting of their own conscience. Besides, many of them would still get nice perks for doing good–like seats at the opera or buildings named after them.
North then goes on to design a fund raising letter for Cato aimed at the billionaire Cato supporters David and Charles Koch, that falls in line with Mitchell's thinking.

David and Charles Koch
Somewhere, USA
Dear David and Charles:
Enclosed is a copy of a recent article by one of our fellows. It argues that rich people are economic ignoramuses. They do not respond to price changes. It states emphatically that if you and your peers have the tax deduction removed, you will still give as much money as before.
So, if the deduction is removed, as Dr. Mitchell recommends, we here at Cato expect that you will still send us as much money as you did before the deduction was removed.
 Actually, we will need a bit more. Donors who are not fat cats like you will probably cut back on their giving. They respond to price changes. But you two won’t. Dr. Mitchell has the evidence. You don’t want to argue with evidence. That’s what scientific economics is all about. We here at Cato are nothing if not scientific.
Just to show that we are confident that you will still send as much money as before, we are tossing in some opera tickets. 
Sincerely yours,
The Cato Fund-Raising Staff

They don't call North a marketing genius for nothing.

1 comment:

  1. Why the focus on whether or not charities will suffer? Let's not forget that rich entrepreneurs are the best allocators of capital too. Cato and churches may well get the almost the same donations every year, but who will fund a transccontinental hovercraft system in 2030 if successful people are bled dry by the voracious tax monster?