Why we need to give (a little) more.

While many bridle when the tax bill comes, the US is still perhaps the lowest tax country of the rich industrialized nations according to the Wall Street Journal. And the difference is striking. It’s at least 3-4% of GDP less than countries like Canada and Australia (which are also pretty low) and double digit percentages less than Europe and most other countries to which you’d want to be compared in terms of lifestyle.

If you take that high level figure and consider that a much higher percentage of the money we do collect goes to military spending (which I’m not arguing against), you can see at a high level why the government isn’t able to afford the level of social services that these other countries do. Could we make up for it by running better, more efficient programs? Possibly, but what I think is actually happening here is that we’ve effectively “outsourced” social services to the nonprofit sector. And some support is given to this by the fact that the amount of money in the nonprofit sector at large is tantalizingly close to the difference in taxation.

America is the most generous country in terms of charitable giving. Gifts to charity have amounted to approximately 2% of GDP for the last 40 years according to the Chronicle of Philanthropy. That’s about half the tax gap and when you consider the lost tax revenue of those gifts (since gifts are tax deductible) and the gifts that aren’t reported (in kind, volunteer, etc.), you get to pretty much an exact fit between the US and the next tax tier of nations. Figure in our other budget priorities and we’re still pretty far below.

I realize that spending isn’t a perfect proxy for quality of services. There’s also a big philosophical difference between government-run programs (e.g. service consistency, economies of scale) and individual organizations running programs (e.g. competitive markets, new ideas) and, as I said, there’s always room to do things better. But at a high level we shouldn’t expect comparable services for a fraction of the price tag.

In other news, government at all levels is cutting back or withholding funds normally destined for these programs. Illinois is something of a test case in this, having had no state budget for more than 6 months and one of the worst state fiscal outlooks in the country, but others will follow.

In a bizarre sense, this is something of an opportunity. America’s model of charitable giving can also be seen as sort of an “opt in tax” that also allows the payer/donor to have a say in how funds are spent, something you don’t normally get to do with tax dollars. If we don’t do anything, we could be destined for a social service crisis. If we do, we might take this opportunity to learn more about the organizations working on the causes we care about and step up giving even just a little to cover the gap. A higher level of involvement can be rewarding in many ways and if it creates an effective “market” for services, that could actually be a win.

In any case, we should all try to dig just a little deeper this year. Our fellow Americans really need it.


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