Are taxes a giving or a taking? Since individuals who earn less than $9350 ($18,700 for couples) are exempt, taxes might be regarded as a way of sharing one’s good fortune and participating in American self-government. But many resent taxes and call them confiscatory. “If I wanted to give to charity,” they say, “I would donate. If it’s compelled, it’s not charity.”
But how big is the gap between charity and taxes? Our tax law recognizes a link between them. Within limits, a proportion of charitable contributions can be deducted from taxes. Charity and taxes both channel help to others. Psychologists call the sentiment behind this provision “inequity aversion.” That is, we prefer fairness. People understand that excessive disparity in wealth can injure the social fabric. Indeed, patterns in philanthropy, supported by experiments in neurology, indicate that many, not only the wealthy, find pleasure in lessening the hardship of others. Elizabeth Tricomi shows that those having more wealth prefer cash transfers to others. But those with less prefer transfers to themselves. Whatever increases the gap in wealth, they judge as bad.
Whether the transfers are voluntary or compulsory can also make a difference. The neurologist Robert Sapolsky reports that paying when required and giving voluntarily release different levels of dopaminergic energy, which indicates the experience of pleasure (Sapolsky, Behave, 549-50). Similarly, as James Sonne and Don Gash observe, the same regions of the brain are strongly activated in those who would typically favor helping in a broad range of circumstances and muted in those for whom perception of the need to help others is desensitized. If these varied responses can be measured in the same regions of the brain, they occur on a spectrum. We must be careful though. Not all differences in political temperament relate to one another on a single line. When confronted by morally based dilemmas (e.g. to share or not to share), the first reaction in more conservative people occurs in the amygdala, in those of more liberal bent, in the ACC (anterior cingulate cortex). These are different regions of the brain where different processes occur—not a continuum. Sonne and Gash, p. 4a, citing Kanai et al (2011) and Schreiber et al (2013).
Widespread contrasts in linguistic usage also reflect these differences. In French, taxpayers are called contribuables. The linguistic overtones apply equally to contributions and taxes. Taxes, though, are still called “impositions” (impôts). In English, “taxpayer,” which is constructed like the German Steuerzahler, underlines the obligation. The French implies a basis in sharing, participating.
If we call taxpayers “participants,” we change the way we refer to our actions as citizens and accentuate our mutual support. There is a similar range of meanings with reference to the military. One “serves” or one “fights” in the armed forces. And just as American soldiers leave no one behind, so we civilians, as citizens, should leave no one behind. We are ready to fight, to come to the rescue, to feed the hungry and shelter the homeless. Taxpayers also vary in how much they approve what the taxes are spent on: arms, infrastructure, debt reduction, welfare. Even a term like “welfare” carries various connotations. To some it means “entitlement,” to others “safety net.” This difference sharply divides our political parties. In October, 2017, three times as many Democrats as Republicans felt “the government should do more to help the needy, even if it means going deeper into debt.”
What would happen if each “participant” could choose the percentage of his or her taxes devoted to different government activities: defense, law enforcement, infrastructure, environmental protection, welfare, schools, scientific research, national parks and monuments, foreign aid, debt reduction? Could the government function? Or are we better off delegating these budgetary decisions to our representatives whose job is to understand the complex whole and to spend money for the common good? Reality falls short of this ideal but we should not abandon the principle.
As the Center on Budget and Policy Priorities puts it, we must “determine whether the actual public services that government provides are valuable. To the extent that such services are worth paying for, the only way to do so is ultimately with tax revenue.” Conservatives express caution on this subject. J. D. Foster of the U. S. Chamber of Commerce warns we should price that support accurately so that expenditures do not outrun revenues. If we incur too much debt, eventually we may lose the ability to respond as we wish to urgent or long-term needs. Although politicians can be self-serving or corrupted by outside enticements, the principle still holds.
Because we each have different perspectives, setting priorities can be difficult. The Business Round Table, a group of leading CEOs, proposes a “partnership” between private enterprise with its access to capital, government with its scale and ability to fund long-term projects that are not initially profitable, and nonprofit organizations for their ability to identify needs. Among non-profits, I would specify universities (public and private) for their ability to pursue leads wherever they go and draw evidence-based conclusions. If this balance seems utopian, we are a free people, and the means we use to resolve these differences are political. (“Political” is a good word. Political life is an attribute of freedom. Where there is no freedom, there is no politics. I’ll take politics over despotism, plutocracy, or theocracy any time!)
In examining the difference between charity and taxes, it’s vital to note that not all charitable contributions are the same. When donations are very large, they are not un-democratic, but supra-democratic. Some foundations, think-tanks or research projects have agendas determined by their donors independent of the democratic process. Government grants, by contrast, are voted by Congress or by commissions set up by our representatives. The democratic origins of government funding contrasts with the independent, individual character of private philanthropy. I would not wish to do away with either, but the possibility of abuse at either extreme should be noted. There is great variation in the degree to which they benefit the citizenry or the world at large.
The purview of our representatives in Congress is extremely broad. Not all politicians and not all their constituents rank the competing budgetary needs the same way, but there are certain priorities. A democratic nation must compel what is required for the defense of self-government. The government should neither disproportionately appropriate private wealth nor stifle individual charity. But we must also distinguish charitable donations from funds that distort democratic deliberation, whether in legislation or elections. If the majority rules and we have elected representatives who deliberate for the common good (not the short-term benefit of their largest backers), then paying taxes is contributing to the general welfare on a scale not possible through individuals donating to charities. To the extent that the representatives are truly representative, the grounds for complaint and the gap between charity and taxation diminish. Charity and taxes fit within a system of caring simultaneously for ourselves and others.
Even though I am far from being super-rich, with just a little more money than I used to have I am getting a first-hand glimpse of the fact that taxes are remarkably duck-able… for the people who are even slightly better off.
Here’s an example: It’s a lucky thing for any member of the middle class to have money to spare to put into a diversified mutual fund. But if you have more you can get access to “separately managed accounts” instead. These are collections of investments the way mutual funds are, except that you can buy and sell individual equities in the collection. (That way you can do more socially responsible investing, like refusing to own stock in a company that does harm or going out of your way to own stock in a company whose mission you approve of. The impact of those choices is a topic for another time.) But the main benefit is that you can engage in “tax harvesting” — sell a losing stock at the right time to offset the gains on a winning stock, so you pay no capital gains tax on the latter. You can’t do that in a mutual fund.
I get it how that’s a combination of good fortune and business. Nobody would refuse the capital-gains-tax exemption on the sale of their home, right? It’s worth about .3 to .4 of $250K per owner. (In other words, that deduction can potentially save each owner some $75K in capital gains tax.) That being the case, would you say “Oh, no, I insist on handing over to the government $75,000 from the proceeds of my house sale….”?
But at the same time, how hypocritical is it to favor higher taxes for the wealthy and then pay experts to help duck having that very principle apply to me!? When I say this out loud my “money people” look at me like I have two heads.
This alters the “compulsory/voluntary” framing in important ways. I have much wealthier friends who talk about just those choices. Quite without irony they explain how they simultaneously (1) support graduated taxation and a wealth tax, (2) avoid taxes and (3) donate to worthy causes. The argument goes something like, “Yes, we need government and yet the government spends money poorly and my charities are worthier recipients.”
I am simultaneously tempted and repulsed by this argument. We all agree that we want the roads maintained and the bridges not to fall down. What if the choice is between badly managed funding for road maintenance and no funding for road maintenance? I wonder if “I’m not putting my money in a badly managed pot” isn’t a reasonable-sounding way to get out of the whole thing. In any case, it’s too binary. I think I need to put a fair chunk of my money into the pot AND pay attention to the political system behind how that money is managed. When I give to charity I need to pay attention to how that is managed, too.
The point is, the “compulsory/voluntary” argument is too binary as well. For the people whose resources are sufficient to do a lot of good, paying taxes is more discretionary than you might realize and, to that extent, it becomes largesse, like philanthropy. At the same time, our entire system relies on philanthropy to the extent that society would crumble without it — which makes philanthropy not merely largesse.
It turns out, both taxation and philanthropy are simultaneously: a choice and required, largesse and a responsibility, a luxury and a necessity. They are also forms of participation and thus instruments of influence. As I contemplate my new choices I find that “which pot should I put my money in?” comes down to “how do I want to use my participation and my influence?”
Like any complex behavior, the propensity for charitable giving exists along a spectrum. That, or any, propensity is informed by inputs from multiple systems that all play different roles in preferencing the different possibilities that ultimately dictate (I would say deterministically) the final behavioral output (i.e. to give or not to give). Some inputs may be internal, such as genes or brain structure, and some may be external, such as environmental factors and social considerations. All behavioral output is the summation of a complex network of thousands, perhaps millions of inputs that finally converge on a single circuit.
Thanks for the great perspective!