Thursday, May 30, 2013

Nobody rides for free: Michael Grunwald, NPOs, and broken clocks

Michael Grunwald is a skilled writer and investigative reporter. Let's stipulate both of these things from the beginning. But neither one means Grunwald's own opinions on politics or anything else are  necessarily well-informed, much less automatically correct. I've taken Grunwald to task here twice before: once for his economic ignorance and once for his rather pathetic and ill-informed defense of the Solyndra loan. With regard to the first--the "economic ignorance"--Grunwald had written a book (The New New Deal: The Hidden Story of Change in the Obama Era) that was basically an attempt to justify the Obama Administration's Stimulus Bill. Fellow journalists on the left were quick to praise Grunwald's analysis because--like Grunwald--they really don't understand economics, or at least those aspects of economic theory that come into play when discussing the Stimulus Bill.

Today, Grunwald has a new piece out at Time's Swampland wherein he argues for getting rid of tax-exampt statuses for charities across the board, as well as tax deductions for charitable contributions. But before I get in to congratulating him for being 100% right in this regard, I first need to point out his inconsistency on the matter. For when Grunwald jumps to the defense of the Stimulus Bill--either in a book or in an article--he is quick to point out how a good portion of the bill was devoted deductions and tax breaks:
Most of the Recovery Act consisted of straightforward aid to states and to the vulnerable, infrastructure spending, and tax cuts.
And as Grunwald makes very clear, the Stimulus Bill--in his mind--was undoubtedly a Good Thing. True, he wanted it to be bigger, like the other neo-Keynesians out there, but he takes it as a given that the bill did stimulate the economy, did jumpstart a recovery, and did prevent a depression. Quote obviously, all of those tax breaks in the bill played a huge role in this regard (if one accepts his kind of thinking, which of course I don't).

So one can't help but wonder where the logical consistency is in Grunwald's mind with his new call to get rid of all kinds of tax breaks. Note how he characterizes charitable deductions:
But as long as I’m using my chain saw, the charitable deduction, which costs the Treasury nearly $50 billion a year, is another perk for folks who want hospital wings in their name. You can’t take advantage unless you’re rich enough to itemize. The higher your tax bracket, the more you benefit from the deduction.
See that? According to Grunwald, such deductions cost the government money, meaning the money belongs to them first, the individual second. And if such deductions did not exist, introducing them would necessarily result in economic stimulus, by his way of thinking. The lack of intellectual rigor is staggering.

I could go on and on, but as I noted above part of the raison d'ĂȘtre for this bit is to congratulate Grunwald for getting something right. And what does he have right? It's the central premise of his piece: we need to get rid of tax exempt statuses across the board. Charitable deductions on income tax returns can go, too.

But these things don't need to go because they cost the Treasury--and therefore the Federal Government--money. Because they don't. Such claims are based on a static view of reality, on the idea that if there were no tax exempt orgs, the current ones would have the same structures, assets, and potentially taxable events. No, the reason why these things need to go is because they are wrong, end of story. It doesn't matter if the government ends up with less revenue or more from such changes, wrong is still wrong.

Grunwald specifies some tax-exempt orgs in his piece (my boldface):
In 2012, the U.S. had 1,616,053 tax-exempt organizations, 10 times the number of fast-food restaurants. Harvard University is tax exempt even though it has a $31 billion endowment; it’s basically a huge hedge fund with a lucrative merchandising operation attached to a school. The NFL is also tax exempt, to help its owners keep more of their profits away from Uncle Sam. The Prostate Cancer Fondation doesn’t pay taxes either, although it did pay its CEO $1.2 million. You may or may not like the Heritage Foundation or Planned Parenthood, the Chamber of Commerce or the AFL-CIO, the Boy Scouts or the NCAA. But the tax dollars you send to Washington help ensure that none of those groups has to send any tax dollars to Washington.
The last line is undoubtedly true. Look at the orgs he mentions. They are big money businesses. And like any other business, corporation, or citizen they utilize public resources and infrastructure. They should be on the hook for taxes--to fund resources and infrastructure--just like the rest of the country. Churches and other religious orgs are in the same boat. Proponents of tax exempt statuses argue that forcing theses orgs to pay taxes will limit what they can do or even cause them to go under.

So what?

Why should my tax dollars subsidize resources used by, say, the NFL? Or the American Cancer Society? Or the Catholic Church? And if taking away the tax deductions for charitable contributions causes me to lower my contributions, what does that really say about me as a person?

This kind of nonsense--the creation of special tax loopholes, exemptions, and deductions--is part of why we have a skyrocketing debt, true. Getting rid of all the nonsense might possibly increase revenues (though it might not), true. But the fact of the matter is that taxes are not supposed to be monies paid in tribute to the government, but rather monies paid for services--or potential services--rendered. As I explained in the piece linked to above:
Taxation has a simple goal: to fund the government. And it is based--in nations founded on a social compact theory--on a simple standard: pay for service rendered. Taxation is not tribute. Taxation is not punishment. Citizens pay taxes because the government serves their interests, provides security, and manages the laws and rules of society. That's all there is, there isn't anymore.
This is the foundation of the social contract theory of government; government must be funded to work and everyone who is a part of the society being governed is obligated to pay their fair share. No one--no group, no org, no company--is special; none should be above the law or this simple requirement. Nobody rides for free. So yeah, Grunwald is right, even if for the wrong reason.

Cheers, all.


  1. I have a problem with the government wanting a cut of what I choose to give to God. But that will fall on them, not me. In a sense, my church facilitates, coordinates, the giving I and my fellows would be doing anyway, and provides a structure that can outlast an individual lifetime.

    But it is quite another matter if you choose to think in terms of services rendered. Then, I hope you will agree, the provider of service must be constrained as to what those services are, and how they shall be apportioned.

    The income tax is wrong. Period. And increasingly over generations our government ignores the document which CREATED it's authority, expanding it's role and the associated cost.

    Originally, the federal debt was apportioned to the states. And this was a mechanism also that curbed spending. A representative from Tennessee would have to justify spending in California when he wished to get reelected.

    Sometimes, if improvement is to be real, there is an order of steps to accomplish. Repeal the 16th Amendment and disembowel the IRS.

    That would be fair, that would be right. Then the church goers would be taxed the same as the atheist, Buddhist, etc.

    Come to think of it, the Amish already provide a working model of an untaxed church. They pay property taxes (for schools none of them ever attend) and sales taxes. It works.

  2. I agree that the income tax is wrong, Roy. But it is the law of the land and the laws and rules around it should be consistent in that regard. And perhaps if this were the case, people might realize that repealing the 16th would be the best move.

  3. Could I borrow your copy of the social contract so I can see what I'm signed up for? I must have lost my copy, and I really don't remember signing it. Was that the thing they took the footprint on when I popped out in the delivery room?

  4. If you prefer to ignore it as a basis, you're free to kowtow, Don. ;)