Taxation or Donation?

One of the visiting students I met over the weekend said that Friday had been his first time on a plane. Harvard, like a number of other institutions, sponsors a program to allow low-income students to travel here for Visitas without paying out-of-pocket. This is one of the initiatives improving diversity at Harvard, paid for by donors like Kenneth Griffin ’89, who, earlier this year, announced a $150 million donation to the school, much of it earmarked for financial aid.

Without diminishing Mr. Griffin’s largesse, one of the structural factors that makes this donation possible is the longstanding preference in the tax code for charitable gifts that allows them to be tax-deductible. In effect, donors can redirect money away from the general federal budget and towards the causes or religious organizations that they support.

This preference, designed to spur American generosity, also speaks to the small-government ideal that average citizens might know how to spend their money better than elected officials, and that civil society can step it up to support its most vulnerable members. This is a narrative very appealing to many, including me. But it doesn’t always hold true.

Less than two years ago, hedge fund billionaire and Harvard Business School alum John Paulson ‘80 announced a $100 million donation to the Central Park Conservancy in New York City. Some of his other donations include $50,000 to the American Museum of Natural History on Central Park West, and more than $11 million to The Spence School, a private school, which, among other things, is notable for helping to inspire Gossip Girl, an American cultural treasure and hit television show.

No one can deny that funding parks and recreation is important, and I’m sure Mr. Paulson will appreciate the improved view.  Paulson has also made a number of donations, usually between $5,000 and $50,000, to community development organizations such as the Legal Aid Society.

But when adjusting for dollar value, many of the Paulson Family Foundation’s donations have gone towards causes that seem to benefit the Paulson Family. At least one of Paulson’s children has attended the Spence School, and other donations, like $50,000 to the ballet, go towards organizations he patronizes and which conveniently buy him some cultural capital, or at least, open the door for putting his name on a building somewhere.

The Spence School has 725 students, while the Legal Aid Society handles nearly 300,000 cases annually. According to the Deworm the World Initiative, which has been consistently named one of top charity rating service GiveWell’s top charities, there are hundreds of millions of children worldwide infected with parasitic worms and schistosomes, and many more at risk for infection. Each can be cured for less than $0.50. Even if the Paulson Family Foundation wants to focus on local issues, one in five children in NYC faces food insecurity. But the mitigation of human suffering doesn’t appear to be the first priority for the Foundation.

If taxes were really lowered, and ‘civil society’ were allowed to work its magic, would America’s poor and middle class really be better off? Or would more and more wealth flow to institutions catering to the elite, such as Harvard and the New York Ballet? From the behavior of donors like Paulson, it seems that social welfare programs might fall by the wayside if donors from the 1% were in the driver’s seat.

A study earlier this year looked at 288 Fortune 500 companies, and found that 26 of them paid no federal income taxes between 2008-2012, and 111 of the companies paid no federal income tax in at least one of those years. Meanwhile, tax code provisions that target the rich, such as preferences for capital gains, are reducing the tax rate that wealthy individuals pay. And the seemingly inexorable march towards wealth inequality continues.

And even if some of this money is flowing towards NGOs, it’s unclear if it’s being spent better than it would’ve been had the government administered the spending. In our excitement to run and praise the non-profit organizations and ‘social enterprises’ that work well, we sometimes forget that we are stepping over the graves of many more that have failed, unnoticed. For every Tesla that rolls off the lot, there’s a Chevy Volt sitting in a junkyard, or a concept that cost nearly a billion dollars without having been reified.

Many of the government programs reviewed in this column don’t work as well as they should. But it would be simplistic to say that this means government inherently doesn’t work. Rather, it’s a testament to the intractability of social ills that makes nuanced design and continued reevaluation critical for any program, whether housed in government, the private sector, or a non-profit. After all, there are no quick fixes.

Faheem Zaman ’16, a social studies and applied mathematics concentrator, lives in Pforzheimer House. His column usually appears on alternate Wednesdays.