Tyler Cowen, Unplugged

There's a bit of a strawman there... Romania implemented a flat tax system (16%) with positive results but it kept the tax-except status of non-profits.

If certain institutions are tax-excepted then any further discussion on taxation (flat percentage vs. flat nominal value vs. progressive) doesn't concern them.

Gabriel, I'm guessing that Cowen would say that such a system wouldn't be "truly" flat.

Cowen's endorsement of tax preferences for art-related nonprofits assumes away the most difficult question: how do we define "nonprofit charity" in a way that only subsidizes truly charitable groups? Today, the federal tax code subsidizes many groups that are questionably charitable at best:

"Nonprofit human services groups receive just 6.5 percent of charity revenue, while scientific research, civil rights, and environmental quality groups receive less than one percent each. In contrast, hospitals and universities, which are not primarily charitable organizations, receive nearly 57 percent of charity revenues."

http://www.taxfoundation.org/publications/show/1191.html

Perhaps a more democratically transparent and better-targeted method of subsidizing arts organizations is with direct spending programs, rather than the blunt instrument of the federal income tax code, which ends up subsidizing many non-charities as well as charitable groups at taxpayer expense.

That's and interesting study, but I think it overstates it's point. For example, the report says that university research is not a public good, but clearly it is to a large degree. There are also important public good aspects to hospitals, art museums, etc.

The idea that organizations somehow fail a test by being "not primarily charitable organizations" is flawed to begin with -- healing poor sick children is the primary use of my donations to my local children's hospital. Because most of the children they treat can pay, they are less worthy? Furthermore, the idea that direct spending programs would be more "democratically transparent and better-targeted" seems to me to translate to the idea that other people will get to decide to spend my art dollars on Piss Christ, my education dollars on self-esteem programs and my money for the poor on subsidized housing that profits the fat cat real estate developers. I don't see any evidence that the government has better incentives to spend this money wisely than the donors themselves.

I'd like to know the charitable purpose of Harvard's $20 billion+ endowment while it's charging students $40k a year tuition.