Bryan Caplan  

Why Are Donations to Government So Small?

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My new baby has delayed my intended post on the Matt Zwolinski-Will Wilkinson debate, but late is better than never.  Matt kicked it off:
[W]hile government is, in principle, able to do some good, there are very often (almost always?) superior non-governmental alternatives for better achieving the same end.

I think all of us know this on some level. Even people like Warren Buffett who publicly beg for the government to tax them more. After all, if Buffett really believes that he ought to be paying more taxes, then what's stopping him?

The Federal Government of the United States accepts donations. Seriously. They go right into the general fund, just like your taxes...

Of course, not a lot of people do this. About $3.2 million was given to reduce the debt in 2011, and you can find the (generally much lower) figures for others years here...

Why so little? One possible explanation is that people are selfish - they'd rather spend the money on themselves, and they aren't going to give it away to help others unless they're forced to, as they are in the case of taxes. But this explanation is difficult to square with the large amounts of money that Americans give to charity each year - over $300 billion in 2009, the vast majority of which came from private individuals and bequests, not big corporations looking for a tax break.

So if selfishness isn't the explanation, what is? I suggest the following: most people know that there are better and more efficient ways of using their money to help other people than giving it to government.

Will objects that Matt ignores the obvious Prisoners' Dilemma:

I think this is a pretty lousy argument, and I can't see why libertarians keep making it. I know Matt understands collective action problems in, say, the provision of public goods. So...

Anyway, this could be any question about the rationality of complying with a rule that (1) you support, but (2) will only have its desired effect if general compliance with the rule is high, and (3) you suspect general compliance will not be high...

Will continues:

Matt seems to think there's something significant about the fact that Americans contribute lots of money to charity, but I can't quite see what it is.

I think Matt explained the significance quite well in his original post.  But I think I can make his point even clearer.  Here goes:

"What's stopping Warren Buffett from paying more taxes?" is a red herring.  The fundamental question is: "Why is government's share of the voluntary donations market so damn small?"  All genuinely charitable donations suffer from the Prisoners' Dilemma problem that Will describes.  That's probably a big part of the reason why charity is only a few percent of GDP.  But none of this explains why out of the more $300 billion that Americans give to charity, the American government garners about $3 million.  Despite widespread nationalist and statist sentiments, Uncle Sam's share of the charity market is microscopic - less than .001%.  How very odd.

Suppose you start a new charity to provide free haircuts for hippies.  You only manage to raise the money to pay for three haircuts a year.  The Prisoners' Dilemma might explain why people aren't more generous with their money in general.  But the Prisoners' Dilemma doesn't explain why the other charities raise so much more money than yours.  If you ask "Why don't people give more money to my charity?," the best answer is that people hold your charity in low esteem.  Similarly, if total donations to the U.S. government add up to a few million dollars a year, the best explanation is that people see lots of better ways to spend not just their dollars, but their charitable dollars.

I do wonder, though: Could the U.S. government attract a lot more donations with better marketing?  What if the President spent less time raising money for his campaign and more time raising money for the Treasury?  What if Congress publicly acknowledge the ten biggest donors in an annual ceremony?  I can easily believe that donations to the U.S. government would rise a hundred-fold.  But even then, Uncle Sam's share of national charity would be a mere .1%.


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COMMENTS (36 to date)
david writes:

The Prisoner's Dilemma game varies by public-good cause, surely. Free rider problems grow with N as each individual's marginal contribution becomes a smaller share of revenue.

Worse, suppose one assumes that the private provision of public goods relies on some costly social institution for assuring supply. As N grows large it becomes more plausible that marginal contribution is going to fall faster than the cost of encouraging it.

Regardless, the point that USG social spending is incrementally more egalitarian than private charity is still damning. Government revenue streams are subject to interest-group capture by the popular, but they are still less so than private charity, virtually by definition.

Saturos writes:

Also, in these arguments, we need to clearly distinguish what the money is supposed to be paying for. Is it paying for public goods (which suffer from a free-rider/prisoner's dilemma problem) or for charity (which usually does not). Of course, it is usually both with government (as well as other programs which have no sane rationale at all). But when Wilkinson argues that most of what government does with our taxes has the same logic behind it as the prisoner's dilemma - is he really saying that Bill Gates' charitable giving, rather than being a rational expression of his concern for the utility of Africans, is PD-irrational? That it has no marginal impact? And in the final paragraph, he clearly reveals that he hasn't read Myth of the Rational Voter. A shame.

neal writes:

Saturos is quite right, most government spending is not on PD-type problems:

Healthcare: apart from some public health issues (vaccinations) no PD

Poverty relief: you can argue that you need to act at city level to be effective, but large charities just as able to do this as govt, and this isn't a PD issue, just an economies-of-scale issue as donor doesn't typically benefit

Environment: The classic externality issue, but in fact most environmental protection does not generate substantial externalities which cannot be captured by user fees, voluntary property levies etc. The one big counter example (climate change) is the one that the Us govt is doing little about anyway - because the PD is super-national.

Education: as Caplan shows, +ve externality arguments are massively exaggerated. Education spending at best is a way of making individuals better off.

Foreign Aid: as Saturos says, no PD here except for limited public health issues (e.g. SARS prevention) which represent tiny fraction of AID spending.

[url revised. Please use http, not https, in your urls to assure public access. --Econlib Ed.]

Ari T writes:

Bryan (and also david),

Most people who donate to charity don't really care where their money is going to anyway. I'd guess donating to government isn't as high status as helping starving children.

Why Weak Charity Rules [sic]

You wrote the famous about the famous Irrational Voter. I don't think charities are necessarily any better selected than candidates. Are they not? I'd guess a bit better on the margin.

I'm sure a lot of people think government does a worse job for the buck than charities, which is probably true even if public has an exaggerated belief of inefficiency of government.

Ultimately this won't matter to whether the actions government does are desirable morally and ought to be funded. No ought from is. I'm pretty sure Bryan should agree given his views that Ivory Tower is right most of the time. Even if people cared as much about charity as they care about their investments, it wouldn't be actually that much. A lot of people try to game it, ending up losing to the insiders (nothing wrong with that). Siding with the public won't win the moral battle for you.

Actually productive is to look at say European welfare states, Japan, Hong Kong, Singapore (technocracy, Ivory Towers) et cetera and see what coordination problems they solve that US doesn't. It is easy to believe a lot of coordination problems just get solved if there is no government. It does chime in with libertarian agenda, but reality can be quite different. I'm sure betting would put in more rationality.

And imo. solving coordination problems efficiently is only side of equation to make a great country (or a place to live). I'd quote something from Tyler Cowen about holistic comparisons, when you are dealing with complex systems.

Xerographica writes:

A study by James Andreoni demonstrated that any "crowding out" effect by the government was not actually caused by taxation...but was entirely caused by the non-profits themselves. Non-profits cut back their fundraising efforts when they receive government funding.

What's also interesting is that, according to Andreoni, fundraising is surprisingly profitable...with standard "good" practices, non-profits receive $5 for every $1 they spend on fundraising.

Would taxpayers want government organizations to spend their taxes on fundraising? In a pragmatarian system it would be strange if a taxpayer that valued the EPA wouldn't want the EPA to spend a portion of its revenue on fundraising. Persuasion for the win.

Greg G writes:

Many people voluntarily contribute to PBS to support their free programing. So why does no one voluntarily contribute more than required to their cable company even when they love their TV programs? Is this really a big mystery?

There is always a different psychology at work when a payment is mandatory.

Rick Hull writes:

> There is always a different psychology at work when a payment is mandatory.

Resentment, disillusionment, and disengagement wherever possible are reasonable reactions in this light. Perhaps confiscating ever larger portions of income and savings have massive detrimental effects that some economists are overlooking?

Bryan Willman writes:

The real goal with government is to get it to take *other people's resources* and apply them in ways *I* approve of. (Which is what Warren Buffert is really asking for - he wants govt. to tax YOU to do things HE wants.)

All of the real goals of charity are served by MY doing something with MY resources - whether that be showing off, or fulfilling religious or moral obligation, addressing emotional need, being nice to associates, enjoying the social life that surrounds charity, whatever.

With charity the "reward" or "return" is always about MY resources, with government is always about YOUR resources.

David P writes:

I am sure it has been noted that Buffet chooses to structure his income in a way that minimizes the amount of taxes he pays. He doesn't even need to donate more to increase his own tax burden. It's like a super couponer pointing out that the coupon system needs to be reformed.

John Roccia writes:

Are people on the liberal side really saying that they don't want to voluntarily pay more in taxes because of free riders then getting a benefit without paying?

I think the irony there has actual physical mass.

RPLong writes:

Taxes are an economic bad for most rational people. The marginal utility of any economic bad is typically negative, but at best zero.

The real mystery here is why the government is capable of raising any money through charitable donation at all.

Lemmy caution writes:

Greg g is right about the PBS/cable distinction.

Marcus writes:

I think Greg G and a few others put things in perspective, but just to add another voice:

Just because you *can* donate to the government as if it were a charity, doesn't mean a comparison between donations to the government vs donations to charity tells you anything.

Especially since we're already forced to give money to the government, it seems patently obvious that people would be reluctant to donate more. Like RPLong said, the real mystery is why anyone donates at all to the government. Who are these people???

The debate about whether taxes should be raised/lowered is the real debate, and this diversion into donations does nothing to further that debate.

jonathan writes:

There are two very obvious reasons why one wouldn't donate to the government:

1) There's no link between your donation and an increase in government services in general or on a specific topic. People do donate to government operations where there is that direct connection such as PBS, parks, museums, and libraries.

2) The Bush tax cuts showed that the response by the US political system to unexpected revenue windfalls is to cut taxes for the rich.

So unless you believe increasing the after tax income of the wealthy is a good use for your money, you're unlikely to donate to the government's general fund.

Eric Morey writes:

Many charities do nothing but raise money to lobby government to spend government funds on their cause or change laws to benefit their cause.

A donation to government would imply an agreement with the compromised budget allocation of government funds and with the laws concerning the issues you care about. It would be a voluntary compromise. Or you could donate to an organization that would spend directly on things that you wish the government spent more on or lobby the government to spend money or change laws.

Your donation to government would also be a cometary on the progressiveness of taxes and relative benefits received. A donation to a charity may be a more effective means of making the indented statement.

I'm sure that the government could attract a lot of donations if they set up restricted funds to be used for specific activities. (Of course there is a risk that the total budget allocation wouldn't change 1 for 1 as the restricted funds would certainly be considered in budget negotiations). But isn't this exactly the function that charities perform?

Will Garvin writes:

Actually there was a big movement to pay off the national debt in the 1980s. NPR did a podcast about this, which you can find here - - http://www.npr.org/blogs/money/2010/06/the_tuesday_podcast_what_if_ev.html.

But one of the problems is that if everyone paid off the debt by chippin in money, it could cause a recession in the short term given the demand shock it might cause. So I think people are discouraged from paying off national debt unless it is done in a coordinated manner (e.g. taxes).

Steven writes:

If Warren Buffet were to give tens of billions of dollars to the US Treasury, there is a good chance the money would be used for tax cuts. Most charities seek to maximize spending; the current Congress not so much.

Mike writes:

When people give to charity, I imagine that they consider not only the worthiness of the cause, but the need. That is, does this charity need my money. Since the government can levy taxes, people may think it doesn't need their money. This may not be rational, but I think it has an impact.

Allan writes:

Of course, payments to the government are mandatory. Why give more when you already give so much? I think I like spreading the money around to worthy causes.

I guess I would ask if the same thing applies where there is no choice. For example, is there a church out there that enforces a mandatory 10% tithe? If so, what are the other donations like?

There, of course, another other thing. Charities (generally) ask for donations. The government does not. If the government asked for private donations, would they get them? (They did during WWI and WWII and got lots of money for war bonds).

Finally, I wonder if donations to the government are, like donations to charity, tax deductable. Wow, that would be a philosophical discussion in itself.

Jeremy H. writes:

jonathan wrote:

1) There's no link between your donation and an increase in government services in general or on a specific topic. People do donate to government operations where there is that direct connection such as PBS, parks, museums, and libraries.

The state of Iowa has a line, right on the Individual Income Tax Form, which allows you to donate to several specific government organizations:

http://www.iowa.gov/tax/1040EI/Line/11Line58.html

I would be curious to see how much revenue this generates. I'd also be curious to see how these organizations get to be the ones selected! Is there full rent dissipation?

Justin writes:

@jonathan
2) The Bush tax cuts showed that the response by the US political system to unexpected revenue windfalls is to cut taxes for the rich.

If by rich you mean all brackets across the board then yes, but you continue to call them the Bush tax cuts so I wouldn't expect that distinction to be made.

Timothy writes:

I think, in addition to the signalling argument (which is very important), one needs to look at where charity money in the US is actually going: http://www.danagoldstein.net/.a/6a00e0097ed6408833016761010855970b-pi

The largest sector by far is churches and religious organizations, with one's alma mater coming in a distant second. Honestly, to look at donations to a church as charity is specious at best. From the formalized Mormon tithe to the giving basket at Sunday service, church donations are really membership fees. There is a social pressure to donate a certain amount, and if you don't, you would violate the social compact of the church, with a host of either internal (emotional) stress or external consequences if your stinginess was known. And while some church money does go into aid, much of it goes into maintaining services, the priesthood, and the like. This form of charitable giving is quite different from donations to international aid organizations, or the like.

Matt McCandless writes:

There is another possible explanation for why government does not receive more charitable donations. The government in not a charity. In name or function.

If you do choose to frame the government as a charity than you can't just discount the 30 + or - percent that people are already paying. And by that reasoning people are "donating" way more to government that to private charity. If you already paid $2000 to the Sierra Club through some mandated donation, it is understandable that you may not feel the need to donate more.

Mike Rulle writes:

My guesses:

1)Most people who support higher taxes are beneficiaries of government spending and will not pay higher taxes---so why voluntarily pay higher taxes?

2)The wealthy who support higher taxes support them for others. Buffet admits he can do better in his trusts than the government, hence only those people who are not as......smart?.....as him should pay more.

3)The normal person finds it self evidently absurd to give the government any more money.

4)There is no tax deduction when paying higher taxes voluntarily.

5)Everyone wants lower taxes for themselves. Some people want higher taxes for others.

Floccina writes:

I think that NASA should have been most funded by free will donations. I think that if it was it might have a bigger budget.

thermal_economics writes:

If the conclusion is true, people don't give money to the government because they are so bad at doing "charity", then why are there so many charities? If all of these people make such an informed decision wouldn't we be left with just a handful of highly efficient charities? Or are all of the other charities basically at parity and the donors that gave to the government constitute the entirety of the morons on earth who give to charity?

John Roccia writes:

I had an interesting discussion the other day about tipping in restaurants (this will be relevant, I swear).

In most places in the US, servers get well below minimum wage, and work for voluntary tips. Most people are well aware that servers work for pretty much tips only, and so most people are willing to give tips. It's not mandatory, and the level given is up to you - but the majority of people at least give something when the eat.

In many places in Europe, that custom doesn't exist. Instead, many places just automatically tack on an 18% gratuity to your bill.

Now, here's the thing. Let's say that my Internal Tipping Mechanism (TM) has calculated that the difference between the price of my meal and the value of my service equates to a 20% tip. I would give that. But! If I saw that an 18% tip had already been calculated, I certainly wouldn't give an additional 2% to bring it up. Instead, numerous things are said to me by that 18%:

1. That's what they need. They don't need more, or they'd have made the mandatory gratuity more.

2. That's the value of the service. I must have overestimated when I guessed 20%.

3. That's what everyone else is paying, so it's fine if that's all I pay as well, even if I'm pretty sure the service was worth 20%.

3b. When I go out to eat, I usually overtip a little, to make up for the fact that I'm sure a few other people undertipped. If I know that no one can undertip, that concern vanishes and I don't care anymore.

As a result, that waiter actually gets less from me than he would have. Maybe he gets more from someone else - or maybe the cheapskate that doesn't like to tip over 10% just doesn't eat there. Chances are good that over time, the people who would have tipped less than 18% just stop going out to eat as much, leaving only the people who would have tipped over 18% - but no longer do.

Another side effect? The American system weeds out bad servers. In the European system, you might get fired if you get complaints against you, but if you're just lousy at your job, the market won't price you out. In the American system, if you're a lousy server, you'll eventually leave because you won't get paid as well.

There's so many parallels here it's staggering.

Philo writes:

Why do charitably inclined people voluntarily give so little to the government? Because the government can and does take what it wants by force. By not taking more, it is (in effect) saying that it has reached the margin where it does not expect to be able to put more money to use efficiently. Meanwhile, private charities represent themselves as being nowhere near that margin.

Mr. Econotarian writes:

The Corporation for Public Broadcasting receives about $400 million per year from the Federal government.

If you look across public broadcasting, you see that about another $400 million comes into play from private sources, probably half from corporate underwriting (aka advertising) and about half ($200 million) of actual donations.

Now you could sit back and donate money to the Federal government and hope it goes to public broadcasting, or you could donate directly to a public broadcasting station in your area.

Your tax dollars are, of course, as hopelessly lost in the system as a donation to the Federal government would be...

Kieran writes:

Easy. The government funds lots of different things, some of which any given individual will agree with and some of which that same individual will disagree with. This is what happens when we make a collective decision about how our collective resources (tax money) should be spent. Half the nation wants X, half the nation wants Y. The government ends up spending some money on X and some money on Y. When an individual can make a personal decision about which charities to fund she funds only what she supports rather than sending a check to the government which will spend it on a mixture of what she supports and what she does not support. This seems entirely reasonable to me.

There is then nothing inconsistent in the Buffet/liberal position. They want the government to spend more money on X (schools, health care, foreign aid) and less on Y (war, prisons, banks). They know that if the government gets more tax money it will spend more money on both. They think that that is a trade-off worth making. (Better that more money is spent on X even if it means more money is also spent on Y). They thus support higher taxes. However when they are given the choice as to which institutions they will put their own charitable dollars, they choose to donate to charities doing X rather than send it to the government who will spend it on both X and Y.

BTW I've written about a closely related question in my article "By Donation or Taxation: How Should Justice be Funded?" Available here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1900895

Evan writes:

@Allan

There, of course, another other thing. Charities (generally) ask for donations. The government does not. If the government asked for private donations, would they get them? (They did during WWI and WWII and got lots of money for war bonds).
This is a good point. I think most people just don't think the government needs more money, or think that charities need it much more.

Another factor to consider is that most people don't agree with everything the government does. They might be afraid their money would go to a bad cause. WWI and especially WWII were viewed nearly unanimously as very worthy causes everyone could agree with.

Joe Cushing writes:

I'm going to take it a step further. I feel like it is my responsibility to try and prevent the government from getting its hands on any more money than I can avoid giving it. A worthwhile charity would be one where the money goes to teams of tax preparers to educate people on how to give the government less. That's right, it would be worth spending money to prevent the government from getting it.

Mike Alexander writes:

I part of the answer is focus. I donate to charities, for example, ChildFund (formerly Christian Children's Fund). I know they will spend my donation on a variety of things: direct support of children's programs, administration and fund raising. I believe none of it will be spent on Alzheimer’s research and I am quite sure that none of it will be spent on either killing people or for preparation for killings.

Were I to donate to the government I would be certain that my money would be spent on war and preparations for war as well as many other things of which I do not approve. Even if my donation could be directed to a specific program, all this would mean is more tax money made available for the stuff I don't like.

That is, when I donate to a charity I can at least believe that I am making a statement about what should be done with surplus funds. This is not so for government.

Because the purpose for giving to charity is to make just such a statement (or more precisely to obtain the good feeling that comes with it) and this feeling cannot be generated by giving to government, the two are not comparable.

This is why I would never donate to the government.
*********************************************
Another part is about worldview.

Taxes are a cost of our civilization. One can avoid this cost by moving outside of the civilization, but one then loses the benefits. Almost nobody leaves, suggesting that the benefits are percieved my most to outweigh the costs (the failure of the Freedom Ship to get off the ground illustrates this reluctance at leaving).

A good argument can be made that civilization's benefits are proportional to wealth, and so the costs should be levied in proportion to wealth. Since wealth is more concentrated than income this means that the income tax rate should be progressive. Also, the cost is total government revenue, not just that fraction provided by the non-payroll income tax. So if the top 1% of household own 40% of total wealth, they should pay 40% of total revenue, which might be something like 70% of non-payroll income taxes.

They currently pay a much smaller fraction, and so they are free-riding. Free-riding allows the wealthy to draw outsize gains from their participation in our civilization, as indicated by high levels of income inequality.

Free-riding by the wealthy and well-connected is the norm since such elites have the most ability (and incentive) to manipulate the political process in their favor.

What is remarkable is that for about 3-4 decades after WW II, income inequality was historically low. Based on this observation we might surmise that the wealthy did not achieve their normal level of free-riding at this time.

This low level of inequality was brought about by explicit government policy during WW II designed (in part) to do just this. The mechanics involved a number of parts, the only one of which seems remotely applicable today is high tax rates on high incomes. Thus, favoring higher taxes on the rich can be seen as a sentimental call for a return to this older order, when things seemed to be better for "ordinary Americans".

Warren Buffet spent his formative years during this era, and so his counterintuitive call for higher taxes on rich people like himself might be more of a conservative call by an old man for a return to a favorably-viewed past than progressive support for government social programs.

To the extent something like this operates. comparing voluntary taxes to charitable contributions is apples and oranges.

Gerald writes:

The reason I donate funds to selected charities rather than the government is that I can be reasonably sure that the Salvation Army (for example) will actually use the funds effectively to help people in need. On the other hand, if I donate to the government, I can be reasonably sure that the funds will be partially or totally wasted through dilution to politically correct causes and bureaucratic inefficiency. We lived in New Orleans during and after Katrina, and if you ever need an education in the complete incompetence of government, watch FEMA, etc. in action. They can waste more money in a month than effective charities have to spend in a year.

Al writes:

@Mr. Econotarian

PBS is one example. Insofar as private donations go toward the same causes as government funding does then there is no useful argument to be made here. Even allowing that PBS is technically not a government entity, plenty of money is donated to public colleges that are formally part of government. And that is why claiming that

out of the more $300 billion that Americans give to charity, the American government garners about $3 million. Despite widespread nationalist and statist sentiments, Uncle Sam's share of the charity market is microscopic - less than .001%. How very odd.
is simply wrong.

In Charity, God calls us to give voluntarily to those who need help. While he commands agape, He never forces us to obey. In contrast, the proper roles of government are to force us 1) to do things we want to avoid and 2) to refrain from things we want to do. If we are forced by law to help the poor, it is neither charity nor Charity.

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