Thursday, March 19, 2009

Thursday, March 2009: Charity

If you've ever talked to a rich person, you'll know how they always say that they hate getting tax cuts. Why? Because they can never bring themselves to spend them, right? So John Key is encouraging people to think about giving them to 'charity' instead. Ok.

I have so much to say about this that I don't really know where to begin. Perhaps numbering my thoughts individually will help avoid an incomprehensible stream-of-consciousness tirade.

1) I have no problem, or at least no problem in principle, with tax cuts. I do have a problem with tax cuts favouring the wealthy - I think that supply-side economics is pretty discredited by now. And I certainly have a problem with giving rich people tax cuts in a recession. As Phil Goff points out, rich people spend less as a proportion of their income, and are able to save or invest the rest. If those investments go offshore then, good as it may be in the long term, it does nothing to stimulate the New Zealand economy in the short term, which surely is the point of economic stimulus. Because, after all, John Key is pushing these cuts as stimulus, even though I would chance a pretty heavy bet that they would have happened recession or not. So these cuts were a dodgy proposition in the first place. But that's old news.

2) The second issue here is the exhortation for people who can afford it - that is, almost everyone who happens to be in line for these cuts - to give their refunds to charity. On the surface, this seems noble - we all know that the City Mission or the Cancer Society or donkey shelters could use the money. But, of course, the money is just being redirected - tax money that was going to go towards providing social services is now going to (relatively) wealthy taxpayers, who will then decide whether or not they deign to give it to charity or, instead, spend it on diamond-studded golf tees and gold-plated boat shoes. But wait - there's more. Charities are great. Greenpeace saves whales; that's fantastic. The SPCA helps puppies; cute! The local church helps hasten the Second Coming and Armageddon; sacred! They're all charities. But none of them are (directly) going to provide the same services that will be lost because of lower tax income. Oh well, there's no bed for me at the local hospital because of tax cuts, but at least someone's charitable donation to the University means that the Vice-Chancellor now has a throne with a plasma TV on each arm. Say what you like about the efficiency and efficacy of government spending relative to that of private organisations - actually, don't, because most of it will probably be complete bollocks - but what money does reach charities is unlikely to end up in the places where it does the most good for the worst off.

3) But perhaps what alarms me most about this whole development is John Key's idea of New Zealand being more like America, where there is *ahem* a "culture of giving". Yes, that's right, America, the richest country in the world, where 20 per cent of children (and 40 per cent of black children) grow up in poverty, and with the largest gap between rich and poor in the world. Over there, charitable giving really plugs the gaps left by social services. Apparently, Americans give twice as much as New Zealanders to charity. There could be a few reasons for this.
  • Maybe Americans are much nicer people than us.
  • Perhaps they pay much lower taxes for social services?
  • God told them to.
  • Did the hundreds of homeless people outside their front door guilt trip them?
Or maybe, as John Armstrong points out, 'charitable giving' includes giving to any non-profit organisation including "universities ... economic think-tanks, medical research institutions and the like". So when I endow Harvard with $10m so they'll name a chair after me, that counts? Hey, why didn't you say this whole charity thing was so lucrative! Hey, Brian Tamaki - what's the going rate to be ordained a bishop these days? But that's not all: as Armstrong also points out, the US has massive tax breaks for these kind of donations; tax breaks which the government here is intending to emulate. Excellent. So there's less tax revenue because of the tax cuts, then people give some of the money to 'charity' and then, because of that, there is less tax revenue. Then there's the whole thing about how, in the US, the poorest 20% of the population actually give more (as a percentage of income) to charity than the wealthiest 20% - and that includes Bill Gates, so I'm pretty sure some rich people are actually embezzling money from charities and harvesting orphans' kidneys to make that statistic work.

4) I'm also reasonably confident that when John Key says that "60 per cent of the population donated in some way each year without knowing they could claim some of the amount back as a rebate," those 60 per cent of people are the ones who give $5 to the Salvation Army or the Foundation for the Blind, rather than the type of people who have five accountants to do their taxes. So how that is going to work as a further incentive, I don't know. Hey, and you know what else? I'm with Michael Cullen when he said that he was unsure why giving to charity meant not having to pay some of your taxes. If you want to give donkeys a home or protect owls or fund the Maxim Institute, good on you. But it's not clear why you no longer have to pay for police or hospitals or education. Yes yes, I know it's about incentivising behaviour, but I think that other ways of incentivising charitable giving might screw over the poor less. We could give a big gold star to the people who give the most, for example. Or, you know, a knighthood.

Anyway, sorry if that got a bit incoherent. I feel better now.


  1. Bit of a PR screw-up if Your Views is anything to go by. Funny how suggesting people give more to charity (surely a good thing) can turn into a negative just by suggesting we should be more like America.

    On your other points though,
    1) these tax cuts don't favour the wealthy - someone on $24K gets $29/week vs $100K gets $70. That's pretty flat.

    2) The money wasn't going to social services, it was going to Kiwisaver and R&D investment. National's been pretty open about who and what they're stealing from to pay for the cuts - your retirement savings. Not health or education.

    3) Mentioning America in a positive light is indeed political suicide. Maybe would've been appropriate at a meeting of rich people to encourage more philanthropy; not a good idea for the general public. I think National putting in their foot in it may have begun again after a remarkably long gaffe-free period...

    4) Yeah you're probably right. I always forget to claim them back basically out of sheer laziness. Seeing as I'd just be taking it back from services though I've just counted it as more charity.

    I think the biggest mistake he made was not stressing that most people will need to spend the money on bills etc - he could easily have played the populist angle that people voted for. Instead he's gone off on an elitist tangent in the middle of a recession that seems at least mis-timed, if not completely out of touch. And lauding America when anti-Americanism is one of the few things most people agree on is just plain stupid.

  2. Ahh you assuaged my rage somewhat. Thanks.

    Can we add how once again John Key positions himself to look like 'Mr. Charity' while essentially doing nothing (cf. what I like to call 'cast-gate' although no-one else appears to have jumped on that one) or actually making things worse in this case.

    Plus my tax cut is apparently $0. Why? Because the people who earn the least obviously don't need their consciences troubled by the dilemma of whether to give their pittances to charity.

    PS I don't necessarily want a tax cut, but I don't want those fat cats in Washington getting one and not me.

  3. Grrrr! Yes, grrrrr. Your comments on the Herald are interesting and all good, but then you go off on some tangent class warfare rant, or rage, or whatever you wanto to call it.

  4. Gareth:
    1) the numbers you give are different from the ones on the Herald front page. I didn't have time to check before ranting, but one of you is wrong. Guess who I think it is.

    2) That may be the intention, but to some degree it's a big pot of money, right? I r economist.

    3) I happen to think it's bad politics AND bad policy.

    Andyphile: I don't think it's class warfare at all. Like I said, I have no problem with appropriate tax cuts (or hikes) at the appropriate time. I do have a problem with making the system less progressive - if that counts as class warfare then I guess I am guilty. And yes, I realise the post wasn't really about bad Herald reporting per se, but I did say to expect a rant!

  5. The Maxim institute a charity? That is concerning.

    Regarding your rage about tax-cuts being funded by social services cuts, it is not really as clear cut as that. It is a fiscal stimulus; the government accounts are moving frp, a net budget surplus to a net deficit, so it is borrowing more. Which is what it needs to do to help stimulate the economy - consumers have stopped borrowing, so someone has to. Also it is a good time for the government to borrow, as rates are nice and low.

    Of-course you could argue that the government could instead increase social spending. But this is not realistic in the short-term - former builders aren't going to suddenly become nurses or social workers.

  6. I thought this was a "News Rage" blog - not a politics rage blog. BY all means debate inappropriate political spin (either right or left), newsworthiness, dog bites man etc. But your "rage" appears to critisise John Keys statements, not the Heralds coverage of it. No real problem with that, except you seem to just be offering your own viewpoint - and subverting your own damn blog.

    Let me point out the obvious. He was speaking at a Philanthropy New Zealand conference. By definition these are people who give to charity. So he was preaching to the converted. IF he had given the same speech to a hostile audience, I don't know, the unemployed workers union or even at the CTU conference... that would have been news.

  7. Anonymous - you mean they give to charity if they can't bring themselves to spend their hard-earned themselves. That being, of course, the preferred option.

  8. PS sorry for the two 'themselves' in one sentence. That's rather infelicitous.

  9. I got my figures from the Nats tax policy page

    Also this table shows how evenly distributed they are - the end result is neither more or less progressive than it was to start with.

    I thought this was a "News Rage" blog - not a politics rage blog

    Well the blog description does say "getting angry at things printed in the NZ Herald" so I always figured that would cover the actual content as well as how it's covered.

  10. Right... BTW, anonymous is not my real pseudonym, its an accidental pseudonym to hide my real... sorry, off track.

    And apologies, it's your blog - you can do whatever the hell you like with it. It's just that there is soooo much rich material in the Herald for taking the P*** out of, and so few blogs dedicated to this amazing art form. On the other hand, I can name countless sites dedicated to why Key is Roger Douglas/Hitler, re-invented to look like Mother Theresas grinning offspring (no offence intended to the great lady). Or for that matter Helen compared to any number of bloodthirsty communist dictators with cities name after them ending in "grad".

    All I am saying is that you have hit upon a great and noble cause. Why crap around with it?

  11. You make a good point, 'Anonymous' - if that is your real pseudonym. On some level I regret posting what I did, but on another level - meh. And I am very aware of the need to distinguish this blog from general political rant blogs.

    So I appreciate the criticism.

    Although, to slightly defend myself:

    a) The Herald made John Key's (throwaway?) comments the main story on their front page, on the poll and on YV. I thought that, while the Herald could have dealt with it much worse, there were salient points that it did not bring out.

    b) I don't consider myself particularly 'left-wing' apart from the fact that I generally believe people should be provided with equal opportunities to 'flourish', whatever that means. If that often happens through market mechanisms - and I believe it does - awesome. I have said, and I will no doubt say again many times, that I think there are just as many stupid people on the left as there are on the right - protectionists, or Stalinists for instance.

    Anyway, criticism accepted. To some degree.

  12. Right, we will say no more about it then :-)BTW, I have decided to dispense with the whole "anonymous" pyeudonym, mainly because I found it more difficult to spell.

    I did have ago at my own Herald rant page a while ago, but nobody took any notice, and I forgot the password - so I fully support your far more successful effort.

  13. The US 'culture of giving' is interesting because over the last few decades people have been giving more money and less time. They're pulling out the cheque book instead of going along and volunteering which is impacting on levels of social capital (community connectedness etc). Why didn't John tell people to get off their asses and volunteer instead of 'giving' back their tax cuts? Because it wouldn't save him money in a round about way...

    The most concerning thing about the prime minister urging giving is the potential to use high rates of philanthropy as an excuse to cut back funding for the public and non-profit sectors (many, many non-profit org's get grants from the government to deliver specific programmes). The funds non-profits raise from the public are determined almost wholly by their visibility leading many non-profits to spend up to half their income on fundraising. Relying on the public to give to organisations who will best meet public need vs giving to the ones with the flashiest marketing (e.g. breast cancer campaigns) is hardly going to contribute to good social service provision.

  14. sounds to me that the article provoked you to actually think about this issue.

    PS a prime minister who invites journalists to a speech at a public forum does so for a reason - to be reported. it would be rather foolish to think these are 'throwaway' comments - they are central to national policy.