Giving It Away

I'll happily admit that I'm not much of a charitable donor one way or the other. Still, I'm always a bit flabbergasted by the fundraising solicitations I get from Harvard. It seems to me that insofar as I give money away, it should be directed at an institution that actually helps people in need. As Kevin Carey puts it:

As Richard Vedder pointed out in the Post over the weekend, Princeton recently built a new residence facility, Whitman College, named after major donor and alumna Meg Whitman, CEO of Ebay, which cost a staggering $388,571 per unit, roughly what Donald Trump spends building a luxury resort. Here we have a fabulously wealthy person donating money to a fabously wealthy university to built a fabulously expensive facility for the benefit of students who come from, in many cases, very wealthy families. I have no problem with that personally if that's how they want to spend their money, but why am I, as a taxpayer, footing part of the bill?

I'm not 100 percent sure on the best remedy. Tyler Cowen argues fairly persuasively in Good and Plenty that the U.S. tax code's scattershot approach to subsidizing charitable donations is a very effective form of arts subsidy for a diverse society. And I think it would be pretty reductive to say that it would be a good thing if all of our donor supported museums, ballets, symphonies, aquariums, zoos, libraries, classics departments, etc. all shut down and had their funds redirected to soup kitchens and drug treatment programs.

To me, to figure this out we'd need to have some serious estimates about the impact of restricting charitable deductions. How much new tax revenue are we talking about? If we kept the deduction in place for institutions aimed at helping the poor, how much charity would be redirected in their direction? But how difficult would it be to administer a rule like that? How much would giving to cultural institutions decline? It's a lot of thorny policy questions. But it'd certainly be my advice to any super-rich people out there that if you're considering making a large charitable donation in the near future, a big gift to an Ivy League university is one of the least socially useful applications of your cash imaginable.

Photo by Flickr user Mr. Littlehand used under a Creative Commons license

Comments

The tax-deductability of fundraising is only one of the subsidies. The other big one is municipal debt. Princeton probably threw all of Whitman's money in the endowment and borrowed at the IRS-subsidized 5%.

Posted by Marshall | January 24, 2008 11:07 AM

If you took away the charitable deduction for alma maters and sectarian religious institutions, there wouldn't be much charity left.

Posted by phil | January 24, 2008 11:07 AM

Matthews?

Posted by infirm | January 24, 2008 11:11 AM

Bill Gross, managing director at PIMCO, wrote on this in July.

Actually, he's been sounding every bit as populist as Edwards recently. Check out his archives.

Posted by crack | January 24, 2008 11:13 AM

As I've said before, the richer Ivies + Stanford have just became gigantic hedge-funds with some sort of college or something attached to one side.

Maybe the next logical step is for all the biggest hedge-funds to start sending out fundraising letters, soliciting donations from charitable-minded Americans.

Put another way, why should you donate money to Harvard, since it's richer than you are? That same analysis applies to *everyone* in the entire world connected with Harvard...except Bill Gates. And Harvard will pretty soon catch up with him...

Posted by RKU | January 24, 2008 11:14 AM

I should have mentioned this in my previous post, but here is the money quote in the July piece:

A thirty million dollar gift for a concert hall is not philanthropy, it is a Napoleonic coronation.

Posted by crack | January 24, 2008 11:16 AM

Surely not all donations to universities are equivalent. It's hard not to be appalled by what Princeton and the EBay CEO pulled, but it's equally hard not to be impressed and grateful for most of what the Packard and Hewlett families have done over the years. Perhaps especially their recent assistance to UC Berkeley (given their Stanford ties and all). It may help that David Packard the younger and Walter Hewlett combine money, business sense, and thorough knowledge of academia in one package.

Posted by Gene O'Grady | January 24, 2008 11:17 AM

Educating students and producing knowledge are goods worth promoting, even if the immediate individual beneficiaries are wealthy. Universities improve human capital, technology, and policy (though it's hard to see how a superdorm makes much difference.)

The problem is that institutions like Harvard haven't expanded their size in proportion to their endowment. At the end of Charles Elliot's reign in 1909, Harvard had 3,000 students and $22.5M in the bank. In 2005, Harvard has 16,000 students and $25.9B in endowment.

Given their wealth and the number of qualified applicants, Harvard should have a much larger student body and more professors. But they've chosen instead to protect their brand by making admission as hard as possible.

Posted by AWC | January 24, 2008 11:18 AM

Well, we should keep in mind that it is in our interest to have the government not start making decisions about what is appropriate and inappropriate ways for non-profit organizations to spend their money. As long as Princeton is following the laws, I have no problem. Whitman is the person who pays the moral price.

We might not like the way some non-profits spend their money, but, ultimately, it's none of our business. That said, can Marshall elaborate on the IRS-subsidized loans? That seems really sketchy to me, on the level of a genuine giveaway.

I, myself, donate to my alma mater's fund that provides stipends for student researchers.

Posted by Tyro | January 24, 2008 11:19 AM

I don't disagree with any of this, except to point out that giving to institutions of higher education that are not absurdly wealthy can have a very real public benefit. Let's not forget how atypical the Ivies are in terms of excess wealth. Public universities in particular are going to be more and more reliant on philanthropy (or, failing that, more tuition hikes) to carry out their public service mission as states continue to cut or shortchange their operating budgets (a trend that seems poised to continue now after a couple recent years of recovery).

Posted by Jake H. | January 24, 2008 11:20 AM

Yeah, what infirm said above:

Matthews?

I'd have gone with Wigglesworth.

Posted by NCProsecutor | January 24, 2008 11:21 AM

It may not be socially useful to donate to big name Ivy League schools, but certainly there's some personal utility in improving the reputation of the university that you attended, or that your children now attend.

Posted by Patrick | January 24, 2008 11:22 AM

Why you would donate a lot of money that doesn't even have a top-tier basketball program that you could get some decent seats for, I have no idea.

Posted by Jen | January 24, 2008 11:24 AM

Something makes me think Meg Whitman was less concerned with a "socially useful application" of her money, and more concerned with having a Princeton college named after her.

Posted by ibid | January 24, 2008 11:25 AM

Amen. If you want to give money to Penn, for example, consider redirecting your money towards helping out the people

Posted by mk | January 24, 2008 11:25 AM

Actually, I'd tend to disagree with AWC. University enrollments and (especially) correspondending faculties just can't be "scaled up" the way iPod production lines can be.

Also, I'd argue there's relatively low correlation between financial inputs into a high-quality university and academic (research+education) outputs. Basically, the extra money just goes to build the endowment, pay huge bonuses to the fund-managers, and hire more bureaucrat-administrators.

I think that Harvard's endowment has grown by something like 2000% over the last couple of decades. But there's no evidence that anything substantive in the university has improved.

Basically, the internal administrative incentive structure of all these universities has become increasingly focusing on fund-raising and endowment-growing. As a result, they've achieved a great deal of...fund-raising and endowment-growing...

Posted by RKU | January 24, 2008 11:26 AM

Well, part of the issue here is one that Gregg Easterbrook seemed to make a good point about (ducks lightning bolt). Why does anyone pay to go to Harvard at all?

If you look at the size of the endowment and its legally required giveaways, it's already committed to giving away $79,000 per student per year. Even if the school's claim of $3 billion per year in academic expenses (that's insane) is accurate, when you factor in its expected annual growth from both contributions and interest/investment earnings, you end up with about $2.5 billion at which it could hold its value steady. Now assume the school wants

The remaining $500M can be covered, one assumes, by the school's 19,000 students at a rate of $5,500 a person. Add a bit of grant and scholarship money for the qualified or needy, and the number goes even lower. You would be hard-pressed to find an academically qualified student in America whose parents wouldn't find a way to pay about half a public school tuition to send their kids to Harvard.

Which is to say, it's totally reasonable to contribute to the their ginormous endowment ... if they would just put that endowment to good use instead of doing Uncle Scrooge swan dives into their piles of cash.

Posted by jhupp | January 24, 2008 11:28 AM

Amen. If you want to give money to Penn, for example, consider redirecting your money towards helping out the people <5 blocks away, 45% of whom are below the poverty line.

(Original post failed due to non-XML-encoded less-than sign. Woot.)

Posted by mk | January 24, 2008 11:29 AM

Whenever Princeton calls me and asks for money, I ask the undergrad on the other end why I should give to Princeton rather than to the local (eg) food bank. If they admit that there's no good reason, I'll send them a few bucks, if they attempt to insult my intelligence, I decline.

Posted by The Sophist | January 24, 2008 11:30 AM

Whoops, sorry about the broken sentence there. I can't even remember what I was trying to write.

Posted by jhupp | January 24, 2008 11:31 AM

Why does anyone pay to go to Harvard at all?

No one needy does. Now Harvard has announced that not even upper-middle-class families (six-figure incomes) will have to pay much of anything anymore. I suppose Harvard could just do away with tuition entirely, but at this point the only beneficiaries of that would be the children of millionaires and billionaires. I don't see what public purpose that serves.

Posted by Jake H. | January 24, 2008 11:38 AM

Public universities in particular are going to be more and more reliant on philanthropy (or, failing that, more tuition hikes) to carry out their public service mission

True, considering my local land grant school is paying administrators in excess of $700k a year, not including retirement bennies.

The same thing is happening in academia as is happening in the corporate world, and it's nuts. These schools don't deserve contributions until they get their house in order.

Posted by justinb | January 24, 2008 11:43 AM

Tyro, I'm talking about the fact that universities, like all 501(c)(3)s with capital needs, can borrow money using municipal bonds. Interest payments on municipal bonds are deductible from gross income for calculation of income tax, meaning that the owners of the bonds will accept a yield of 5% when they might demand 7.5% on a corporate bond of the same rating. That's an advantage enjoyed by state and local governments, school districts, transportation infrastructure, and many other public goods. Basically, by foregoing collecting taxes on the interest, the federal government is paying that differential of 2.5% (as an example). Municipal bonds are only available for capital projects, and basically all public capital projects are funded with bonds.

Hospitals and universities can do that too, except that unlike municipalities the richest 501(c)(3)s have sizable pots of money sitting around. Why borrow instead of just spending the endowment? Because the endowment returns in double digits, up to 22% or something in the case of Yale, whereas the subsidized bonds yield only 5%. The universities would be wasting money if they didn't borrow. In fact, they would probably borrow if they couldn't use municipal bonds, because 22% is higher than 7.5%, so it's quite clear the IRS subsidy is affecting more inframarginal capital investment than it is encouraging capital investment at the margin.

Posted by Marshall | January 24, 2008 11:49 AM

RKU--

Nobody's asking Harvard to "scale up production." But the ratios are out of whack. The endowment's risen by 100,000 percent, while the school has grown by 500 percent. And this is all while the population of qualified applicants willing to pay has increased massively.

Second, you say there's no evidence that financial inputs has improved quality of educational outputs. But isn't this the point? Outside of hard sciences, where money _has_ certainly created lots of knowledge, fundraising has been misdirected. If Harvard hired more profs, class size would go down, undergrads would have fewer TA sections, and education might improve. Or, if they used the money to expand their enrollments, quality might drop slightly, but a larger number of students would gain the benefits of a Harvard education.

Posted by AWC | January 24, 2008 11:54 AM

Looking at the picture, I suspect that the reason for the cost of the building is not that each individual unit is like a spa, but that they chose to build the building using traditional materials and methods.

There's a lot of skilled mason work on that thing. Most new college buildings I've seen are built with newer (cheaper) materials and techniques, often to ill effect.
.

Posted by Grand Moff Texan | January 24, 2008 11:55 AM

That's Weld.

RKU:

Maybe the next logical step is for all the biggest hedge-funds to start sending out fundraising letters, soliciting donations from charitable-minded Americans.

If they had undergraduates and alumni associations, they'd definitely give it a shot.

The functions of the College within a place like Harvard are: (1) To produce wealthy alumni by preparing people for high-paying professions and encouraging them to enter one; (2) To create loyalty among those alumni so that they want to give some of their wealth to Harvard; (3) to demonstrate the success of the institution to those alums, so they feel good about giving (sorta like the football team does for Auburn).

Bringing young people into "the company of educated men and women" is completely incidental to those goals, as far as the Corporation is concerned.

Posted by pesto | January 24, 2008 12:00 PM

I get absurd fundraising letters all the time from my old Oxford college, despite these facts a) it's one of the biggest landowners in England, b) I'm a journalist earning half of what my many of my fellow alumni earn, and c) my college won't even allow me back on their grounds. Why they even bother sending these letters to me is a mystery.

Posted by Ginger Yellow | January 24, 2008 12:00 PM

Definitely not Wigg. I'd know. It's Matthews, Grays or Weld. But I'm pretty sure it's Matthews.

Posted by infirm | January 24, 2008 12:01 PM

I'd argue that "justinb" has hit a crucial point...

Lots of these universities---often especially the "public" ones---have started paying their senior administrators ungodly annual salaries, certainly in the many $100Ks, sometimes getting up to around $1M or so. There are also usually vast quantities of hidden or not so hidden perks and stipends, which almost sometimes double that compensation.

I'm pretty skeptical about just what these administrators actually do...except fund-raise and manage other administrators.

I think that public university tuitions have increased by a factor of several over the last decade or two. Why: maybe just ask all those useless administrators...

Posted by RKU | January 24, 2008 12:04 PM

Ginger, why won't the college let you on the grounds? That seems very odd to me. In fact, the fundraising is entirely understandable in Oxford's case since that university functions 100 times more efficiently than the behemoths in this country. Oxford is a world-class university operating on a tiny flow of inputs by American standards.

Pesto is exactly right. Whether an undergraduate college actually adds to the body of knowledge is incidental; it exists to create a flow of resources for the university's real work.

Posted by Marshall | January 24, 2008 12:06 PM

I was wrong about Weld. Infirm is right -- I googled some pics, and it's Matthews.

Posted by Pesto | January 24, 2008 12:10 PM

The Sophist:
If schools want you to give back, then they should be putting out a product that makes you want to give back. With schools like Harvard, you end up with the skills and connections to make big bucks. If you go to a state school like I did(and lesser tier at that). they are like diploma mills. You might have good skills, but you don't get any of the connections that a Harvard degree gets you. I just got a call from my school a few weeks ago. They usually call about every 6 months. I told the guy on the other end to take my name off the list. There is no sense in wasting his or his co-workers time because there is a better chance of Bush declaring martial-law in November than there is of me giving money to my alma mater. They didn't do anything that made me want to contribute(meaning .. among other things the alumni association sucked .. and so forth)

Posted by Joe Klein's conscience | January 24, 2008 12:17 PM

Re: If you took away the charitable deduction for alma maters and sectarian religious institutions, there wouldn't be much charity left.

I think the number of people who donate (significantly) to alma maters is probably a fairly small part of the total- there are lots and lots of people who do donate to actual charities.

Donating to churches is an entirely different thing. Churches, unlike universities, do a tremendous amount of work in providing education, nutrition, health care, training and other resources to needy people around the world. In a lot of developing countries they are probably the biggest social provider around. When you donate to the church, you can be sure that a significant portion of that is going to genuinely charitable/redistributive purposes. Universities, not necessarily.

Posted by Hector | January 24, 2008 12:23 PM

A blogger at Free exchange has an interesting take on Endowments:

http://www.economist.com/blogs/freeexchange/2007/12/what_not_to_do_about_inequalit.cfm

So yeah, endowments don't correlate to a better undergrad education.

But funding Harvard's endowment does contribute to valuable research.

Posted by thehova | January 24, 2008 12:25 PM

dude, if you're reasonable enough to admit a state school gives you good skillz, you shouldn't call it a "diploma mill"--the whole point of diploma mills is to get people who are both completely cynical about the idea of skills AND completely naive about how the cultural capital implied by the idea of a college degree actually works...

Posted by metaleptic | January 24, 2008 12:27 PM

Hey, don't lump my Ivy League University in with your Ivy League University. Brown's endowment is less than 10 times that of Harvard. I'm not saying we're about to run out of money, but I still think a generous donation to Brown has its place.

Posted by EERac | January 24, 2008 12:30 PM

"When you donate to the church, you can be sure that a significant portion of that is going to genuinely charitable/redistributive purposes. Universities, not necessarily. " - Posted by Hector

For most churches, that number is below 10%. Most of the money goes to promoting the religion and supporting the clergy or other church institutions.

Posted by Njorl | January 24, 2008 12:31 PM

Aren't the super-rich subject to the AMT, which limits deductions for charitable contributions anyway?

Anyway, one possible solution would be to create two classes of contributions -- charitable and non-profit. Charitable contributions would be food banks and homeless shelters. Non-profits would be the symphonies and universities. (There would be a big fight about where environmental groups and churches would fall.)

Then, these can be treated differently. For instance, truly charitable contributions should be "below the line" deductions (or do I have it backwards?). Also, truly charitable contributions could be treated as tax credits instead of deductions, at least to some extent, while non-profits would be deductions only. Maybe different percentages of each would be deductible.

Posted by Steve H. | January 24, 2008 12:34 PM

Marshall: it's a long and not very interesting story. Some fault on my side, some on the part of my friends, and lots of dickery on theirs.

Posted by Ginger Yellow | January 24, 2008 12:39 PM

Hector, I have donated to my church as much as the next guy, but I'm up front about what it pays for: maintanence of the building, salaries for the clergy and staff to support their pastoral and educational duties, and funds for capital improvements. Most of the on-the-ground charity work is done by other foundations affiliated with my church that have a separate funding stream from the church itself. The charitable work funded through the church itself is indirect (eg, the money supports the church, which nutures the community, which organizes the charitable activities). I don't fool myself into believing that my check to my church feeds the hungry. It does, however, give the clergy enough money to raise their families on and gives my friends and family a good community in which to participate in educational, religious, charitable, and cultural activities.

Posted by Tyro | January 24, 2008 12:40 PM

Steve H., I think you mean "above the line."

Honestly, that would have been the biggest middle-class tax break that Bush could have given Americans, if he wanted to-- to allow charitable contributions to be deducted before you get to the standard deduction.

As I said, though, once we get the government in the business of determining which non-profits are "worthy" and which aren't, we're in for a world of hurt.

JKC, don't you make big bucks as a lawyer?

Posted by Tyro | January 24, 2008 12:46 PM

Incidentally, I also get fundraising letters from my old boarding school, which is also a large landowner and recently turned state's witness in an illegal price fixing scandal.

Posted by Ginger Yellow | January 24, 2008 12:48 PM

I will probably never donate money to my alma mater, MIT. I thought it was a great school, but they are already reasonable well-endowed. Furthermore, they are only seeking contributions from me to boost their US New and World Report ranking, and I will not participate in that charade. They get their real money from the big donors.

Posted by mpowell | January 24, 2008 12:50 PM

Sorry Ginger, I didn't mean to pry. I was just a little taken with your first post because I see my alma mater (Oxford) in a much more favorable light financially than the standard multi-billion $ American thing. That parochialism is probably what keeps people giving to those other places, obviously.

Posted by Marshall | January 24, 2008 12:51 PM

Donating to churches is an entirely different thing.

Actually, I think it very much depends on which particular church...

I'd argue that donating to the universities that have gigantic endowments and vast hordes of parasitic administrators is a lot like donating to Jim and Tammy Bakker Ministries, so that they can buy a *second* solid-gold doghouse for Fido so that he won't be jealous of Spot's lavish quarters...

Posted by RKU | January 24, 2008 12:54 PM

Something that comes up a lot in discussions of affirmative is the fact that people assume that entrance into colleges and universities is purely meritocratic. Which is, to put it bluntly, insane. You know how many of Harvard's undergrads are in the top quartile of family income? 60%, according to Larry Summers. You know how many are from the bottom half of family income (that's half the families in our country, now)? Nine percent.

Now if you take Harvard as a surrogate for the pinnacle of higher education, it begs the question whether anyone thinks that the lower half of American families only produces nine percent of the students worthy of Harvard. Sure, income correlates with academic achievement. But still, are half the countries families really only able to produce less than a tenth of the best and brightest? It's an absurd notion. So why so few from the lower half?

Because Harvard is in business. Harvard is a for-profit institution that maintains non-profit stauts and acts sanctimonious about it. Harvard selects kids that will grow their endowment, and those kids are the ones from wealthy families, families who can be counted on to make large donations down the road. Same with Yale, Princeton, etc. It's baffling to me that people can look at numbers like these and still act as though the elite universities are basically meritocratic.

Look I have been and am currently the beneficiary of this system, and in a very real way I am living on the wealth of the academy. But the fact is, these institutions could pay for every student and remain financially solvent, even still wildly profitable, as Harvard is. Why should an institution with more money than most countries have non-profit status and tax exemption?

Posted by Freddie | January 24, 2008 1:00 PM

Why should an institution with more money than most countries have non-profit status and a tax exemption?

Because there is no reason to revoke such a status just because we don't like the way one outlying player was able to gain from the system. "Non-profit" is not a moral designation nor does the designation come with a vow of poverty. Harvard just happened to be one of the most successful non-profits.

Your point is well taken, though, that Harvard is an institution that exists to promote itself, and the teaching and research serve that mission, rather than being the mission itself.

Posted by Tyro | January 24, 2008 1:08 PM

I'm not sure about all the different donations to major universities. The recent anonymous gift to th University of Chicago (http://odyssey.uchicago.edu/) will certainly encourage more low-income students to go to a pricey school. There have also been donations to the UofC specifically for scholarships/prep programs for low-income Chicago public school students. I think if you donate (and earmark) money to a University, it actually CAN do a lot of good, considering that educational segregation/inequality is a huge problem in the US.

Posted by Molly | January 24, 2008 1:10 PM

Tyro,

It sounds like you know more about this than me, so maybe you can correct my (false?) impressions.

Organizations like Catholic Charities, Church World Service, the Adventist Development/Relief Agency, etc. get their budget from the churches with which they are affiliated, right? Or do they raise their funds separately? If everyone stopped donating to the Catholic Church, then Catholic Charities would no longer exist, right?'

In other words, if I do want to donate any money to Catholic Charities do I have to send a check o them separately or will part of the money in the tray go to them anyway?

Incidentally, the educational expenses of the church do, at least in part, serve a valuable, pro-poor function. Catholic schools in the city of Boston for example, are often a good alternative, for low-income families, to troubled urban schools. I remember hearing rumors that some of these schools, if I recall correctly, had to close down after Boston residents stopped donating to the church because of the child abuse scandals.

Posted by Hector | January 24, 2008 1:12 PM

I agree that spending hundreds of thousands of dollars per unit on undergraduate residences is insane, but I don´t think you can credibly say that donations to big name universities are the least useful way to give away your money -- after all, America´s major universities create disproportionally more public knowledge than just about any other institution in human history.

Posted by iskndar | January 24, 2008 1:13 PM

Most universities aren't rich like the top few. Donating money to them, or for scientific reasearch (research not influenced by interested corporations!) seems quit useful.

Posted by yoyo | January 24, 2008 1:14 PM

I'm reminded that Arianna Huffington finally saw through the "1,000 points of light" and turned left when she realized how easy it was to raise money for symphonies and opera houses and how hard it was to raise money to help poor people eat and stay out of the cold.

If our society took care of our most pressing cybernetic needs with a reasonably civilized safety net instead of insisting that we are freer by failing to do so, then it wouldn't much matter what rich people wanted to do with their money--not ethically, anyway.

As things stand, the whole issue, as Arianna knows, is a suppurating disgrace.

Posted by elle loco | January 24, 2008 1:16 PM

It should be noted that when we complain about the huge, hulking endowments of universities that suck up hundreds of millions of dollars of "charitable" funds, we're basically talking about 50 institutions.

That Harvard's behavior is a bit sketchy and hyperactively money-grubbing is a problem of Harvard and a few of its elite peers, not some kind of systemic breakdown of the non-profit designation for the university system in general.

Posted by Tyro | January 24, 2008 1:20 PM

Oh sure, I'm certainly more sympathetic in the abstract to donating to Oxford colleges than to top tier US universities with enormous endowments. I just find it amusing that they think there's even a chance I'll give them anything.

Posted by Ginger Yellow | January 24, 2008 1:22 PM

It ought to be said that Harvard is only building this Allston monstrosity to justify its continued fundraising and mounting endowment. It's among the most expensive acts of pointless circular self-justification I've ever seen, at least outside the Bush administration.

Posted by Marshall | January 24, 2008 1:23 PM

I think you're barking up the wrong tree, Matt. The three biggest tax deductions, by far, are the charitable deduction you mention, the home mortgage deduction, and the state and local income tax deduction.

If I were thinking about tax reform, I'd focus on the latter two. Getting rid of the home mortgage deduction would have probably prevented the recent housing bubble, and the state and local income tax deduction is just silly.

Posted by Frank Bruno | January 24, 2008 1:55 PM

Hector, I'm not Catholic, but my educated guess is that their institutional size created sufficient economies of scale that allowed them to start up schools and charitable organizations on a scale that most other churches couldn't.

The money you donate to your church pays the expenses. If any is left over, they start thinking about how to start charitable and educational activities. In the case of the Catholic church, their sheer size means that there's more "left over" to start schools and charities and such. But I'm pretty sure that these charities then start raising money separately to create their own revenue stream. In the case of the Catholic church, when donations to the churches and dioceses dried up, those charities that couldn't stand on their own folded.

In any case, the government isn't making a value-judgment about whether a non-profit provides a societal benefit. Ms. Whitman is the one who has to answer for the moral benefits of her "charitable" donations. I don't think it's a failure of government policy, it's a failure of the culture in which Ms. Whitman resides that favors donations for large capital improvements over charitable institution-building.

Posted by Tyro | January 24, 2008 2:00 PM

Frank, the UK doesn't have a mortgage interest deduction, and they also suffered a housing bubble.

Removing the state and local income tax deduction is just a means of punishing people from blue states.

Posted by Tyro | January 24, 2008 2:04 PM

I'll happily admit that I'm not much of a charitable donor one way or the other.

What does this mean? Is there more than one way to be not much of a donor?

Posted by Roger Ailes | January 24, 2008 2:11 PM

I don't think the Harvard brand would suffer that much if they doubled undergrad enrollment. It would also - it seems to me - double their chances of admitting the next Bill Gates.

The question then - why don't they increase enrollment. If the goal is building the endowment,increased enrollment would seem a no-bainer.

John

Posted by Jmo | January 24, 2008 3:49 PM

The question then - why don't they increase enrollment. If the goal is building the endowment,increased enrollment would seem a no-bainer.

A bird in the hand is worth two in the bush. The alums of Harvard like it precisely because most people can't get in; it's a signaling mechanism of wealth, and a very powerful one at that. They'd rather risk losing the future scions they might get than risk angering the ones they have now.

Posted by Freddie | January 24, 2008 4:09 PM

If we kept the deduction in place for institutions aimed at helping the poor, how much charity would be redirected in their direction?

A little but not very much. The incentive is not 100% tax evasion, that's where you are erring in your thinking. Just like the middle classes, the ultra rich give to charities that interest them, for many reasons, from genuine altruism to gross egoism to because their controlling father would have hated the charity. You may think giving to a rich university is stoopid, someone else does not. The tax evasion incentive merely inspires to give much more generously and/or more often to those charities which they would already prefer to give. (Good example: Oprah Winfrey was not going to help an American school, she came out and said so, gave reasons.)

One other thing that I know from my work: take away the deductions without radically changing our tax system and chances are very high that the tax man will not get any of that money. The I.R.S. and smart accountants know this. It's just reality, like it or not.

All that said, your example raises this query for me: shouldn't the heavily endowed of all kinds of charities be cut off at a certain level of endowment wealth and sustainability from the support of tax deductible donations? Do we want to be supporting the growth of bureaucratic monster charities? Before you answer knee-jerk, it's complicated: think about The Metropolitan Museum of Art v. the imaginary future Thomas Kinkade Memorial Museum in Branson, MO, or Sloan-Kettering v. the filthy local Animal Shelter and Hospital.

Posted by artappraiser | January 24, 2008 4:11 PM

p.s. to my last: To further my first point: one does not get a U.S. tax deduction for giving to a foreign charity entity. Oprah Winfrey could have gotten a tax deduction for putting her money towards education of Americans, but she chose to forgo the deduction for other reasons having to do with her intent.

Posted by artappraiser | January 24, 2008 4:21 PM

I agree with those who have remarked that Harvard (and other very prestigious universities) is basically a tax-free hedge fund with a university attached. Giving to them is about the least socially worthwhile thing you could possibly do with your money.

Posted by Elliot Reed | January 24, 2008 4:54 PM

Artappraiser,

I think you can donate tax-free to a U.S. _organization_ that works overseas, but not to an actual foreign-run charity. It's a pity- they should amend the tax code.

Tyro,

That's interesting, it hadn't occurred to me that the faith-based charities might be somewhat independent revenue-wise of the churches. I had always assumed that a fairly significant fraction of church donations go to charities. I should look it up.

I'm not actually Catholic either- I'm a very disaffected Anglican and I'm attending a Catholic church until such time as the Anglican communion in America comes to its senses and purges itself of apostate priests like the current Ms. Schori.

Posted by Hector | January 24, 2008 5:04 PM

You don't attend Harvard to get an excellent education any more than you buy a Ferrari to get a nice ride to and from work.

The purpose of attending a school like Harvard, when you can get an equally good education for much less money at the state school of your choice, is to hob-nob with the haves and have-mores, thus making the kinds of contacts that are necessary to either enter that social group or maintain your position in it. Thus you can see why Harvard doesn't expand more or dilute their brand by accepting more students from the lower end of the economic scale. If the student body population of Harvard resembled that of an average state school, the entire point would be lost, much as the point of your Ferrari would be lost if every other car on the Interstate was one.

Posted by Rob Mac | January 24, 2008 6:07 PM

"I think you can donate tax-free to a U.S. _organization_ that works overseas, but not to an actual foreign-run charity. It's a pity- they should amend the tax code."

It's not an unreasonable restriction. The US has no easy means of monitoring charitable institutions abroad, so lots of people could get tax deductions for giving to organisations that wouldn't qualify as charities if they were in the US.

Posted by Ginger Yellow | January 24, 2008 9:18 PM

If this change were to be made, I still think cultural institutions and universities would do just fine. Compared to, say, anti-poverty charities, these elite institutions will still have the benefit of being...wait for it...elite institutions. I'd guess that a fair percentage of charitable contributions are socially motivated--rich people trying to impress society and their social milieu with a statement about themselves--as opposed to altruistically motivated. And it is more notable and impressive to have a building named for you at Harvard or a room named for you at a prestigious museum than it is to deal with some disease, at least one less trendy than HIV, in Africa.

Posted by Robert | January 25, 2008 10:30 AM

Hector & Ginger Yellow,

The whole idea behind the tax deduction is that they forgo some of the tax revenue knowing that the money is going to be going to the benefit of U.S. society, like the tax money would.

It's easy to see the problem if you think of it in terms of the more art-related charities. Why should taxpayers be subsidizing donations of art to French museums where U.S. citizens can't see them? The idea is to get art for the U.S. public to see. Or why would you want to be subsidizing with your taxes a German opera company?

Yes, donations to big U.S. charities that do work both here and abroad are deductible. That's only because enforcement of separation would be crazy hard to do.

But believe me, on an individual basis, the I.R.S. does pay attention to this and would throw right out any large deduction like Oprah's for her school in Africa. She could try to set up a U.S. foundation to do it and try to get a deduction that way, but they'd be on that right away, it would be a big red flag if the foundation didn't also have at least an equivalent amount of donations to similar U.S. needs, it would look just like tax avoidance to them, and more likely then not they'd give her a ton of grief even if that were so.

They always look for whether people are following the principle of the the whole set-up, it's not like it's a "right". It's not there to reward you for being a good person, it's a psychological gimmick recognizing the reality of the preference people have for donating to charity over paying taxes, that people like the idea of having gotten away with paying less taxes, even though they didn't get to keep the money and it went to help U.S. society.

Matthew's question, in actuality, shows that he understands all of this. It's just that I don't think his suggestion would work psychologically, i.e., you wouldn't end up with more money being given to soup kitchens if you denied the deductions for Yale and Harvard. Just like Oprah cared more about being able to start a school where kids already had a hunger for education than getting an easy tax deduction.

Posted by artappraiser | January 25, 2008 11:05 AM

Yeah, what infirm said above:Matthews?I'd have gone with Wigglesworth.

I lived in Matthews.

Posted by Matthew Yglesias | January 25, 2008 5:26 PM

The issue shouldn't be what Whitman College cost to build, it should be the long-term cost-of-ownership.

The Ivies, at least, have some history of building buildings that last for generations, which is, on the whole, a good thing.

Posted by Sean | January 26, 2008 3:43 AM

Good day! I would like to ask for help for my Mom who is battling lung cancer. She has been a good mother and I feel sad that the price of this is having a lung cancer. I am from the Philippines a Licensed Nurse dreaming of going to the United States or Canada. Soon, I will fulfill that dream but due to some paper delays I can't apply for my visa yet. I really wanna leave the country very soon to help Mom's chemotherapy. I hope that someone with a good heart will help us because she had her very first chemotherapy last Novemer and supposed to be she needs to be back after 4 weeks for the second session however due to financial problems we were not able to bring her. My Dad can't afford also her chemo because of my siblings in university. I am doing teaching job but then again money is still a problem. Its not even enough to feed 2 mouths. I am willing to pay back when I get to Canada. I just want added years in my Mom's life for we never had a chance to enjoy so many things and I still want her to experience touring Canada coz all her life and also my Dad all they do is work since I was 4.

Sincerely,

Ted Louie D. Sol

Posted by Ted Louie Sol | February 4, 2008 10:24 AM