Most EU countries are not especially generous in the tax incentives they offer to support good causes. Many people think they should do more. Frances Cowell is not so sure.
You put an Euro in the cup of a homeless person or volunteer to help at a local charity. Do you claim that on your tax return? Probably not. You drop a coin in the box of someone collecting for a good cause. You may claim the tax on that, but you probably don’t bother. You respond to a television appeal for victims of a natural disaster, and you may well include that on your tax return. All are genuine philanthropy, some are part subsidised by your fellow taxpayers.
Then there are the philanthropists you read about: typically very wealthy people or large corporations, who set up foundations to manage their charitable activities, such as Carnegie, Nuffield, Wellcome and Bill and Melinda Gates. Many, if not most people laud their generosity, reasoning that those who have done well from society should be prepared to “give something back”. Its hard to argue with that, but look more closely, and not all philanthropy is as generous – or beneficial – as it may seem.
The break behind the giving
Much individual, and most corporate giving is supported, in whole or in part by some kind of tax incentive. The UK and Ireland, for example, allow firms to deduct all they give from the earnings they declare for tax purposes. By contrast, most other EU countries cap taxable allowances at quite modest levels: Austria allows firms to deduct up to 10% of their taxable income, while Germany caps it at 20%. France allows 0.5% of annual turnover (which, if you assume an arbitrary 10% profit margin, translates to about 5% of pre-tax profit). Many of these concessions are also conditional on fairly detailed disclosure about the donors. Sweden offers no tax breaks at all for charitable giving. Among non-Anglophone Europeans, the Netherlands is an outlier. Like the US, it allows up to 50% of taxable income – which might help explain why so many NGOs are based in Amsterdam.
Corporations and individuals who give large amounts also benefit from the public accolade and boost to their reputations of being associated with a good cause: your name on a university library, a new hospital wing, a foundation that will operate in perpetuity. Alfred Nobel is better known for the prizes that bear his name than for the firm that generated the wealth that funds them.
While much charitable giving is simple generosity, a great deal is self-interested, and subsidised – involuntarily – by taxpayers. That would not matter but for the fact that not all the activities so supported would be approved by many of those taxpayers.
Andrew Carnegie and David Koch, who died earlier this year, are just two examples of individual philanthropists with mixed records on social responsibility.
Carnegie certainly achieved his aim of being remembered for the foundation that bears his name, notable its support for education, among other things. But he is also remembered for the harsh treatment of his workforce: fatal accidents at his steel mills accounted for a fifth of all male deaths in Pittsburgh in the 1880s, while those who survived worked 12-hour shifts, seven days a week. Trade unions and twentieth-century labour laws now protect most workers from such exploitation – at least in rich countries. But twenty-first century philanthropy can have its own dark spots.
Philanthropy and the real world
David Koch and his brother Charles used their wealth in unarguably constructive ways, such as to help poor migrants and fund cancer research, criminal justice reform and the arts. But, as the Economist noted in its 31 August issue, they also used it to support corporate deregulation, including a campaign of dis-information to discredit scientists’ warnings of the perils of climate change, helping to aggravate the problem now threatening every living thing on the planet. Nestlé was an enthusiastic donor to victims of a devastating famine in Africa in the 1960s, but was loudly condemned when it emerged that the “help” included propaganda and free samples to discourage new mothers from breast-feeding in favour of its own brand of infant formula.
When you think about charitable giving, you probably think about cash given by ordinary people or firms. But corporate philanthropy can take many forms, often combining tax incentives with other structures and schemes. One example is co-pay charities that prey on private health insurance schemes. Consider the cost of an expensive, life-saving treatment that is only partially met by the patient’s insurer, often leaving the patient to foot bills in the thousands – and more – of dollars. The pharmaceuticals firm that produces and sells the drug offers to help meet the shortfall with a co-payment, which is then deducted from the firm’s tax bill. So far, so good. But who benefits and who pays? The firm’s incentive is to charge as much as it can get away with because the co-payment is in fact to itself, with a significant part of it paid by tax-payers, who are in effect writing a big cheque directly to the pharmaceutical firm’s shareholders.
Philanthropists do plenty of good. But they also take it on themselves to direct tax-payers’ money to campaigns, such as for deregulation, that may serve their own and their shareholders’ interests, often at odds with the public interest. They can also impose conditions that reflect their own political or social preferences and views, such as funding education programmes laced with political propaganda, or health care provision that proscribes family planning.
When you give to charity – either actively, through your own donations, or passively, through taxes deducted against the donations of others, you probably care about how your money is being used, and you may prefer that it not come with mis-information or dogmatic strings attached.
Tax receipts foregone by governments can crowd out more deserving causes that might be favoured by taxpayers were they given a say. Domestic social spending and foreign aid budgets, on the other hand, form part of a government’s social policy, so are subject to democratic oversight, and can be held accountable.
Helping others worse off than ourselves is natural and human. But we feel aggrieved if we think we’re being duped. Countries that offer tax breaks for charitable giving in effect oblige their taxpayers to give involuntarily. Those taxpayers have the right to know how their money is being spent.