Mar 18, 2009

Should donations to foreign charities be tax deductible?

by Laura Starita

The Obama administration’s proposal to reduce the tax deductability of donations to non-profits for the wealthy has stirred quite a few hornet’s nests—and brought debate about public policy related to encouraging, or at least not suppressing, charitable giving attention it hasn’t had in years. Gary Becker and Richard Posner—the Nobel Laureate economist, and Chicago court of appeals judge, respectively—extend the debate to foreign charities. At present, US tax law does not recognize donations made to overseas charities as tax deductible. Posner argues that charitable donations to overseas nonprofits should not be tax deductible, while Becker takes the position that they should. Though both scholars tend toward assertion through examples that are anything but certain—such as Posner’s belief that food aid to Zimbabwe’s starving masses has kept Robert Mugabe in power, or Becker’s claim that philanthropic capital is used more effectively than government aid—the debate is worth reading for its distillation of the core challenges and benefits of lending aid to the developing world.