How should we subsidize charitable giving to the arts?

In the New York Times, Nicholas Kristof and Sheryl WuDunn write:

Moms in poverty often live in stressful homes while juggling a thousand challenges, and they are disproportionately likely to be teenagers, without a partner to help out. A baby in such an environment is more likely to grow up with a brain bathed in cortisol.

Fortunately, a scholar named David Olds has shown that there are ways to snap this poverty cycle.

Mr. Olds began his career working with 4-year-olds, but then decided that many children were already traumatized and damaged at that age, so he needed to start earlier. He founded an initiative that became Nurse-Family Partnership, dispatching nurses to visit low-income, disadvantaged families and offer counseling on child-rearing. The nurses begin visiting during pregnancy, urging moms not to drink or use drugs while carrying a baby. …

The visits have been studied extensively through randomized controlled trials — the gold standard of evidence — and are stunningly effective. Children randomly assigned to nurse visits suffer 79 percent fewer cases of state-verified abuse or neglect than similar children randomly assigned to other programs. Even though the program ends at age 2, the children at age 15 have fewer than half as many arrests on average. At the 15-year follow-up, the mothers themselves have one-third fewer subsequent births and have spent 30 fewer months on welfare than the controls. A RAND Corporation study found that each dollar invested in nurse visits to low-income unmarried mothers produced $5.70 in benefits.

So here we have an anti-poverty program that is cheap, is backed by rigorous evidence and pays for itself several times over in reduced costs later on. Yet it has funds to serve only 2 percent to 3 percent of needy families. That’s infuriating. …

We wish more donors would endow not just professorships but also the jobs of nurses who visit at-risk parents; we wish tycoons would seek naming opportunities not only at concert halls and museum wings but also in nursery schools. We need advocates to push federal, state and local governments to invest in the first couple of years of life, to support parents during pregnancy and a child’s earliest years.

At Nonprofit Law Prof Blog, Roger Colinvaux comments:

One question that arises from the authors’ lament relates to the charitable deduction, under which donor preferences among public charities are treated equally. The issue is whether tax policy should aim to direct donors more toward certain charitable ends rather than others. Or, in the frame of the article: should tax policy equate a naming opportunity at a concert hall with funding a successful anti-poverty program? Present law already favors gifts to public charities over private foundations. A question in the context of tax reform thus is whether a preference for one type of charity over another should be made more on functional grounds. If the charitable deduction were converted to a credit, it would be easier over time to tie the amount of the credit to the desired end of the subsidy, perhaps with a relative preference for certain charitable ends or programs. All charities that currently benefit from the deduction could continue to benefit, but the credit for giving to some would be greater than for giving to others. It is a controversial question, but tinkering with charitable tax incentives to direct donor preferences toward more pressing needs is worth serious consideration.

A few thoughts:

First, I have always preferred the idea of a (refundable) tax credit to subsidize charitable donations, as is the case in Canada, rather than the current US method of a charitable tax deduction. The tax deduction system means that the effective subsidy to charitable donations (1) is dependent on however the federal government decides to set marginal tax rates, which is generally done with multiple policy objectives in mind, where the effects on charitable donations are not likely to be the most salient, and (2) is unequal across donors, with those in higher tax brackets getting a larger proportionate subsidy to their donation than those in lower tax brackets. A tax credit can solve each of these problems: the rate can be chosen based upon what is thought to be the appropriate rate of subsidy to donations, independently of the schedule of marginal tax rates, and (2) all taxpayers can receive the same rate of effective subsidy.

Second, I am not so sure about setting different rates for different sorts of charity. It would be extremely challenging to demarcate which specific charities warrant a higher tax credit, and to keep such a list up-to-date. Do home nurse visits rank higher than donations to basic health research, or infrastructure? Do arts education programs rank higher than regional nonprofit theatre companies? Who decides? I agree that a donation to fund home nurse visits to new families is better than a donation to Harvard, but that’s just me. How could this be implemented?

There is another option though. I have lived in countries where a visit to the home by a nurse in the first few weeks after bringing home a baby was simply a part of public health care. The state can pay for such things, as a matter of equity (ensuring poor families get some assistance they otherwise could not afford) and efficiency (it is a lot cheaper for the state to fund such services than to pay for all the ill-effects of families and children struggling in their early years). Kristof and WuDunn and Colinvaux are all asking how we might better direct charitable donations, but a fundamental aspect of that approach is that the government sends support, through tax expenditures, to where the donors want the support to go. The donors choose. Rather than tie ourselves in knots trying to figure out how to incentivize donations to nurse home visits, how about states expand nurse home visit programs?

Subsidizing donations to the arts, and having low direct state spending on the arts (as is the case in the US), means that donors have the major decision rights on where public support goes. Reasonable people can disagree as to whether this is a good way to do things. I think the stakes in arts funding are less than the stakes in basic early childhood (and parenting) education and health care, and focusing on charity is the wrong approach. Finance public health directly, publicly.