Are the Billionaire Koch Brothers Economic Imbeciles?
The Cato Institute Proposes a Test
Tea Party Economist
by Gary North: Liberty
Is Winning, Mostly
A senior fellow
at the Cato Institute has written a remarkable article. It implies
that the Koch brothers, who are the main source of funding for Cato,
are a pair of economic ignoramuses. (Note: ignorami
is acceptable, if youre a pedant.) It was published in the
Wall Street Journals December 14 online edition and
in a special insert in the December 17 printed edition.
We End the Tax Deduction for Charitable Contributions?
Dr. Daniel Mitchell, an economist, answered yes.
is nothing if not unique. Let me take you through it.
For all the
praise it gets, theres just no evidence that the tax break
leads people to increase their givingbut it does lead them
to make bad choices about giving. Whats more, it favors a
segment of the public, the very wealthy, that can afford to give
without a break. And cutting the deduction does a lot less economic
harm than other ways of raising tax revenue.
is a great believer in evidence. As we shall see, he cares not a
fig for economic theory. Evidence is king.
Why do I say
that he cares nothing for economic theory? Because he denies the
fundamental premise of all free market economic theory: At
a higher price, less is demanded.
He says that
charitable giving remains at 2% of gross income, no matter what
the policy. This is his evidence.
He relies on
the undefined concept of need. This word is not used
by free market economists. This is because they see behavior as
modified at the margin. There are wants. Besides the basics of life,
there are no needs.
households are the biggest beneficiaries of the deduction, with
those making more than $100,000 per year taking 81% of the deduction
even though they account for just 13.5% of all U.S. tax returns.
are even more skewed for households with more than $200,000 of
income. They account for fewer than 3% of all tax returns, yet
they take 55% of all charitable deductions.
argument is clear: marginal tax rates have no effect on giving.
think about this claim. At a top bracket rate of 36%, for every
dollar donated, Uncle Sam leaves 36 cents on the table. Mitchell
says that it will not affect giving by adding 36% to the cost of
giving by the rich.
In short, all
modern economic theory is wrong. At 36% more costly, the same amount
of charitable giving will occur.
price is irrelevant to the rich. He is quite open about this.
people who can not only afford to give up the tax break, they
would very likely give to charity without the deduction. They
would still face tremendous cultural pressure to write charitable
checks, as well as the prompting of their own conscience. Besides,
many of them would still get nice perks for doing goodlike
seats at the opera or buildings named after them.
the logic of this argument, I offer this annual fund-raising letter
from Cato to the Koch Brothers.
is a copy of a recent article by one of our fellows. It argues
that rich people are economic ignoramuses. They do not respond
to price changes. It states emphatically that if you and your
peers have the tax deduction removed, you will still give as much
money as before.
So, if the
deduction is removed, as Dr. Mitchell recommends, we here at Cato
expect that you will still send us as much money as you did before
the deduction was removed.
we will need a bit more. Donors who are not fat cats like you
will probably cut back on their giving. They respond to price
changes. But you two wont. Dr. Mitchell has the evidence.
You dont want to argue with evidence. Thats what scientific
economics is all about. We here at Cato are nothing if not scientific.
show that we are confident that you will still send as much money
as before, we are tossing in some opera tickets.
The Cato Fund-Raising Staff
I would like
to see the Kochs response.
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 31-volume series, An
Economic Commentary on the Bible.
2012 Gary North
Best of Gary North