Yale Professor Robert Shiller -- famed for predicting the stock market declines in 2000 and the housing market collapse -- may be the closest America may have to a celebrity economist. Shiller describes himself as a classical liberal who believes in free markets -- but he’s also a rather liberal in his policy prescriptions and hopeful about the ability of government to improve financial markets.
Shiller’s new book, Finance and the Good Society, makes the case for the importance of finance and “business” generally in promoting human goods. That’s useful, especially when it’s made by someone with liberal political leanings, because it helps to counter the antipathy to business, free enterprise, and entrepreneurship found on the left. As Shiller writes, “[M]aking financial markets work better for all people . . . would appear to promote the deepest objectives of Occupy Wall Street.” You can watch an interview with Shiller about his book here.
In his wide-ranging discussion of finance and financiers, Shiller includes philanthropy as integral to the operation of finance in a good society. Philanthropy is, in Shiller’s vision, not just a way of buying social peace but of promoting equality, improving society, and encouraging the most creative minds in business to apply themselves to advancing a vision of a good society.
Shiller has several proposals about how tax laws and laws governing nonprofits could be altered to increase the incentives for charitable giving in the United States.
Here are Shiller’s proposals. Some are right on target, others misguided:
Keep a generous tax deduction for charitable giving. Shiller makes the case that the charitable deduction is “fundamental” to financial capitalism because it encourages people to give to good causes -- and that President Obama has been wrong-headed to propose cuts to the value of that deduction. Shiller wrote about why these incentives are important in a recent New York Times column. Shiller’s voice is an important one arguing against the widespread support on the left for the Obama administration’s efforts to cut the value of the tax-deduction for charitable giving.
Require charities to report individuals’ charitable contribution to the IRS so that all taxpayers who give to charities get a tax deduction. At present, only about one-third of taxpayers itemize their deductions and so are able to claim a charitable deduction. Shiller proposes that charities report the charitable gift to the IRS -- which, of course, would require charities to collect the Social Security numbers of their donors. Shiller even imagines a level of coordination between charities, businesses, and the IRS such that when a charity reports your gift to the IRS, your employer bumps your take-home pay in the next pay period (because of your lowered total tax burden as a result of the charitable deduction). But won’t many people hesitate to hand over their Social Security numbers to charities -- and possibly even decline to give in the face of a request for a Social Security number? And, the idea that employers could infer information about employees’ level of charitable giving -- along with other facts about their private financial affairs -- by data transmitted from the IRS is deeply worrisome.
Fine-tune charitable deductions and tax credits. Shiller proposes that the government could offer higher tax deductions or credits for donations to charities that respond to areas designated by government as being areas of particularly acute national need. In short, the government would be picking winners in the philanthropy sector. Given government’s success in picking winners in the business sector -- think Solyndra -- this sounds like a terrible idea. Not only will winners be picked on all sorts of dubious grounds, but charities would end up distorting their missions in order to qualify under the government-imposed criteria.
Create tax incentives for interpersonal gift giving. Why should the charitable deduction be limited to gifts to government-certified non-profits? Why not direct gifts to other individuals? Currently not only there is no tax incentive to make such gifts, but there is a tax penalty if the value of the gift exceeds $13,000. Shiller argues that current policy exactly backward: that instead of a tax penalty there should be tax deductions available to those who pay for the medical or educational bills or make other gifts to those outside their household. We might note that some countries like Canada don’t have gifts taxes at all -- this proposal deserves serious consideration in the United States.
Create a new form of nonprofit which would issue shares sold in a market. Nonprofit entities like hospitals and colleges could issue shares that could be traded in a market and whose value could rise or fall. Dividends and profits could be invested only in another nonprofit or charitable enterprises. Shiller argues that shareholders in such a nonprofit would be more engaged than donors are to current nonprofit entities.
Ease the requirement that foundations and donor-advised funds spend at least 5% of their endowment annually. This requirement limits the growth of assets in the early years of a foundation --and in the early years of a family foundation’s existence, the donor may be more focused on his or her business than on thinking of how best to spend the fortune he or she is accumulating in a family foundation.
Robert Shiller has the ear of Washington policymakers -- and so we can expect to hear more of at least some of his proposals.