What if we replaced taxes with donations?

Author: Jean Wilber for fee.org

Healthcare. Education. Along with others, these “goods” are considered so important that most modern governments go to great lengths to provide them to people on low incomes. Of course, we can’t really deny how important these services are.

In a 2016 study conducted by Purdue University in Indianapolis, titled “The Study of Philanthropy Among High-Income Individuals,” respondents were asked to list the social issues that mattered most to them. The two most frequently mentioned issues were healthcare (29%) and education (28%).

Yet is nationalization the only or best way to provide these services to the poor? Are there alternatives? What about charity? Is it possible for charity to replace taxes? It is possible, and it has serious advantages.

There are four main reasons why this is true – moral, political, financial, and psychological.

Let's start with the moral advantages

Are taxes different from charity? In fact, if we take money out of our wallets to donate to a non-governmental organization (which might provide health care or education services), that is different from opening our pockets to the taxman who threatens us: “If you don’t pay your taxes, you’ll go to jail!” We have a strong moral distinction between a coercive action and a voluntary act – paying taxes is coercive, while charity is voluntary.

In fact, rich countries that maintain a state model and, of course, high taxes, are not the most generous. According to a ranking by the OECD (Organization for Economic Co-operation and Development), France has the highest tax-to-GDP ratio in the world at 46.2%, followed by Denmark at 46% and Belgium at 44.6%.

However, when we check the CAF (Charities Aid Foundation) Global Giving Index, France is ranked 72nd in charity, Denmark is 24th, and Belgium is 39th. On the other hand, Ireland's tax-to-GDP ratio is 22.8%, while the US is 27.1%. Ireland is fifth in the CAF Global Giving Index, while the US is fourth. Interesting, isn't it?

Next, let's look at the political advantage.

Expanding state powers carries enormous risk, even when we are talking about topics like healthcare and education.

State education opens a wide path to cultural hegemony through indoctrination. If education is provided through a multitude of independent organizations (sponsored by donations), it is more difficult to control. But when education is centralized in the hands of the state (provided through our taxes), it easily becomes an ideological apparatus that fulfills the dreams of Antonio Gramsci and Louis Althusser.

Once the state has assumed responsibility for the provision of health services, life becomes extremely dependent on the calculations of state power, and it is worth recalling here what Michel Foucault and Giorgio Agamben say about biopower and biopolitics: “Life itself becomes the object of attention for power.” As a result, individuals witness the abolition of the limits of state intervention in their lives. The state acquires the power to tell us what to eat and drink, how to ride or drive, what we can and cannot do.

Which brings us to the financial arguments.

Here we will make a bold statement – private organizations sponsored by donations are usually much more efficient (cheaper or have a better cost-benefit ratio) than state-owned ones. They can do the same work with fewer resources.

For example, in Brazil, we have public and private universities. A study shows that it costs 60% less to educate a student at a private university than at a public university. Perhaps poorer countries could do more with less money if they invested in the private sector and thought about how to promote philanthropy instead of relying solely on government services and taxes.

Maybe if the government obligated us less, people would give more voluntarily.

A 2019 study by Purdue University in Indianapolis (IUPUI) asked wealthy people what they would do if taxes were abolished. And what do you think their response was? Of those, 17% said they would increase the amount they give to charity, and 6% said they would increase the amount dramatically (72% would keep the amount the same, and 5% would reduce it). In 2013, those numbers were even more in favor of charity — 47% would stay the same, 31% would increase their giving, and 18% would significantly increase their giving.

Given that rich people would give more money and we could do more with less (by investing donated money in the private sector), why can't we believe that giving is a financially feasible alternative? As a famous political slogan says: Yes, we can!

Last but not least – the psychological aspect

Several social psychologists, including Elizabeth Dunn, have argued that people who give are much happier than those who don't. And we can indeed see how the benefits of giving increase when people feel a connection to those they help and can easily recognize the improvement that their giving makes in those people's lives.

For example, UNICEF has such a large and wide-ranging donor activity (doesn't it remind us of the state?) that it is difficult to realize how our small donation will make sense. What happens? The emotional return on investment is minimized when people give their money to UNICEF (imagine what happens when we "give" our money to the state). This shows that giving money to a global donor organization (or to Leviathan) is not enough. We need to see how exactly we will help with our donation.

A study by Purdue University confirms this claim. When discussing their motivations for donating, donors shared three main reasons. First, they believe in the organization’s mission (54%). Second, they believe their donation is enough to help (44%). And third is personal satisfaction and joy (38%).

The survey also found that people have more trust in individuals (87% rated average to high) and non-governmental organizations (86% rated average to high) to solve public or global problems. A significant proportion of respondents rated “almost no” trust in the legislative branch (58%), the executive branch (46%), and state or local governments (41%).

Some would argue that we simply need to find a way to calculate the results of tax collection and make the state provide better public services (through cost-benefit analysis). Even so, with these improvements, what is left for the moral aspect? Should we continue to do it by force? And if we say that we will pay taxes voluntarily, what is left for the political argument? Will we continue to make room for state interventionism? Even if the defenders of the tax system do not admit it, these questions remain without satisfactory answers.

Ultimately...

We are used to thinking that helping others is something that each of us should do. And it is. But as long as we think of it as a legal obligation (implemented through taxes), it will remain impossible to create meaningful connections on a personal level and, consequently, it will be impossible to tackle challenges that today seem insurmountable, such as providing health services or education in poor countries.

If we want to do more and do it better, we need to stop looking at the state (and taxes) as the only option for realizing something positive in society.

Translation: Tsvetanka Fileva

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