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Are the Billionaire Koch Brothers Economic Imbeciles? The Cato Institute Proposes a Test.

Written by Gary North on December 18, 2012

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 you’re a pedant.) It was published in the Wall Street Journal‘s December 14 online edition and in a special insert in the December 17 printed edition.

The insert asked: “Should We End the Tax Deduction for Charitable Contributions?” Dr. Daniel Mitchell, an economist, answered “yes.”

His argumentation is nothing if not unique. Let me take you through it.

For all the praise it gets, there’s just no evidence that the tax break leads people to increase their giving–but it does lead them to make bad choices about giving. What’s 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.

Dr. Mitchell 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.

Upper-income 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.

The data 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.

His argument is clear: marginal tax rates have no effect on giving. None.

Let’s 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.

Put differently, price is irrelevant to the rich. He is quite open about this.

These are 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 good–like seats at the opera or buildings named after them.

To understand the logic of this argument, I offer this annual fund-raising letter from Cato to the Koch Brothers.

David and Charles Koch
Somewhere, USA

Dear David and Charles:

Enclosed 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.

Actually, 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 won’t. Dr. Mitchell has the evidence. You don’t want to argue with evidence. That’s what scientific economics is all about. We here at Cato are nothing if not scientific.

Just to show that we are confident that you will still send as much money as before, we are tossing in some opera tickets.

Sincerely yours,
The Cato Fund-Raising Staff

I would like to see the Kochs’ response.

Continue Reading on www.garynorth.com

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20 thoughts on “Are the Billionaire Koch Brothers Economic Imbeciles? The Cato Institute Proposes a Test.

  1. dntmkmecomoverther says:

    Well, Dr. Daniel Mitchell, let's see you amass an economic fortune as the Koch's have. You insipid idiot economist, you couldn't amass a cluster of braincells if your life depended on it. Good thing it doesn't. Economists are the pimples on the ass of life.

    • This guy can’t be an economist because any economist knows the Law of supply and demand. This guy “works” or maybe worked for the Cato Institute. No where does it say he has a degree in economics. Hopefully the Brothers defund Cato and put their money to better use.

      Three previous Presidents paid attention to the Laffer Curve and reduced taxes. When the dust settled the Federal Government was collecting more taxes. For most Americans it was magic math. Unfortunately none of Øbama’s administration has a clue how economics works. As stated over and over again, it’s all about “fairness”. But what do you expect from a guy that never ran even a 7/11 before being “elected”. That he was elected again indicates to me the imbecile level of most Americans. Ok you can now call me a racist.

      • "a guy that never ran even a 7/11"

        Correction: a guy that never even ran a lemonade stand.

        Thanks for your attention.

        Hilarious article on left-think.

      • o' bozo ' ; and his administration ; know ' , exactly , what their doing ; it is all ' , in the , ' plan ' .

      • Communists don't care about economics, which of course is the problem with THIS "president".

  2. WillytheGeek says:

    NO, to the first question and NO, to the second. No, I'm not rich either.

  3. I would like to continue itemizing my tax deductions that includes the checks I write charities. But I am fully OK with billionaires needing to pay capital gains taxes when they make stock transfers to their (quite often liberal leaning) charitable foundations.

    Let the average guy keep the deduction that probably comes from ordinary income and but let the government collect capital gains tax from Warren Buffett when he gives the Bill and Melinda Gates Foundation $40 billion in Berkshire Hathaway stock.

    Donation of stock that has a original cost of $20 and a value when transfered of $100,020 (I know Berkshire is higer) would not pay long-term cap gains (20% for next year?) and also get up a full deducation of the $100,000 gift assuming AGI is over $200,000. So for 2013 (if things don't change), that gift could get save warren $20,000 plus $39,600 for a total of $59,600.

    So when Warren gives the second richest man's foundation $100,020 in stock, for next year it really only costs him $40,400….depending on your political view either the government is making up the difference or letting Warren keep what he earned?

  4. Who said Obama was intelegent? He never reads anything that has any substance on economics. He probablynever heard of the Laffer Curve, He can only see there is a problem and the solution is to throw taxpayer money at it. He has a (excuse the racist name) niger rich mentality. The amounts of money entering the geneeral fund is more than pocket change so let's use it and then borrow another $0.44 for every dollar collected to balance the budget. Now that is what he calls responsible budgeting. I can not operate my home budget like that. Can anyone?

    • Interesting how you say someone is not “intelegent” when you can’t even spell the word correctly.

      P.S. It’s “intelligent”

  5. He logic is off due to the majority uses the standard deduction so does not list charity donations.

  6. The “professor” assumes that charity giving is only performed by the 1% (or upper 10%).
    The foundational assumption is incorrect in that many give to charity for a variety of reasons. Those who take the biblical “command” of giving seriously give. However, those following that “command” will give whether or not the charity deduction remains or not. Of course, it would seem that the deduction was established to encourage giving.

  7. TruthWFree says:

    The idea of libtards like this one is to eliminate personal giving and let the government take the money to buy votes for the poor, eliminating the teaching of Jesus Christ to help the poor. Concerning that, Christ fed 5,000 and then 4,000, but he did not continue to do so forever as that generates people who do nothing for themselves, just like the "Do Not Feed The Animals" signs in the National Parks as they will become dependent on those handouts and not be able to survive off the land.
    Yes, Koch should defund this ignorant group.

  8. I think people here got the wrong picture here. Daniel Mitchell is a free market man which is why he works for Cato. What is more likely to be going on here is that Prof. Mitchell is doing the bidding of the Republican establishment who are trying to betray free market logic that the grass roots support. This is when these supposed free market think tanks in Washington come in handy. They are hired guns for the Republican establishment who wants to sell whatever policy change they find politically expedient at any given time. Mitchell is a free market man who is trying to argue against the free market.

  9. One factor I don't see mentioned here is that many charities perform tasks that would otherwise be performed by government. Does anyone think that public schools can educate children as cheaply as Catholic and Lutheran schools do? And what would be the impact on public school systems if tomorrow the Catholic Church and Lutheran Church-Missouri Synod closed down all those urban schools they're running?

  10. IamaproudAmerican says:

    In the past i did give to charities because I could deduct it from my taxes. Since I lost my job this summer, I found myself giving to charities even though I don't have a lot of money. I probably will continue to do even if I can't deduct it.

  11. since many of these 'foundations' are merely liberal think tanks including the red cross, united way, etc , exceptions being obvious ones like Salvation Army, we all may be better off if these are left to wither on the vine.
    who needs the? the Ford Foundation – among others – has become extremely left wing.

  12. I clicked on "Gun Sales are Booming", and got directed here, twice. Me not happy with this site right now. :-/

  13. Te article states "For all the praise it gets, there’s just no evidence that the tax break leads people to increase their giving–but it does lead them to make bad choices about giving." What an insane statement! "Bad choices"?! Just exactly where does he get these facts? And bad in comparison to WHAT or to whom? Bad choices implies the common man is not capable of making good decisions about this issue. I say, what I a bad choice to the authortr of the article, may be the perfect choice for me or others. How dare he suggest or even imply he or other elitists or government bureaucrats are more capable or make 'better' choices than we average folk?! This statement is disgustingly condescending. I hope its a misquote or misprint, otherwise the man comes across as a fool on a fool's errand!

  14. [...] article was written by one of my GaryNorth.com subscribers. It nails the issue, and it nails the Cato Institute’s Dr. Mitchell, who systematically ignores the obvious. medianet_width="300"; medianet_height= "250"; [...]

  15. Scrooge having no better answer ready on the spur of the moment, said, “Bah!” again; and followed it up with “Humbug.”
    “Don’t be cross, uncle,” said the nephew.
    “What else can I be,” returned the uncle, “when I live in such a world of fools as this Merry Christmas! Out upon merry Christmas. What’s Christmas time to you but a time for paying bills without money; a time for finding yourself a year older, but not an hour richer; a time for balancing your books and having every item in ’em through a round dozen of months presented dead against you? If I could work my will,” said Scrooge indignantly, “every idiot who goes about with “Merry Christmas” on his lips, should be boiled with his own pudding, and buried with a stake of holly through his heart. He should!”

    Dickens, C. (1997). A Christmas Carol. Oak Harbor: Logos Research Systems.

    Oh well, Merry Christmas !

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