Spreading the Wealth

The new American president promoted the value of “spreading the wealth around” as an election theme, providing low-income families with tax breaks, rebates, and credits. The practice of using federal income taxes to re-distribute wealth, which sometimes reflects the noblest of goals, frequently generates significant unintended harm. Prominent among those unplanned casualties is a reduction in charitable giving: American voluntary wealth transfers (e.g., charitable contributions) are in danger of being crowded out by mandatory transfers (e.g., federal taxes) used to redistribute wealth. This paper considers the social and economic costs of raising taxes that crowd out charity.