Are Mitt Romney’s charitable contributions or tax rates more important?

Since former Massachusetts Governor Mitt Romney became the presumptive Republican nominee, a portion of the presidential campaign has focused on whether or not the two-time presidential candidate will release 12 years worth of tax returns like his father, former Michigan Governor George Romney, did.

On Friday afternoon, via the Official Mitt Romney blog, details on his 2011 tax return were given to the public.  Romney earned $13,696,951 in mostly investment income and paid $1,935,708 in taxes for an effective rate of 14.1 percent

The mainstream media outlets have predominantly reported on his tax rate – Saturday Night Live aired a satire this weekend about Romney paying less than a restaurant patron’s tip percentage.  However, there is one aspect of his filings that has not been mentioned much in the media: his charitable donations.

Mitt and his wife, Ann, donated more than $4 million to charity last year.  That’s a total of close to 30 percent of their income.  They claimed a deduction of $2.25 million of those charitable contributions, but declined to take the full charitable deduction, which means he paid more than he had to.

As Politico reported over the weekend, Romney donated about 10 percent more to charity than President Barack Obama and First Lady Michelle Obama (21.9 percent) – Vice President Joe Biden and his wife, Jill, donated 1.5 percent.

There have been a lot of complaints that Romney (and the rich) is paying less in taxes than most Americans who earn far less than him.  Is Romney helping society more by contributing to charities than government agencies? As the “tax the rich” sentiment persists in the United States and in other parts of the Western world, most affluent households donate a significant portion of their income to charity, whether it is for tax purposes or philanthropic reasons.

Although the percentage of wealthy households donating to charity has fallen since the recession, many millionaires and billionaires have pledged to donate half of their wealth to charity.  Philanthropy noted at the end of last year that the “biggest gifts announced by Americans totaled more than $2.6-billion, compared with $1.3-billion in 2010.”

Milton Friedman, economist and author of “Free to Choose,” has opined in the past that charities are much more competent than government agencies and bureaucrats when it comes to handling money and distributing the funds.  CATO Institute went further by publishing an article encouraging the government to end its welfare programs and replace them with private charities.

Whether it is resource misallocation or welfare fraud, charities, according to a report by economist James Rolph Edwards titled “The Costs of Public Income Redistribution and Private Charity,” can be more efficient in helping those who need it because governments “absorb about two-thirds of each dollar budgeted to them in overhead costs, and in some cases as much as three-quarters of each dollar.

“In contrast, administrative and other operating costs in private charities absorb, on average, only one-third or less of each dollar donated, leaving the other two-thirds (or more) to be delivered to recipients,” wrote Edwards.

“Charity Navigator, the newest of several private sector organizations that rate charities by various criteria and supply that information to the public on their web sites, found that, as of 2004, 70 percent of charities they rated spent at least 75 percent of their budgets on the programs and services they exist to provide, and 90 percent spent at least 65 percent. The median administrative expense among all charities in their sample was only 10.3 percent.”

Peter Wilby of the London Guardian disagrees with the premise.  In a Dec. 2010 article, he argues that “private charity is never a substitute for public welfare.

“In America, charitable giving is almost a kind of sexual display. It shows you’re strong, wealthy, successful, and you let people know about it, preferably by having libraries or theatres named after you,” wrote Wilby.  “Unfortunately, private charity doesn’t always have the same priorities as public policy.”

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