Philanthropy and Caring for the Needs of Strangers

People have been giving away their money, property, and time to others for millennia. What’s novel about the contemporary practice of philanthropy is the availability of tax incentives to give money away. Such incentives are built into tax systems in nearly all developed and many developing democracies. More generally, laws govern the creation of foundations and nonprofit organizations, and they spell out the rules under which these organizations may operate. Laws set up special tax exemptions for philanthropic and nonprofit organizations, and they frequently permit tax concessions for individual and corporate donations of money and property to qualifying non-governmental organizations. In this sense, philanthropy is not an invention of the state but ought to be viewed today as an artifact of the state; we can be certain that philanthropy would not have the form it currently does in the absence of the various laws that structure it and tax incentives that encourage it. This paper specifies and assesses three possible justifications for the existence of tax incentives for charitable giving, identifies a distinctive role for philanthropy in democracies, and argues for a fundamental redesign of the current legal framework governing philanthropy.