Virtue and Government-Compelled Charity

Posted on by Dave Roland

Recently, several of my colleagues from Vanderbilt Divinity School sat in on President Barack Obama’s conference call, in which he tried to persuade faith leaders that the nation has “a core ethical and moral obligation” to make sure that everyone in America has access to health care. The Show-Me Institute tries to remain focused on issues that uniquely impact Missouri, so I decided to withhold comment on this point. But, over the past couple of weeks, there has been a string of stories about Missouri religious leaders calling for the government to pursue health care reforms. I think it’s time I offered my own perspective.

I’ll start by saying that I agree that there exists a moral and ethical obligation to see to the well-being of our neighbors. As I noted in a speech I delivered a couple of months ago, this was also an opinion shared by most of our nation’s founders, and it bears no small significance for the approach they took in shaping our Constitution. As they were debating how the American republic should be structured, one of their major influences was Montesquieu’s The Spirit of the Laws, in which the French philosopher described the attributes that must be cultivated for different types of government to be successful. In regard to a republic, virtue was deemed to be the most important quality that citizens could possess.

Virtue, as the founders understood it, was displayed when individuals willingly set aside their own personal interest and, fully understanding the risks and possibility of mistakes, voluntarily acted for the improvement of those around them. The virtuous person understood that they had a responsibility to assist their neighbors and community when the circumstances called for it, and they would not shrink from this duty. A major reason that the founders insisted on high levels of individual liberty was because they recognized that virtue could not exist without liberty. People may be compelled to take action that has a positive outcome, but if they do so unwillingly it is merely obedience, with no moral value. In the eyes of the founders, only a people free to make choices for themselves can truly be virtuous.

From a policy standpoint, this sort of virtue is the ideal way to try to address society’s challenges, for a couple of reasons. The first is efficiency. Private organizations, like private businesses, are more immediately accountable to the people giving them money than are government agencies. If a private organization is doing a poor job, people will simply quit funding that group and either identify or create another organization that will use their money more wisely. A government agency, on the other hand, does not face the same pressure because its funding is not usually dependent on its effectiveness. People are required to fund government projects regardless of whether they agree with them and regardless of whether they prove to be beneficial. Thus, private voluntary organizations have a much stronger incentive to become as efficient as possible.

The second reason that private virtue is favorable to government-driven charity is that government funding does not grow on trees. Every dollar that government spends is a dollar that will ultimately come from one of its citizens. And the consequence of that dollar going to the government is that the citizen cannot spend it on a good or service that will improve his own life — or, as the case may be, the lives of those around them.

This leads directly to the third reason that private virtue is favorable: It gives individuals a sense of personal investment in the causes to which their charitable dollars are flowing. When the government forces citizens to pay taxes, those citizens may have no clear idea as to how that money will be spent, and therefore they are unlikely to take any pride in or ownership of the programs they are funding. On the other hand, when people contribute to private charity — especially local charities — they are far more likely to take a personal interest in helping them to succeed.

For much of our nation’s history, virtue as expressed through private charity was a very important aspect of the American way of life. Alexis de Tocqueville, whose Democracy in America offered the definitive outside assessment of society in the early United States, was stunned to find the prevalence of voluntary associations dedicated to assisting the needy and accomplishing public goods. Indeed, this sort of voluntary philanthropic association remained the status quo through the 19th century and into the early 20th century.

Every once in a while, however, a disaster would arise that inspired Congress to dedicate taxpayer dollars toward recovery efforts. Especially early on, these efforts did meet with considerable opposition. My favorite example comes from when Davy Crockett (a native East Tennessean like myself) served in the House of Representatives. A bill arose that would have appropriated $20,000 to help citizens in Georgetown recover from a devastating fire, and Crockett voted in favor of the bill. At a later date, a similar bill was proposed. This time, Crockett opposed the measure — but he also offered to contribute a week’s worth of his own pay to the recovery effort. Asked about his reasoning, Crockett explained that after the first vote, one of his constituents had confronted him, reminding him that even if there was great cause for charity, it was the responsibility of the private citizens to provide it. As the constituent put it to the congressman, elected officials must remember that unless an expenditure was being made for the common good of all citizens, rather than the targeted subset of citizens toward which charity is directed, the tax money was not within the elected officials’ purview to give.

Precisely 100 years after Davy Crockett explained his opposition to federally funded charity efforts, Congress confronted with a much larger concern. In 1927, the Mississippi River overflowed its banks, killing hundreds, rendering thousands homeless, and destroying hundreds of millions of dollars’ worth of property throughout the Midwest and South. Concern quickly mounted that private charity alone would not be able to address the needs of those suffering, and many in Congress believed that if any situation ever justified the application of tax dollars, this one did. President Calvin Coolidge expressed major reservations about allowing the federal government to intervene in the matter, but he ultimately acquiesced to the political pressure and signed the bill.

From that point forward, most lawmakers (and, increasingly, private citizens) took it for granted that the federal government should be able to require taxpayers to foot the bill for charitable programs of various stripes. This led to Franklin Roosevelt’s “New Deal,” which arguably prolonged the Great Depression, and later Lyndon Johnson’s catastrophic “War on Poverty.” Even though the American impulse toward private charity has remained present, private voluntary organizations have ceded more and more ground to government-driven charitable efforts.

And so this all comes back around to the current health care debate and the role being played by some religious leaders. Churches and other religiously affiliated organizations used to dominate the charitable scene in the United States. If someone was hungry, homeless, or otherwise in need of help, they would look to a religiously affiliated organization for help — which was good, because it allowed those organizations and the private individuals who supported them to live out the virtue that our founders believed was so important, and it kept individual citizens personally invested in their neighbors’ well-being.

Eighty years later, we should be very concerned that we now have religious leaders and people of faith — for whom acts of virtue should have an even higher spiritual significance — calling upon the government to do their charitable work for them. I understand — and share! — these leaders’ desires to see an alleviation of suffering in the world, but where charity, virtue, and morality are involved the means are every bit as important as the ends. A work that would have been good if accomplished as a result of funds and labor willingly given can itself become evil if accomplished with stolen resources and slave labor.

I hope that these faith leaders will realize that abdicating the charitable roles to which they have been called to a government that will accomplish its goals by compulsion is directly destructive of the virtue and moral development that should be their objective.

Health Care Is a Growth Industry

Posted on by Sarah Brodsky

Robert Fogel explains why controlling health care costs is counterproductive:

Expenditures on healthcare are driven by demand, which is spurred by income and by advances in biotechnology that make health interventions increasingly effective. […] It is a leading sector, which means that expenditures on healthcare will pull forward a wide array of other industries including manufacturing, education, financial services, communications, and construction.

The statistics on health care expenditures may seem alarming at first glance, but they aren’t so out of the ordinary when you compare health care to other sectors of the economy. The average consumer spends a lot more on personal computers than she did 40 years ago. That’s because people are wealthier, computers are more readily available, and technology has improved. The increased spending on computers has created jobs directly, as more people work to build the hardware and software components that go into computers. Computer spending has also helped the economy indirectly, because when people use computers to work more efficiently, they free up resources for new investment.

Health care is similar. As Fogel points out, people tend to purchase more health care as their incomes rise and medical technology advances. These spending increases are not a sign of rising costs, but of the changes in resource allocation that come with wealth. Controlling health costs — i.e., limiting health care expenditures — would hold back this sector of the economy and keep new jobs from materializing. No one would want to control spending on computers; health care spending should also grow unfettered.

Education Reform, Property Taxes, and What the Post-Dispatch Got Totally Wrong

Posted on by David Stokes

There has been a great deal of discussion about property taxes in the wake of the state Supreme Court’s decision in favor of taxpayers the other day. In particular, Judge Michael Wolff’s partial dissent has encouraged a nice debate. I want to focus here on a few key questions about property taxes, and correct a few errors that have cropped up in discussions. I will try to do this concisely, because this could easily grow into a 3,000-word essay.

Judge Wolff and the Post-Dispatch argue that property taxation is not a fair way to fund schools, because obviously the wealthier areas get more property taxes. The justice writes (quote via a Beacon article):

These unequal results pose a simple question that is hard to avoid and even harder to answer: What makes the children of one school district deserving of only about one-third of the education money available for the schools of the children in the highest-spending district?

Because the state constitution seems to authorize this absurdly unequal structure, the question is one of policy, not law.

The gross disparities created or tolerated in the system, however, ought to make courts especially attentive to particular constitutional requirements such as taxation of property tax wealth.

I disagree. The property tax is a fair way to fund schools, provided that the funds are supplemented by other taxes (currently state income taxes) to address a portion of the disparities that result. Judge Wolff clearly understands that property taxes are actually more equal than the other primary methods of taxation, as he writes in a footnote:

If one is disturbed by the inequalities of property taxes, one simply should imagine local taxation based, instead, on local incomes or on local retail sales. Property wealth, it seems to me, is far more evenly distributed throughout the state than income or retail sales even though the property tax wealth per pupil of the wealthiest districts is 15 to 20 times that of poor districts.

He is absolutely right here. The differences between sales tax collection in certain areas can dramatically large, as there are some school districts in the state that have little to no retail sales, while a district like Brentwood would be awash in sales tax dollars. The income taxation levels between Ladue school district and Hancock Place would also be enormous.

The fact is that part of the blame, for lack of a better term, for low funding levels in many school districts (especially in rural areas) lies with taxpayers who elect assessors that will keep official property values low, and then vote to keep taxes low on top of that. It’s fine with me if they do that — they may, or may not, be hurting their own children and communities. Some of that disparity is offset by income taxes that are paid statewide, but I don’t think general taxes should be raised to pay for eduction in areas where the local citizens have chosen to keep school funding low.

This leads us to what the Post-Dispatch got wrong in its editorial about the issue (link via Combest). They write:

Property-rich counties quickly become freeloaders when they employ assessment methods that dilute the market value of their real estate. They deprive poor counties who play by the rules and pay their fair share.

The author of this editorial clearly has no idea how assessments work in Missouri. It is the property-rich counties, like St. Louis, Jackson, and St. Charles, that use appointed assessors and value their property more aggressively close to market values. It is the poorer, more rural counties that use elected assessors and lack “certificates of value,” thereby undervaluing their property, keeping their school funding low, and receiving increased state aid because of that.

The wealthier school districts in St. Louis County — and presumably Jackson, too — have not seen any increases in state aid for years, precisely because they support their school locally with more accurate assessments and higher voter-approved taxing levels. The poor counties tend to take advantage of the system as “freeloaders,” not the rich counties. (It is possible that the Post has a different set of counties in mind as being “rich,” in which case I’ll amend my criticism. But I have to assume that their examples of wealthy counties in Missouri are the same ones everyone else would choose.)

I could go on and on, but I won’t. If we truly want to increase educational opportunities for all of Missouri’s children, it will take a lot more than adjustments to the school funding formula. For too many kids, that strategy is just rearranging deck chairs on the Lusitania (although that metaphor doesn’t quite work, because the Lusitania sank so quickly that its passengers didn’t really have time to engage in any ironic comedy before dying).

Districts Plan for Sept. 8 Speech

Posted on by Sarah Brodsky

School districts across Missouri — in Columbia, Kansas City, Springfield, and St. Louis — are preparing for the president’s Sept. 8 address to schoolchildren and dealing with the attendant controversy. As was noted in the comments to my last post on the planned speech, the Department of Education has changed its recommendations for classroom activities to go along with the speech. Now, the assignments have less to do with helping the president and listening to directives from the White House, and more to do with achieving personal goals; the speech is transformed from a political campaign event to a self-help seminar.

Some districts will not show the speech at all, while others will let individual teachers decide what to do in their classrooms. A few districts intend to videotape the speech, review it, and then show it to students later if it conforms to their video guidelines. The diversity in district responses is a good sign. It means that districts are making decisions locally and aren’t just taking orders from the federal government. I think we’d see a different outcome if airing the speech were connected with “Race to the Top” money. Fortunately, it isn’t (yet).

I’d like to see more districts address the issue of how they’ll use the Department of Education’s teaching materials. Will teachers ask students how they can help the president, following the initial set of instructions? Will students brainstorm about personal goals instead? Or will students rigorously examine the president’s speech, considering arguments both for and against?

Sales Tax Holidays Have Little Effect

Posted on by Sarah Brodsky

This is from a Wall Street Journal article about back-to-school sales:

Despite sales tax holidays in several states designed to spur sales, back-to-school spending remains lackluster, according to industry experts.

Tax holidays are supposed to encourage shopping, but in reality they prompt schedule changes more than anything else. Consumers decide which items they want to buy and which they can do without. Then, they postpone their shopping trips until the tax holiday weekend. This does not result in a boon to the national economy.

More on the Education Funding Lawsuit

Posted on by Dave Roland

As Sarah has already noted, the Missouri Supreme Court yesterday brought an end to the lawsuit in which half of the state’s school districts claimed that the Constitution required taxpayers to give them as much as $1.3 billion extra dollars every school year. The court ruled against the districts, including several important holdings.

First, the court unanimously agreed that the state government is meeting its two major constitutional obligations where educational funding is concerned, providing a system of free public schools and allocating at least 25 percent of state revenue to their upkeep. Second, the court unanimously agreed that “equitable education spending” is not a fundamental right secured by either the state or federal constitutions, and so the state’s funding formula must be upheld because the districts failed to prove that it was irrational. Third, the court ruled that insofar as the Missouri Constitution forbids the state government to create unfunded mandates for local authorities, the proper remedy is to relieve the local authorities of the responsibility to fulfill those mandates — not to order the state to pony up the money for them. And, finally, the judges ruled that the legislature did not act arbitrarily in relying on information provided to them by the State Tax Commission when fashioning the education funding formula that was at issue in this case.

Judge Michael Wolff’s voice was the only one raised in partial dissent, communicated through a fascinating, heartfelt separate opinion that is lengthier than the majority opinion. If you have an interest in either law or education, I think it is well worth reading. The judge agrees with the majority opinion on most (if not all) of the above points, but believes that the funding formula is unconstitutional because it permits counties to adopt different standards for the assessment for taxable property. In Judge Wolff’s opinion, the result is that “counties where property assessments fall well below market value are rewarded with increased state funding for schools.” He remains studiously agnostic as to which parts of the state might be said to be benefiting from this arrangement. That question, he suggests, should be answered by the legislature — but he maintains that regardless of the beneficiaries, the unevenness of assessments should trigger the state’s constitutional obligation to see that assessments are equalized across the state.

To be sure, the majority opinion did not disagree with Judge Wolff’s legal reasoning regarding the equalization of assessments. Rather, they (correctly) noted that the plaintiffs in this case had not brought that claim before them and, thus, resolution of that issue must wait until it has been presented and argued fully.

I think that Judge Wolff may have a valid point about inconsistencies in assessments across the state, but the broader thrust of his opinion is that the legislature has earned little of his respect because it has failed to adopt fundamental reforms that might greatly improve education in this state, and that the fact that some school districts are given far less funding per student than others remains tremendously unfair.

Judge Wolff apparently accepts the research presented by our own Dr. Michael Podgursky in his acknowledgment that “there is not a direct relationship between a school district’s money and its performance,” although he goes on to suggest that “money is not irrelevant … money is needed to buy the academic leadership, the teaching staff, the time on task for mastery of basic subjects and other resources needed for educational enrichment that can produce optimal outcomes.” This might or might not be true, given that a number of useful reforms might save money, thus allowing the excess to be reallocated into longer school days or higher pay for teachers that go above and beyond the current call of duty. But, ultimately, I share Judge Wolff’s desire to see a true sea change in the way education is undertaken in this state. Perhaps he’ll be open to some of the reforms that we have suggested!

Assignments for Sept. 8

Posted on by Sarah Brodsky

As you’ve probably heard, the president will address public school children next week. I’m not bothered by the address itself, which seems little different from elected officials speaking in schools, but the announced assignments for elementary school students are creepy. Students will be asked questions such as:

Why is it important that we listen to the President?

What is the President asking me to do?

What specific job is he asking me to do?

And this question is somewhat amusing:

Are we able to do what President Obama is asking of us?

It gives the impression that students may not be capable of achieving the President’s lofty goals for them.

Students are also supposed to write letters to themselves about how they can help the president. I thought that was a tactic used to brainwash prisoners of war, not an assignment for the first day of third grade.

As a group, students are supposed to list the goals they’ve come up with in a “cluster web,” which sounds like some kind of politically correct Venn Diagram, and there will be school-wide incentive programs to reward good little followers of the president. Another assignment is to “exchange sticky notes.”

I liked it better when speeches to schools were just about photo ops and soundbites.

Missouri’s Ticking Pension Time Bomb

Posted on by Josh Smith

The front page article in today’s Post-Dispatch is about the underfunding of Missouri’s public employee pension programs. This is a serious issue that deserves more attention, and the Show-Me Institute is happy to oblige. Check out our full policy study on the matter, as well as this op-ed by Joe Haslag, who is quoted in the P-D article.

The main problem with Missouri’s public employee pension plans, as discussed in both the P-D article and our policy study, is that they use an outdated system of defined benefits. This plan is generally less expensive for the employees (who are likely concerned about retirement savings, at least somewhat) and more expensive for the employers (who have to pay the difference when the amount they set aside in anticipation of payouts turns out to be insufficient because of changes in valuation, such as stock market fluctuations).

The economics of this arrangement can be simplified as follows (pardon if this is too abecedarian): Employees accept a certain wage and benefit package when choosing between employers. It is common for employers to compete for employees by offering different combinations of wage and benefit packages. When viewed in context of the prevailing type of plan offered by employers, the Missouri public employee pension plans are more generous to the employee and more expensive for the employer. It may be the case that in order to attract the number and quality of employees that the various state agencies desire, a less attractive benefits package with a less generous pension plan would need to be balanced with increased salaries.

As I see it, this is a very good thing. The costs of retirement benefits are only fully realized in the future, when market fluctuations may cause a plan to become underfunded — a situation that is likely to happen only with defined benefit plans. One reason these plans are popular, however, is because the nature of political incentives means that politicians have a much greater chance of enacting a plan with benefits that can be realized today and costs that are paid for tomorrow. If government agencies in Missouri were forced to compete with private companies based on salary rather than benefits, this would lead to increased immediate costs for public employees, which would also mean higher taxes. I think that Missourians would be more likely to vote for less public spending if the spending had to be paid for here and now, rather than after the lifetime of the employee’s career.

As Richard Dreyfuss points out in his Show-Me Institute policy study, defined contribution plans would not only level the playing field between public and private employers pursuing potential employees, it would put the Missouri pension plans on firm ground, economically — defusing the time bomb of underfunded employee pensions.

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