# Posted 7:24 PM by Ariel David Adesnik  

AMERICA'S HIDDEN PHILANTHROPY: OxFriend David Pozen recently published an excellent note in the Yale Law Journal entitled Tax Expenditures as Foreign Aid. The article's premise is simple: when calculating the total amount of foreign aid provided by a government, one has to include the value of tax revenue lost because of exemptions allowed for charitable donations. As David explains:

Through the many tax privileges that the United States grants to its nonprofit organizations, the government implicitly foots some portion of the bill anytime these organizations send money abroad for development purposes...This is not private aid; it is privatized aid.

Interestingly, US tax law has much more generous provisions to facilitate foreign giving than any other OECD tax code. For example, Sweden provides zero tax subsidies for foreign charity.

At the moment, it is only possible to provide a very rough calculation of how much "privatized aid" the US tax code facilitates. David's cocktail napkin math suggests that the tax code may currently provide $1.5 billion per year of hidden aid, as compared to a direct foreign aid budget of about $16 billion.

Even with this increment, the fact remains that US giving as a percentage of national income remains much lower than that of every other developed nation. Thus, we tend to be looked down upon by most of the foreign aid community.

One way to approach this problem is simply to give more foreign aid. We can clearly afford it. On the other hand, raw numbers are a pretty bad way to evaluate the positive effects of foreign aid. Since so much of it is lost to corruption and mismanagement, there is a significant gap between what is given and what is received.

In short, our foreign aid budget should not rise just because we are concerned about our reputation. It should rise when we are confident that the aid is being well spent.

Another way to look at this issue is from the perspective of Kosovo. Why Kosovo? Because it was the recipient of an unusual form of foreign aid: humanitarian intervention. What is the value of such an intervention? It's hard to say. We don't really know how many lives we saved.

What we do know is that only the United States' incomparable and incomparably expensive military power prevented Slobodan Milosevic from doing to the Kosovars what he did to the Bosnian Muslims. Should part of our military budget count as foreign aid? No, of course not. Rather, the point is that looking at the numbers isn't the only way to assess what a nation contributes to the developing world.

It is also worth keeping in mind the value of the security that the United States provides to its already-developed allies. Only the United States could have brought down the Taliban government and chased Al Qaeda out of its basecamps (although that war isn't over). Imagine if NATO and other allies had to spend their own tax revenue to develop the kind of military capabilities necessary to take out the Taliban. It might be a lot harder for them to afford all of that foreign aid.

The same pattern of behavior existed during the Cold War. The US paid far more than its share of the Western world's security costs, while Europe gave more foreign aid as a percentage of its income. Again, I'm not opposed to giving more aid if it can be effective. I just don't have much time for lectures about American stinginess.

Anyhow, I strongly recommend reading the full text of David's note. It is sharp, persuasive, and very, very substantive. (9) opinions -- Add your opinion