Politics and Technology.

Friday, March 20, 2009

When a $100 is not a $100

In today's WSJ, an editorial by Alan Blinder, a professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve Board, uses math with which any "man on the street" should be struck dumbfounded. My typical fair disclosure applies: I work for Dow Jones.

The crux of the article, "Why Obama Is No Socialist", is to argue that the president is merely left-leaning and not a socialist. I can see many ways to validly argue this point and am certain that many editorials have made rather convincing arguments to that effect. As I read the article, hoping to see thoughtful discourse, I stopped dead in my tracks. Whatever the point of Professor Binder's article is, the tools used to strengthen his argument are clumsily used. The object of my derision is the following passage.

As the law now stands, when a family that does not itemize deductions on its tax return donates $100 to its favorite charity, the donation costs the family $100. But when an itemizing family in the 25% bracket donates $100, it costs them only $75 after tax. And when an itemizer in the 35% bracket donates $100, the after-tax cost is only $65. Thus the richer you are, the less it costs. Is it socialistic to say that seems a little backwards?

Somehow, only in Princeton Univeristy, is $100 not $100. If I am with this non-itemizing family, I spent $100 on the charity. If we did itemize our deduction, I still shelled out $100 on this charity. If I don't claim this donation, I'm out an extra amount: the taxes I would have owed on that $100.

So what the professor misses is that no matter who you are, you gave $100 to this charity. You have exactly $100 less in your pocket. Fortunately, you don't have to pay taxes on that $100, but you are still out $100. It didn't "cost" (does giving to charity "cost" you or does it relieve you?) me $65, $75, or $0. It cost me $100. The government is seeking additional money from me, taxing money I gave away to a charity and does not apply to my gross income, which is why you freaking claim the donation in the first place.

Even if you live in the bizarro math world of the Economics professor who failed Finance 101, his argument hinges on the first family NOT CLAIMING THE DONATION. This is not "apples to apples, oranges to oranges" comparison making.

To put it in a vernacular that the professor could appreciate, he assumed a can opener for one family, but not the others.

Go back and re-work your model, Professor.

I am so glad I went to RU and avoided this guy in the few econ courses I've taken.

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