Tuesday, May 23, 2017

Church of England Investment Returns

One advantage of being a large church with many members and congregations is that you can pool certain resources to leverage your scale of operations.  Such is the case for many large denominations that pool financial resources when making investments.  Many churches have endowment of funds that they invest and that earns a return each year.  Those return can then be used as additional income for the church.

The Church of England made news this week because its investment fund had huge returns during the 2016 year, incredibly earning more than 17%.  The £7.9 billion fund is managed by a church commission, and it's 2016 earnings more than doubled the earnings from 2015.  The investments are in global equities, private equity, residential property, and timberland, and the high return allowed the investment fund to contribute over £230 billion towards church operations and activities, a robust 15% of the church's income that year.

Of course, discussion of money of this scale often raises other questions and even controversy.  As a reward for a job well done, the Church of England gave out very large yearly bonuses to a small number of fund managers.  Critics claimed that these large bonuses are hypocritical and not in line with what should be church priorities, while Church leaders claim that good fund managers should be rewarded to prevent them from leaving.  What do you think?

Thursday, May 18, 2017

Reforming the U.S. Tax Code on Religious Giving

Congress and the Trump Administration have proposed a number of significant changes to American tax policy.  The effects of these new policies on religious giving is now being reported in a new study by personnel of the Indiana University Lilly Family School of Philanthropy.  Read the summary here (mandatory).  The full report is too long to read in detail but can be found here.

The finding can be summarized as follows:
  • The combination of lowering the top tax rate and raising the standard deduction will reduce donations by about $13.1 billion.
  • The reduction can be offset by adding a non-itemizer deduction.
To understand what this means, you must first understand what are deductions and what it means to itemize.  Consider a taxpayer that donates $C total to various charitable organizations (including churches).  When calculating how much to pay in taxes, the taxpayer decides whether to use $C for the amount to deduce from her taxes or whether to use another amount $S which is called the standard deduction.

For those persons that donate a lot, including many that donate large amounts to churches, C is greater than S.  To deduct $C, they must give an item-by-item account of all the donations that added to $C when filing their taxes, and so they are called itemizers.  The person that uses S does not need to provide the item-by-item accounting, so that person is called a non-itemizer.  Currently, only itemizers are able to deduct their actual charitable giving.  Non-itemizers can still give to charity, but they just cannot deduct it from their taxes.

Notice that if you are an itemizer, then every additional dollar you give increases the amount you can deduct.  That is, the additional dollar you donate costs you less than a dollar because you get some of it back in the form of lower taxes.  However, if you are a non-itemizer, then every additional dollar costs you a full dollar because you are just using the standard deduction of $S.  So giving the extra dollar costs more to the non-itemizer than it does to the itemizer.

If the standard deduction amount S is increased, then more people will find themselves in the position where the additional dollar donated costs the full dollar instead of less than a dollar.  This in turn will lead to several people reducing the amounts they donate.  It might not sound like a big deal, but when millions of people each donate a little bit less, it can add up to billions of dollars -- $13.1 billion in the example the study provides.

One way to counter the drop in donations is to allow non-itemizers to deduct their charitable donations in addition to using the standard deduction.  In fact, the drop in donations from raising S can be fully offset if non-itemizers are allowed to deduct their donations.

There is no consensus on what is best.  Some people think that the deductions are good because they think religion creates many positive externalities.  Some people think that the deductions are bad because they essentially allow people to shift money that could go the government and into their own individually-preferred activities.  There are still other opinions.  What do you think?

Wednesday, May 10, 2017

Religion in Central and Eastern Europe

The Pew Research Center has released a lengthy report on religion in central and eastern Europe.  The report is much too long to require students in the class to read.  However, everyone should skim the overview page here.

Here are a few things that caught my eye.  First, religion is strong again despite decades of official atheism under communism.  Second, state-affiliated religious groups remain the most prominent groups in those countries.  Third, religiosity in central and eastern Europe appears can be described as "believing and belonging without behaving."  This last pattern is quite different from "believing without belonging" in western Europe and "behaving without believing or belonging" in east Asia.