Don't bring charity into the bonus debate

(breakingviews.com) -- Generosity doesn't make bonuses smaller. Some critics of huge bank payouts apparently would go easier on recipients who give a chunk of their winnings to charity.

But that's muddying the issue. Charitable giving should be encouraged. But it has no place in the bonus debate.

When bailed-out American International Group (AIG, Fortune 500) ran into a firestorm over bonuses, for instance, some called for the recipients to give them to charity.

But as with Goldman Sachs (GS, Fortune 500) making hay with its own corporate charitable donations while accruing giant bonuses to pay out at year's end, this conflates two separate issues.

Those who become rich should feel some moral obligation to give to noble and needy causes for those less fortunate than they are. And plenty of bankers, hedge fund managers, technology billionaires and the like do just that. To encourage giving, some modest level of tax deductibility for donations serves the greater good.

But that's as far as the reasoning should go. Proponents of a sort of super tax on bonuses, for instance, should not want to reduce the levy when money is given away. Tax authorities should still collect the money and governments should decide how to spend it -- however imperfectly.

That's because big charitable donations buy influence and status and they can go to pet projects, to charities that employ family members, and so on. While some people give quietly, others trumpet it -- and some expect special treatment for themselves and their families from hospitals, universities and other beneficiaries of their largesse.

Moreover, most bank shareholders would presumably prefer to receive dividends and profits and make their own charitable choices, rather than seeing bankers get bigger bonuses -- even if they give them away.

And surely inequality is better tackled by paying the haves less and the have-nots more than by making the patrician assumption that the rich will take care of the poor.

Even in broad economic terms, if it's good for someone rich to give generously to what might be an inefficient charity, then presumably it's also good if he instead directly hires half a dozen domestic staff and pays them reasonably well.

What bonus recipients do with their money should be up to them. They shouldn't get more of it just because they plan to give it away.