Do Tax Breaks for Charitable Donations Make Sense?

There's an interesting debate going on in the blogosphere sparked by this New York Times article by Stephanie Strom last week questioning whether allowing tax deductions for charitable giving is good policy. Lee Rosenbaum took issue with Strom, who responded in a comment to this Chronicle of Philanthropy post. Tyler Cowen, while conceding the system is "inegalitarian" in the sense that it "'impos[es]' the desires of the rich on social priorities and wealth redistribution," lists six reasons why he's still a fan, including:

• "The arts receive about five percent of U.S. charitable donations. I am more than willing to stomach this degree of anti-egalitarianism in the non-profit subsidy, and yes we do get more beauty for it. Furthermore the alternative of more direct government arts funding would not work out well in the relatively Puritan United States, even if you think it has worked well in Europe."
• "The general proliferation of non-profit institutions makes America a much more innovative and diverse place, intellectually and otherwise."
• "Relying so much on private philanthropy chips away at the dangerous attitude that there are clearly defined social priorities to which everyone must pay the same heed."