cawacko
Well-known member
Interesting perspective from a couple of different perspectives. One is do people actually contribute more as a result. The other is would a flater tax code with less social engineering deductions increase economic growth. An example of this is high tax states can deduct their state tax from their federal income while people in no state taxes can't.
The Fallacy Of The Charitable Deduction
hile there's much to recommend about Donald Trump's recently floated tax-reform proposal, we think the President and his team erred by not seeking to abolish the charitable deduction. We say this in full consideration of the health of nonprofits.
About the deduction, it's frequently argued that if it shrinks or goes away altogether, donations to charities will dry up. Such worries are overdone, not to mention that the deduction itself is arguably immoral.
Fear of reduced giving is overstated simply because charitable donations aren't driven by the tax preference nearly as much as many presume. As American Enterprise Institute President Arthur Brooks reported in his 2006 book, "Who Really Cares," "Contrary to what cynics might believe, relatively few givers (only 20%) said they gave to get a tax deduction."
As Brooks's studies plainly revealed, the greatest impetus for giving is economic growth itself. Brooks found that "Charitable contributions in the United States over the past 50 years have always been in the range of 1.5% and 2% of GDP."
And when we consider that economic growth usually correlates with rising stock markets, "household giving exploded by 54%" in the '90s as the stock market roared to record highs. It's long been said that a rising tide lifts all boats. That's certainly true with charities. When the economy and markets are booming, the coffers of charities expand in impressive fashion.
So with the health of organizations reliant on donations very much in mind, we say it's time for politicians to abolish the charitable deduction in favor of even greater tax simplification.
Consider that for every deduction inserted into the tax code, broad tax rates must rise to reflect the myriad ways that taxpayers can work around the headline rates. Higher rates of taxation amount to a penalty levied on work and investment, for those who don't seek every possible deduction.
By extension, those higher rates put a damper on growth. One answer is for politicians to remove the various special interest deductions in the tax code, including deductions for charitable donations, and to replace them with lower rates that increase rewards for work and investment for everyone.
Other examples abound when the tax code is written to favor certain behaviors over others.
There's no reason that residents of Texas, Tennessee and Florida, three states that don't impose a state income tax, should suffer higher federal tax rates so that residents of high-tax states like California, New York and Hawaii can enjoy a federal deduction for their state income taxes. To the President's credit, his proposal takes aim at the deduction for state and local taxes.
Similarly, renters who forego owning a home, either for mobility reasons or because they can't afford to own, shouldn't have to subsidize homeowners, who enjoy a federal deduction of the interest payments on their mortgages (that are frequently also federally subsidized, as well). Unfortunately, the President's proposal leaves this subsidy intact.
Beyond the practical, we must consider the moral implications of a tax code that increasingly smacks of social engineering, benefiting those who do as the politically-connected wish, and penalizing those who don't. Simply stated, politicians need to get out of the business of picking winners.
Applied to charities, the deduction means that, whether we choose to give or not, we're subsidizing the giving of others through higher overall rates of taxation. This is particularly galling when we stop and consider that much in the way of charitable giving has a policy bent to it.
Lest we forget, some organizations that pursue donations aim to influence federal legislation, including how much we pay in taxes, and how our government spends our tax dollars. The highly personal act of charity is plainly perverted when taxpayers are forced to indirectly subsidize others' political or religious views.
Giving is a "natural right" whereby we voluntarily choose whom to support. But when our giving is subsidized by others, a natural act of wealth transfer quickly morphs into a "transfer right." When any of us chooses to give, a matching gift is involuntarily taken from everyone else, in the form of higher tax rates.
If the charitable deduction disappears, and if tax rates are adjusted accordingly, then givers can voluntarily contribute exactly the same amount they do now, and have exactly the same after-tax income they have now. This arithmetic is trivial.
Despite the interparty battles that are the norm in Washington, tax reform is in the air. Legislators have a chance to do well by doing good. If we abolish the charitable deduction (and indeed perhaps all deductions), lower rates of taxation on all income and investment can light a fire under the economy, and in the process enhance the ability for more robustly funded charities to pursue their missions.
We Americans don't need tax credits to spur our giving, not nearly as much as we need economic growth. Tax simplification that rids the code of the charitable deduction will gift us with prosperity that powers charity, all the while ending the highly immoral situation we have now, whereby our own act of giving forces others to support our chosen causes.
http://www.investors.com/politics/commentary/the-fallacy-of-the-charitable-deduction/
The Fallacy Of The Charitable Deduction
hile there's much to recommend about Donald Trump's recently floated tax-reform proposal, we think the President and his team erred by not seeking to abolish the charitable deduction. We say this in full consideration of the health of nonprofits.
About the deduction, it's frequently argued that if it shrinks or goes away altogether, donations to charities will dry up. Such worries are overdone, not to mention that the deduction itself is arguably immoral.
Fear of reduced giving is overstated simply because charitable donations aren't driven by the tax preference nearly as much as many presume. As American Enterprise Institute President Arthur Brooks reported in his 2006 book, "Who Really Cares," "Contrary to what cynics might believe, relatively few givers (only 20%) said they gave to get a tax deduction."
As Brooks's studies plainly revealed, the greatest impetus for giving is economic growth itself. Brooks found that "Charitable contributions in the United States over the past 50 years have always been in the range of 1.5% and 2% of GDP."
And when we consider that economic growth usually correlates with rising stock markets, "household giving exploded by 54%" in the '90s as the stock market roared to record highs. It's long been said that a rising tide lifts all boats. That's certainly true with charities. When the economy and markets are booming, the coffers of charities expand in impressive fashion.
So with the health of organizations reliant on donations very much in mind, we say it's time for politicians to abolish the charitable deduction in favor of even greater tax simplification.
Consider that for every deduction inserted into the tax code, broad tax rates must rise to reflect the myriad ways that taxpayers can work around the headline rates. Higher rates of taxation amount to a penalty levied on work and investment, for those who don't seek every possible deduction.
By extension, those higher rates put a damper on growth. One answer is for politicians to remove the various special interest deductions in the tax code, including deductions for charitable donations, and to replace them with lower rates that increase rewards for work and investment for everyone.
Other examples abound when the tax code is written to favor certain behaviors over others.
There's no reason that residents of Texas, Tennessee and Florida, three states that don't impose a state income tax, should suffer higher federal tax rates so that residents of high-tax states like California, New York and Hawaii can enjoy a federal deduction for their state income taxes. To the President's credit, his proposal takes aim at the deduction for state and local taxes.
Similarly, renters who forego owning a home, either for mobility reasons or because they can't afford to own, shouldn't have to subsidize homeowners, who enjoy a federal deduction of the interest payments on their mortgages (that are frequently also federally subsidized, as well). Unfortunately, the President's proposal leaves this subsidy intact.
Beyond the practical, we must consider the moral implications of a tax code that increasingly smacks of social engineering, benefiting those who do as the politically-connected wish, and penalizing those who don't. Simply stated, politicians need to get out of the business of picking winners.
Applied to charities, the deduction means that, whether we choose to give or not, we're subsidizing the giving of others through higher overall rates of taxation. This is particularly galling when we stop and consider that much in the way of charitable giving has a policy bent to it.
Lest we forget, some organizations that pursue donations aim to influence federal legislation, including how much we pay in taxes, and how our government spends our tax dollars. The highly personal act of charity is plainly perverted when taxpayers are forced to indirectly subsidize others' political or religious views.
Giving is a "natural right" whereby we voluntarily choose whom to support. But when our giving is subsidized by others, a natural act of wealth transfer quickly morphs into a "transfer right." When any of us chooses to give, a matching gift is involuntarily taken from everyone else, in the form of higher tax rates.
If the charitable deduction disappears, and if tax rates are adjusted accordingly, then givers can voluntarily contribute exactly the same amount they do now, and have exactly the same after-tax income they have now. This arithmetic is trivial.
Despite the interparty battles that are the norm in Washington, tax reform is in the air. Legislators have a chance to do well by doing good. If we abolish the charitable deduction (and indeed perhaps all deductions), lower rates of taxation on all income and investment can light a fire under the economy, and in the process enhance the ability for more robustly funded charities to pursue their missions.
We Americans don't need tax credits to spur our giving, not nearly as much as we need economic growth. Tax simplification that rids the code of the charitable deduction will gift us with prosperity that powers charity, all the while ending the highly immoral situation we have now, whereby our own act of giving forces others to support our chosen causes.
http://www.investors.com/politics/commentary/the-fallacy-of-the-charitable-deduction/