I think instead of arguing over the tax rate, we should close loopholes that allow people to avoid taxes. Giving unwanted things to Goodwill should not be tax deductible. If you want money for your old stuff, then you can take the time to sell it. If a 1%er wants to spend millions of dollars to get his name on a building at his alma mater, that is his choice. But he shouldn’t get to take that money off his taxes. Why should we subsidize him for that?
Will you proposal hurt or help the beneficiaries of charities?
How is donating a building to your alma mater tax deductible, unless that school qualifies as a charitable institution? I could be wrong about that, but I’d like to see the OP offer some proof before we get too far into this.
Universities being non-profit tax deduction qualifying charities is not unusual at all. While there exist for-profit education entities, the vast majority of US institutions (especially the respected ones) are non-profit and qualify for tax deductions for gifts. Doesn’t your alma mater hit you up for tax deductible contributions? Mine does… often.
Why? So the political class could spend it even more inefficiently buying votes?
All that stuff goes directly into the recycle bin. Thanks for the correction, though!
I believe that it is important that we as a society continue to encourage individual charitable donation. I also believe that the tax code, blunt instrument as it is, is reasonably effective at this.
boffking, do you agree? If so, would you support another alternative to the charitable donation deduction, perhaps a donation credit instead?
The wikipedia article on charitable contribution deductions in the U.S. describes the types of contributions and limits: https://en.wikipedia.org/wiki/Charitable_contribution_deductions_in_the_United_States
NCCS reports $175B of deductions in 2011. Donations in 2014 were $360B, with <$280B from individuals and corporations.
I need to dig a little more, as the deductions seem high for the amount donated. Obviously those are different years, but I wouldn’t expect a huge change year to year.
Anyway, the deductions are >10% of federal receipts, assuming those are all federal deductions. So it’s a significant number.
I’d say eliminate not for profit corporate structure all together. They don’t run at a loss, they have employees who draw salaries, I’m not persuaded it’s the role of the government to encourage the slice of activity that falls under the auspices of the non-profit designation.
There is a common misconception about tax deductions. I can’t tell if you are making it but you might be based some of your argument and I am certain that someone else reading this thread will make it because it is so common.
A tax deduction doesn’t mean that you get to wipe out your tax liability dollar for dollar by donating money or goods to a qualified organization. For example, if you give $1000 to St. Jude’s Hospital, you don’t get to wipe out $1000 off your tax burden. Instead, you can subtract that $1000 from your income and use the adjusted number to calculate your taxes. The effect that will have on your overall tax bill depends on the rest of your tax situation but that $1000 donation will typically only knock about a couple of hundred dollars or less off the tax burden for an average person.
The reasoning is that your income really was lower than it could have been because so you should not be taxed on money that you didn’t keep. That is fairly sound reasoning to me. Charities make it sound like “tax deductible” means free money but it doesn’t in the least. The donor really is paying for it out of their own pocket. The only break is that they don’t have to count it as income because they gave it away.
We aren’t. Yes, it reduces a small portion of income that goes to the IRS, but it increases the amount of money going to what the government and most of society feel is a necessary and worthwhile endeavor (in this car, an institution of higher learning), and at a much higher level.
Note also that charitable contributions are typically only of value for those that itemize deductions rather than taking the standard deductions.
For many filers, the standard deduction is already higher than the amount they might deduct, so any charitable contributions won’t affect their taxes at all.
There is also a limit to the amount of the deductibility of your charitable contributions. So even if you donated 3x the amount of income you had in a single year, your charitable contribution deduction is limited to a % of your adjusted gross income (AGI). In addition there is a thing called the alternative minimum tax (AMT) calculation, so that no one that makes over a certain amount of AGI, gets away with not paying any income tax.
And just to expound upon this point, the government isn’t gonna necessarily save money just because they could theoretically collect more in taxes. When a charity or non-profit is doing a vita public good, the government would often have to step in to provide funding for that absent the charity. For example, the Red Cross, which is a private institution with federal instrumentality, would need to exist in some form or fashion because blood donation is vital. Schools, homeless shelters, food banks, etc. are also like that to some extent. There would still need to be paid employees, services delivered, and complex organizations.
It’s doubtful having the government collect a portion of that money that is being used and providing all the services would be more efficient.
Yes, sometimes it is galling to see billionaires extract concessions or naming rights for their “charitable gifts”, or to see the church of Scientology treated the same way as a soup kitchen, but ultimately, we are better off with the system as it exists than one where no deductions exist. The only tweak I’d recommend is lowering the deduction percentage above a certain amount, and not allowing gifts of stock to affect any capital gains tax that would have otherwise been paid.
Logical fallacy! You are assuming the tax deduction increases the likelihood that people will donate to charity. This is almost certainly not the case for most people. Most people who give to a charity would have donated anyway, even if there were no tax deduction (because they believe in the charity’s mission, or because of peer pressure from their church, or because they want their respect of their name of the building, or because they want to leave a legacy, etc).
Ask yourself about the last time you gave money to your church, your alma matters, your friend’s 10-K run to cure cancer, etc. Or the last time you donated clothes to Goodwill instead of simply throwing them away. Would you have still made that donation anyway even without a tax deduction? I’m pretty sure you would have.
So yes, giving a tax deduction for charitable donations is most definitely a subsidy of activity that would have (mostly) happened anyway.
We don’t know, though, to what extent the charitable tax deduction goes to donations that would have been made anyway, and to what extent it incentivizes donations that wouldn’t otherwise have been made, or larger donations than would otherwise have been made.
But a good deal of tax policy revolves around incentivizing, both positive (deductions for donations, research and development, other particular investments) and negative (excise on cigarettes), so the general view must be that, yes, tax incentives do change people’s behaviour; otherwise governments would stop using them. And there may well have been research specifically on the effect tax deductions have for charitable giving.
Logical fallacy again! Sure, tax policy in theory is supposed to provide good incentives, but can you possibly deny that in practice, congress frequently provides tax give-aways to their constituents for purposes other than incentives?
Example: the carried tax interest loophole for hedge fund managers. No one can seriously claim that congress passed that because they wanted to incentivize more people to start hedge funds. Hedge funds would continue doing the exact same thing even without that tax loophole. Congress passed that loophole because their donors lobbied for it, or they thought it was more fair, or whatever
You’re making the extraordinary claim that charitable giving is unlike most every other economic activity. That may be the case, especially when looking at certain individual charity subclasses. I’m sure you’ll be returning to back up your point with well-researched scientific literature. But I’ll give you a head start:
I’m pretty sure I would have donated less. Because I factor in tax deductions to my budget. Both my pre-tax savings and donations get a boost. It’s just an extra line in the spreadsheet.
If your friend’s 10-K to cure cancer cost $10,000, would you be less likely to run in it? I know I would. If it were 25% cheaper than the list price, would you be more likely? Supply and demand work their magic here, too.
I’m going to let you in on a little secret. Some of us use our brains before opening our wallets. Do you?
I recommend learning what those words mean.
And also, look at all the republicans who want to repeal the estate tax, or eliminate the capital gains tax, or lower taxes on the wealthy. Sure, they always say this will incentivize people to work harder, etc.
But honestly ask yourself – suppose we could somehow 100% prove that eliminating the estate tax would not change anyone incentives. Do you think republicans would then stop asking to cut that tax? Seriously?
Or would they still ask for tax cuts using different arguments (because it’s morally wrong for the government to take your money upon your death, because it’s unfair that the money was taxed twice, because it’s a hardship to the remainder of your family, etc)? Of course they would!
Many many tax give-aways have nothing to do with incentives and everything to do with pleasing constituents who would have engaged in the exact same behavior even without the tax “incentive”.
Yes, of course it is. Unlike every other economic activity, the entire point of charitable giving is to give money away without receiving anything in return. Charitable donations are the only economic activity where you can’t compute a Return-On-Investment, so yes, of course there are different incentives.