End tax deductions for giving to charity

[Max_Torque]

@Shagnasty

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.

To elaborate: it’s more a misunderstanding about the difference between a tax deduction and a tax credit. Deductions decrease your taxable income, while credits bite right into the amount of tax you owe. Credits are harder to come by; the child tax credit is the most common one.

My wife and I benefited a couple of years ago from the adoption tax credit (currently $13,400), which for most non-1%ers like us means that we got back every penny we’d paid as payroll taxes for the year, and still had some credit to apply the following year. That helped.

@doubled

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!

QFT. I’ve been arguing about the estate tax on this board for years. Some years back, Democrats proposed raising the exemption to something like $50 million, and the Republicans still wouldn’t go for it.

The current exemption amount is $5.65 million. So, if your estate is worth less than that, you will pay absolutely no estate tax. And if you’re married and you maximize the use of your exemptions, you can pass more than $11 million to your heirs completely tax-free. The demonization of the estate tax is pure snake oil, being sold to us by the ultra-wealthy.

Without the estate tax, wealth just accumulates in a relatively small number of families and stays there for generations. I once again issue the challenge I’ve been putting forward for 15 years: show me where the estate tax has created a disincentive to becoming wealthy, and I will support its repeal.

[Bone]

@Max_Torque

The current exemption amount is $5.65 million. So, if your estate is worth less than that, you will pay absolutely no estate tax. And if you’re married and you maximize the use of your exemptions, you can pass more than $11 million to your heirs completely tax-free. The demonization of the estate tax is pure snake oil, being sold to us by the ultra-wealthy.

This is true and the estate tax should be much less of an issue, but to be fair this is fairly recent. The date of death determines the amount of the exemption -

1954 - 1977: $10M
1976 - 1982: $5M
1982: $4M
1983: $3.5M
1983 - 2001: $3M
2002: $2.5M
2003 - 2008: $2M
2009: $3.5M
2010 - current: $5M+ (range)

Over this time period, the amount of the exemption had only moved downward (while the tax rate applied to the amount also trended down until it moved upward in 2009.

In 2008 it would not be difficult in parts of the country, especially at the height of the housing bubble, to amass an estate that exceeded the exemption amount even without being ultra wealthy.

[SenorBeef]

But you’d still only owe the money on amount past the exemption, right? If you were worth 6m, you’d only pay taxes on 1m.

[Bone]

Yes.

[YogSothoth]

I don’t want charities doing good to be hurt, so maybe restrict the type of charities that will get you a tax deduction? Donating to the Red Cross: ok, tax break. Donating to a multi-million dollar university that has a football team and its own stadium: sorry, you still get taxed.

[Ruken]

@Damuri_Ajashi

So lets say you would donate $150 with a charitable deduction. Would you have donated nothing without it or would you have donated something like $100 ($150 minus the tax savings lost) without the charitable deduction?

If you would have donated something like $100 then the charitable deduction is merely allowing you to direct the expenditure of what would otherwise have been general tax revenue. Why should we do that?

I never said we should. But a simple internet search tells me it is to promote activities with these purposes: charitable, religious, educational, scientific, literary, testing for public safety, fostering amateur sports competition, or preventing cruelty to children or animals. Not everyone thinks some or all of these are laudable.

@Damuri_Ajashi

If they don’t get enough people to sign up at $10,000 because of the loss of the charitable deduction, perhaps they need tor educe the price to $7000. The math isn’t really THAT hard.

It is now apparent that you completely missed the point of my post.

[Ruken]

@YogSothoth

I don’t want charities doing good to be hurt, so maybe restrict the type of charities that will get you a tax deduction? Donating to the Red Cross: ok, tax break. Donating to a multi-million dollar university that has a football team and its own stadium: sorry, you still get taxed.

I personally see the difference between any 501(c)3, often called charities, and organizations that actually devote the bulk of their effort to charitable work. How you want to dig in on what counts as what is probably good for its own GD topic.

[Deeg]

One thing I wouldn’t mind seeing is that donations to universities with an endowment > $Xm (with X being some reasonably high number) would not be eligible for a tax deduction. Same with donations to university sports.

[Ruken]

So far we’ve seen objections in this thread to several items from the list:

[ul]
[li]Religion[/li][li]Amateur sports (college specifically)[/li][li]Education (with large endowment)[/li][/ul]

And my vague attempt to distinguish charitable work.

[WillFarnaby]

Tax exemptions are not a subsidy.

[CGav8r]

“A subsidy is a benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy is usually given to remove some type of burden and is often considered to be in the interest of the public.”
-Investopedia

[doubled]

@CGav8r

“A subsidy is a benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy is usually given to remove some type of burden and is often considered to be in the interest of the public.”
-Investopedia

“Often considered to be in the interest of the public” by whom? By the people who are receiving the subsidy? sure. By the rest of the people who have to pay for the subsidy without getting any benefit? Not so much. Virtually every economist in the world agrees corn subsidies are a bad idea; yet they still exist – not because they’re in the interest of the public but because somebody succesfully lobbied congress for them.

Every company lobbies congress to give their specific industry a tax break, a protectionism tariff, a legislative barrier to entry for competitors, direct government subsidy payments, etc. Clearly not all of those are in the public interest, but lots of them still get passed if the companies can lobby well enough. Can you honestly claim that every single government give-away is in the public interest and not just some congressman’s means to get campaign contributions from one industry?