Since I’m presently living on a graduate student’s stipend (read: very small), I’ve never itemized my income tax deductions (the standard deduction is far greater than the most fantastic itemized list I could create), but I do understand the basics of how the system works. At least, I think I do.
Charities, I keep hearing, claim as their lifeblood the tax-deductible nature of contributions. IOW, (many) people would not make the donations they presently do if they could not deduct the amount from their taxable income.
I can certainly see why the deduction is a nice perk for somebody who was planning on giving anyway (and how it might increase the amount of the donation), but this is often spoken of as the reason to give in the first place, and this is what I don’t see. You can’t actually save money by donating to charity, can you?
OK…making numbers up, say I have an income (after whatever other non-charity deductions I have) of $50,000, and my tax rate is 20% (I’m assuming a flat tax). My tax owed for the year would be $10,000.
But, if I decide that I can/should give $5000 to the United Way, or whomever, I can take that as a deduction, right? My taxable income would then be $45,000, leaving me paying Uncle Sam $9,000.
In the above example, I’m out $10,000 (all to the govt.) if I don’t donate, and $14,000 ($5000 to UW, $9000 to IRS) if I do. Yeah, I’ve reduced my taxes by $1000, but at a “cost” of $5000.
Are there really that many people out there who feel that “I’d rather give $5000 to some random charity than $1000 to the gummint!”? Or am I missing something crucial here?
To clarify my question: I’m not questioning why people choose to give to charity, or why the tax deduction is nice - a little “reward” for altruism. I’m asking if there are any circumstances in which these donations can wind up being, ah, not so altruistic (ones saves more in taxes than one donates).