What was Prez Obama talking about last night during the press conference concerning getting rid of the deductables for charitable donations and mortgage interest?
I thought they were at 100% but it sounded like he said the upper class gets to deduct 36 or 39% while the middle class gets 28%. He said he wasn’t getting rid of it but was lowering the upper class level to be the same as the middle class, or somthing like that.
I don’t understand. Can someone help?
For most people you deduct 100% of what you donate but it depends on your tax bracket as to what the impact is. That is what he meant by 28%, 36%, etc.
I’m still confused, maybe I’m dense. On my taxes, I put down my donations and mortgage interest and subtracted that from my income. It was 100%.
I still don’t understand…
But since your income is not taxed at 100% the impact of the deduction is less.
For example if my income is $100 and I donate $10 to charity, I don’t save $10 on taxes. If my tax rate is 10%, I only save $1 on taxes. I am taxed on $90, not $100. So I pay $9 in taxes, not $10.
… the upper class gets to deduct 36 or 39% while the middle class gets 28%
These percentages are the marginal tax rates. An incremental dollar earned by someone in a higher tax bracket is taxed at a higher rate than someone at a lower tax bracket. Thus, a higher bracket tax payer will receive a higher effective tax deduction on the same dollar of mortgage interest. Of course, one can argue that this tax payer deserves a bigger deduction since he’s paying more taxes! But that’s for another thread.
You deduct 100%. Currently, that then reduces your income subject to taxation by that amount. (say you make $500,000 and donate 10k, your taxable income is 490k)
Since we have progressive taxation, different chunks of your income are taxed at different percentages. Assuming you’re single, the first $8,025 is at 10%, the next 14,524 at 15%, and so on by way of 25%, and 28% and 33% to where everything over $357,700 is taxed at 35%
So, your 10,000 donation lowers your tax bill by 35% of that, or 3,500.
Obama says no fair! if you only made between 78,851 and 164,550, and your top tax rate is 28%, that same 10k donation only lowers your tax bill by $2,800
So he wants to change to code to where you cannot get more than 28% “tax benefit” from a donation.
Since most people in the high income brackets tend to be smart enough to figure out the net impact to them of their donations, odds are this will lower charitable donations for a number of them by some 16.8 % . (I.e., today, $100 donation only costs then $65, to get to that same $65 cost if using 28%, makes for a $83.20 donation)
For the really, realy giving, like Bill Gates, it probably makes no difference.
Ahhh, I get it now. Since I am in the 28% range, his plan will not affect me. But, if I win the lottery and move up to the higher rate, it will affect me.
Don’t just say “it won’t affect me” and stop worrying about it, though. You may win the lottery one day. Or, maybe something else will spark jealousy, and something else that you have or do will be “no fair” down the road.
That’s ok. I have no problem paying my fair share of things. If I somehow end up better than I am now, that is a good thing and I will be happy dealing with the consequences.