the benefits to society are not clear from this tax deduction, and many of the benefits of charitable activities flow to private groups and individuals
Most taxpayers would be better served by eliminating the charitable contributions deduction and using the additional revenue to lower tax rates.
You know that I am not at all a fan of non-profits. Still, I personally make maximum use of the charitable deduction. I see it as enabling me to choose how to spend money, rather than handing it to the government.
So I have mixed feelings about this. If the consequence of eliminating the charitable deduction would indeed by “lower tax rates,” then fine. But if it means that the political class has even more resources to allocate, then no.
“So I have mixed feelings about this. If the consequence of eliminating the charitable deduction would indeed by “lower tax rates,” then fine. But if it means that the political class has even more resources to allocate, then no.”
That ultimatum applies to every bit of tax change, it’s not unique and not the standard by which you should judge it. All government spending is taxation, does changing the way taxes get collected change spending? At hypothetical extremes, sure, but that’s even an argument against laffer reduction of taxes.
40 years of starve the beast have disproven the idea that tax reductions can create a political constraint on spending. Deficits do not matter.
Deficits “don’t matter” because the government keeps spending and people keep buying bonds, foreigners keep clamoring for dollars, banks and The Fed do…whatever it is that they do. These people aren’t me. I can only be responsible for me. If I see a need it is certainly more worthy than what politicians see.
“the benefits to society are not clear from this tax deduction”
Who is this guy “Society” anyway? Sounds like a real self-obsessed megalomaniac.
This is one reason I oppose getting rid of any middle class tax deductions. Do you really think its going to be a one or one give someplace else? If they got rid of tax deductibility on my health insurance, I sure doubt I’d get that money back somewhere else. Would probably go to some plutocrats pocket.
In our political system, where you can’t really trust anyone or anything, its best to fight for your piece of the pie with all you’ve got. Considering that the average middle class person is getting screwed, just think of it as trying to get back what’s already yours.
Not sure I’m completely on board with opposing getting rid of all middle class subsidies, but I am in deep sympathy with your overall sentiment. It’s an insider’s game. One reason I am personally skeptical of TPP is not an intellectual or moral hostility to free trade. Rather I’m concerned “free trade,” “intellectual property” and the other questions necessary to the agreement will be defined by the players who get access to the U.S. Trade Representatives Office and the relevant Senate committees instead of a market sensitive process.
Much the better, in light of that reality, to do a series of bilateral agreements on free-market principles.
The charitable “deduction” seems to get unfairly linked to all the other tax breaks. Economically, it is *not* a “break” for the donor and is really just a consistent way to maintain the charity’s tax exempt status. (Of course, one could argue that charities should not be tax exempt, but that’s a different issue.)
Suppose you volunteered for a charity, performing $100 worth of labor without compensation. Then, you would incur no tax liability for that $100 of imputed income that you donated. Now, there is no economic difference between volunteering for the charity and “volunteering” at your regular employment by diverting $100 from your paycheck to the charity. However, that $100 will show up as wages on your W-2, so the charitable “deduction” is merely a correction to that erroneous amount. In both cases, you did *not* gain $100 of consumption from your labor; the charity’s beneficiaries did. There is no “break” or “tax savings” for the donor. Without the charitable “deduction”, your $100 (pre-tax) worth of work at your regular employment would have resulted in less than $100 after tax to donate to the charity — the incidence of the tax would have fallen on the *charity*. If we don’t want charity recipients to be taxed on their charitable benefits, then we need the charitable “deduction” to implement that tax exemption.
Hopefully, this also puts to rest the notion that high-income donors “benefit” more from the charitable “deduction” than low-income donors due to the formers’ higher tax rates. Without the deduction, the *charity recipients* would pay different tax rates depending on the income of the donors rather than depending on the income of the charity recipients. That would be a strange type of progressive taxation.
At least, that is my economic analysis. Does anyone see a flaw in this reasoning? I haven’t seen anyone else challenge the notion that donors receive the benefits of the charitable “deduction”, and it repeatedly gets mentioned with other popular tax “breaks” (mortgage interest deduction, etc.) as an example of “distortion” in the tax code that is difficult to “reform”. This doesn’t seem to be something that needs “reforming”.