Since When Do You Care?

Peter Wehner of the National Review rails against Obama's plan to reduce the tax deduction available for charitable donations. First the facts: This only affects those making over $250K a year and it lowers their deduction from the 35% bracket to the 28% bracket - i.e. they can deduct $280 instead of $350 out of every $1000 donated.

Wehner's points are two-fold: One, this is bad for giving and, two, this somehow shows an intrusion of government into areas of our lives never before seen.

Let's take those in turn. Will a lower deduction for the top earners mean fewer deductions? Perhaps. The conventional wisdom is that giving will be down a lot this year anyway, both because of actual economic difficulties and because of the fear of giving up any money now while the future is uncertain. Given that environment, will there be any way to tell what effect the 7% drop in the deduction had? Not a chance. So it's a good theory, but I think the reduction is marginal.

Second, the claim that a lower tax deduction means greater government intervention into the lives of institutions and private persons is backwards. The whole idea of tax deductions is to create centralized, federal incentives for people to act. Thus, a high tax deduction - like the 100% charitable-giving deduction the govt put in place after 9/11 - is just as meddling as a lower deduction. Just the incentives change. A truly "republican" - Wehner is actually touting libertarianism - view would want nothing less than to do away with the deduction altogether. For a libertarian, any tax high enough to permit the federal government to raise and lower it to create a system of incentives is too high. The tax should be low enough that the money stays in the local communities to begin with to be spent or donated as people see fit.

And another thing. If you're going to make this silly argument, get it right. Wehner says that if we reduce the deduction from $350 to $280 per $1000 donated, that $70 will go to the government instead of the charity. Um. No. The charity gets $1000 either way. It is the taxpayer that has to pay taxes on an extra $70 in income at the end of the year. While that may change how much the taxpayer donates, that's totally up to him or her. It's not like the charity now has to carve out a portion of everyone's donations. If you can't get the simple math right Pete, stick to something a little fuzzier, eh?

1 comment:

David said...

You are correct in your statement that the direct cost is to the taxpayer, not the charity.

However, I am deeply troubled by this particular change, both becuase I do not agree with the philosophy behind the change and also because I do not think the consequences will be positive.

First, the philosophy: the underlying assumption behind this change is that we should no more incentivize the rich to donate to charity than we do the middle class or the poor. That sounds nice and fair, but is not a reality-based assumption: rich people give a far greater amount of absolute dollars to charities than middle-class or poor people, and permitting ideology to trump reality is one of the left's chief complaints about the Bush administration - is that really the model President Obama wants to follow?

Second, the consequences: as I mentioned before, rich people give a lot more absolute dollars to charities (and to the IRS) than middle-class or poor people (this is sufficiently well-documented that it needs no citation). There is a significant likelihood that this change will cause at least some non-trivial percentage of the rich to reduce the amount of their giving, and that will make the lives of these charities a lot tougher. I know that the charities are worried, and this doesn't seem like a good sign.

Surprisingly, I haven't seen any mention of the fact that the proposal isn't only about charitable giving - it's actually about ALL itemized deductions. Now THAT is a scary prospect, especially for those of us for whom mortgage interest is our largest deduction...