3 ms·

I think it's perfectly reasonable to deduct charitable contributions - up to say, 10K per year. There exist people who sit on huge amounts of unrealized capital

by ant6n 11y ago

I think it's perfectly reasonable to deduct charitable contributions - up to say, 10K per year. There exist people who sit on huge amounts of unrealized capital gains. If they donate 100M in stock, then they can sell 100M in stock without ever paying any taxes whatsoever.

mangeletti 11y ago
I agree that setting a limit (rather than getting rid of deductions altogether) could be beneficial, while also eliminating a lot of the abuse, but there is one other thing to consider: If the limit is $10,000, the middle class and wealthy gain the benefits of directing tax dollars while the underclass remain unrepresented. I'm a capitalist through and through (you might guess that based on my ideas herein), but giving different people different rules is always a problem.
- jcdavis 11y ago
  The "underclass" likely already don't gain any benefits because they almost certainly take the standard deduction instead of itemizing.
- ant6n 11y ago
  Well, you could make it 1K$. But I think the issue is to try to make it harder to use donations for tax-avoidance by very rich people; this isn't really about the middle class vs poor people (who tend to pay fewer taxes anyway). I think another general issue is that many deductible donations go towards organizations that spend very little on their prescribed cause; or aren't non-profits or for the benefit of the public at all.
dkokelley 11y ago
Right, but it's still a net loss to them. If I have $200M in unrealized long-term capital gains (taxed federally at 20% for 2015), I have $160M in after tax potential. By donating $100M, I'm losing $60M in potential cash as opposed to paying my fair share. Aside from certain intangible benefits from donating my stock, I'm actively incentivized (to the tune of $60M) NOT to donate. There is at least one caveat to the above. As long as I donate to a 501(c)(3) entity, I can choose any entity I want - even one I control. The Bill and Melinda Gates foundation is an example of an extremely wealthy couple "donating" to an entity they effectively control. (I assume they do, since it bears their name. I haven't looked up their management structure.) This entity must use their donations in accordance with the entity's stated mission statement, or they risk losing their non-profit status. Beyond this, the donated money is still mostly controlled (within the bounds of the non-profit's stated mission) by the wealthy couple that donated. Aside from using the funds for "pet" projects with dubious public value, this opens up another potential caveat, non-profit bribery. It is possible for donations or non-profit entity direction to be applied as a tax-free bribe. I might donate to develop a park in a city I hope to win a contract from. I could fund a non-profit campaign for reform on legislation that might benefit an industry my business is in. I could direct a non-profit I control to purchase supplies from a specific vendor as a favor for special consideration in pricing.
thescriptkiddie 11y ago
Don't forget the indirect costs of tax deductions. How many man-hours does the IRS spend auditing deductions? How much revenue is lost to uncaught fraud?

by ant6n 11y ago

mangeletti 11y ago

I agree that setting a limit (rather than getting rid of deductions altogether) could be beneficial, while also eliminating a lot of the abuse, but there is one other thing to consider: If the limit is $10,000, the middle class and wealthy gain the benefits of directing tax dollars while the underclass remain unrepresented. I'm a capitalist through and through (you might guess that based on my ideas herein), but giving different people different rules is always a problem.

jcdavis 11y ago
The "underclass" likely already don't gain any benefits because they almost certainly take the standard deduction instead of itemizing.
ant6n 11y ago
Well, you could make it 1K$. But I think the issue is to try to make it harder to use donations for tax-avoidance by very rich people; this isn't really about the middle class vs poor people (who tend to pay fewer taxes anyway). I think another general issue is that many deductible donations go towards organizations that spend very little on their prescribed cause; or aren't non-profits or for the benefit of the public at all.

dkokelley 11y ago

Right, but it's still a net loss to them. If I have $200M in unrealized long-term capital gains (taxed federally at 20% for 2015), I have $160M in after tax potential. By donating $100M, I'm losing $60M in potential cash as opposed to paying my fair share. Aside from certain intangible benefits from donating my stock, I'm actively incentivized (to the tune of $60M) NOT to donate. There is at least one caveat to the above. As long as I donate to a 501(c)(3) entity, I can choose any entity I want - even one I control. The Bill and Melinda Gates foundation is an example of an extremely wealthy couple "donating" to an entity they effectively control. (I assume they do, since it bears their name. I haven't looked up their management structure.) This entity must use their donations in accordance with the entity's stated mission statement, or they risk losing their non-profit status. Beyond this, the donated money is still mostly controlled (within the bounds of the non-profit's stated mission) by the wealthy couple that donated. Aside from using the funds for "pet" projects with dubious public value, this opens up another potential caveat, non-profit bribery. It is possible for donations or non-profit entity direction to be applied as a tax-free bribe. I might donate to develop a park in a city I hope to win a contract from. I could fund a non-profit campaign for reform on legislation that might benefit an industry my business is in. I could direct a non-profit I control to purchase supplies from a specific vendor as a favor for special consideration in pricing.

thescriptkiddie 11y ago

Don't forget the indirect costs of tax deductions. How many man-hours does the IRS spend auditing deductions? How much revenue is lost to uncaught fraud?