9 ms·

It seems like a relatively simple fix for this is to set the same minimum distribution requirements that private foundations have. The article mentions 5%, whic

It seems like a relatively simple fix for this is to set the same minimum distribution requirements that private foundations have. The article mentions 5%, which seems like a safe level.

lotsofpulp 8y ago
Simple fix is to remove tax loopholes like deductions for charities.
- ModernMech 8y ago
  But that's actually helpful for legitimate charities.
  - lotsofpulp 8y ago
    There's no reason to introduce subjective terms like charities into the tax code, unless you wish to create a loophole and jobs for lawyers and accountants. Charities can exist with or without tax breaks. The whole point of democracy is to get together and decide where to focus our resources, and letting people get away with directing funds to their personal causes is an avenue for fraud.
    - charlesdm 8y ago
      They can. But without a tax break, people will give less.
      - Retric 8y ago
        But, the government ends up with more money. In theory charities fill in gaps that the public does not want to spend government money supporting. So, why spend public money supporting people giving to charity? It’s not like Tax breaks create new money they just redistribute resources.
        charlesdm 8y ago
        Because generally local initiatives driven by people are better executed or better managed than government projects. Even if the government wanted to redistribute the same money to charities, there is a significant overhead cost of people that need to be employed to sift through viable projects. I live in Belgium, where the system is a bit different (you get a 45% tax deduction on money donated if a charity has an accreditation) and the tax deduction is a significant part of why I give to charity. If there would be no deduction, I would still give, but a lot less.
        Retric 8y ago
        The problem is not that charities are efficient or not, it's that your spending public money on a tax deduction without vetting what projects are being worked on. Effectively, you collect money from people and then deny those same people a say in what it's spent on. As you say, even the ones you support are not worth giving much of your money to. But, you are also directly supporting charities with your tax money that you actively disagree with. EX: Direct Food Aid is generally (though not always) considered a bad idea, but if even a small portion of people disagree then everyone chips in.
        charlesdm 8y ago
        I'm not saying they're not worth giving money to however. In the case of Belgium there is proper vetting, and not every project can get an accreditation. But the deduction incentivises giving. I tend to gift double the money I would without the deduction, because the cost is exactly the same to me. The US system is probably too generous when comparing both. I personally don't oppose the deduction. Most are not investment vehicles but actual charities, doing something good in the world. I wish more people would do something good in the world. I'm sure more money goes lost every year due to political corruption and graft, than through the charity tax deduction.
        Retric 8y ago
        > I tend to gift double the money I would without the deduction, because the cost is exactly the same to me Then you give ~exactly the same money, it's the public that's giving more money. Forcing everyone else in your country to chip in just a little more for roads is not the same as giving more money.
      - lotsofpulp 8y ago
        Do property taxes, sales taxes, and all the other taxes cause people to give less too? The point is that a society needs funds to function, and in a democracy, society gets together and decides what to do with their pooled resources. We vote on what we want to prioritize, such as military, research, education, infrastructure, spying on its own citizens, etc. Everyone contributes to these causes via taxes, except if you set up your own little organization and call it a "charity". Then you can opt out society's liabilities and fund your own little pet causes, regardless of whether or not they are actually beneficial to everyone. And you can increase opacity since you're not subject to open records (like the government should be ideally), and in general, add a layer of bureaucracy for no reason. I don't see a compelling argument that all the added overhead of lawyers and accountants and inspectors who then need go around checking every stupid charity offset whatever benefit the charity provides. Instead we should be focusing our efforts on making government transparent, reducing waste, and pursuing efforts to benefit all in society.
        fjsolwmv 8y ago
        If the money goes to taxes instead of charity, you still have the same need for lawyers and accountants and inspectors to check that the funds are used properly and not diverted
        lotsofpulp 8y ago
        There are economies of scale to be had there from not having to deal with fewer laws and individual organizations so I don't see why there would need to be as many lawyers and accountants.
        prostoalex 8y ago
        > Instead we should be focusing our efforts on making government transparent, reducing waste Why is this stipulated on charitable deductions going away?
        lotsofpulp 8y ago
        It isn't, but the people I'm replying to are suggesting charity is better than taxes because government is wasteful, to which I'm arguing that if that is the case then the solution is to fix government by making it transparent, not opening up more avenues for corruption by giving tax deductions for charity.
      - lmm 8y ago
        If they were genuine donations, then people will donate the same amount of pre-tax income as before (it's just that less of that pre-tax income will go to private charity and more will go on democratically accountable government expenditure. I call that a win). If people "donate" less because they're now getting less "value for money" out of whatever they were buying with their donations, that suggests that these weren't true donations and we're better off with less of them.
    - stochastic_monk 8y ago
      Better yet, tax donations but don’t tax specific expenditures from charities meeting necessary requirements. The burden of proof would be on the charity, and the specific spending would have to be monitored.
    - ModernMech 8y ago
      True, sure, but American capitalism is not set up that way. We are not a centralized economy, but one way the government can get more of one activity and less of another is through tax breaks.
      - lotsofpulp 8y ago
        That's one way the government can open an avenue for corruption without quantifying real costs (since it's all estimates from various "experts"). Since you can fudge the numbers all you want, it's a popular way to do things. The better way in the long term would be to pay for the activity one wants to incentivize, just like we do everything else. Obviously, that would expose all the implicit costs and it's more difficult to win elections.
    - bilbo0s 8y ago
      Not sure "charity" is a subjective term? (Or, more accurately, I know that "charity" is not a subjective term for the IRS.) You shouldn't try to play fast and loose with tax breaks for charitable giving because the IRS actually keeps pretty close tabs on that stuff. As far as they're concerned, an organization either has charitable status with them, or the organization does not have charitable status with them. There is no middle ground. Trying to argue that an organization is a charity, and therefore your gift should be tax deductible, is a losing proposition where the IRS is concerned.
      - lotsofpulp 8y ago
        Why should there be a tax break for paying this organization? https://en.wikipedia.org/wiki/Kars4Kids https://en.wikipedia.org/wiki/Kars4Kids That's just the first example off the top of my head, but also, when someone donates a wing or lecture hall to a school, why do they get to name it? They are gaining prestige and public relations, and admissions status for their descendants. A real charitable donation would be credited to anonymous. But even then, taxes are for the operation of society, that we as voters have come together and decided on. There just isn't a reason to subvert that with a million other little organizations, even if one were to claim that they are being audited and whatnot, when one can clearly see favoritism in the group's beneficiaries and quid pro quo from the donations.
        fjsolwmv 8y ago
        That first one is a bad example because as the article notes, they are under investigation for suspicion of not being a legally valid charity. That doesn't undermine the concept of legally calid charity. The rest of your argument is spot-on, but one rebuttal is that charitable giving exemption is a way to provide a truly democratic way for citizens to give votes of partial non-confidence in how their tax dollars are spent.
        lotsofpulp 8y ago
        That's actually my point. I've heard that corrupt charity's jingle for over 20 years and they're still only "under investigation"? In the meantime, they and their contributors get evade taxes, and at the end of it all, there is no punishment for anyone. No one is going to go to jail for stretching the definitions in the law, it is all plausibly deniable. The only solution is to remove this option period. The US government even negotiated with Scientology where they kept their charity status even after being proven corrupt: https://en.wikipedia.org/wiki/Tax_status_of_Scientology_in_the_United_States#Negotiations_and_the_resolution_of_the_dispute https://en.wikipedia.org/wiki/Tax_status_of_Scientology_in_t... How can anyone take "charity" as a legal term seriously?
    - CompelTechnic 8y ago
      There is a reason. Charities are able to do beneficial work for the people of the country, and are able to organize themselves to accomplish the work in ways that the structure of the government cannot. Incentivizing the behavior of giving (or rather, removing part of the disincentive of taxing the money a person intends to use in an altruistic way) increases this behavior and helps more people. If your argument is that many of these charities aren't actually doing useful work, and that they only exist as a way to get tax deductions, is shaky when you consider that you still end up poorer when making a charitable contribution than when you don't (in no case does the deduction exceed the amount donated).
      - deleted 8y ago
        [deleted]
      - fjsolwmv 8y ago
        None of that justifies a tax deduction. Taxes are the way the way government funds its social contract. "Giving more to private exharity at the expense of tax revenue" just raised the tax burden of everyone else -- sonwhy shouldn't their extra tax payments also be tax deductible? It leads to absurdity. Especially considering that many tax-deductible "charities" are actually people getting together to pay each other money for personal services (for example: schools, churches, and hobby associations)
        CompelTechnic 8y ago
        >just raised the tax burden of everyone else -- sonwhy shouldn't their extra tax payments also be tax deductible? It leads to absurdity. It has been born out in practice that these extra tax payments are not deductible. Few people would expect this to be the case, either. The absurdity does not exist. This is not an intellectually honest argument. >Especially considering that many tax-deductible "charities" are actually people getting together to pay each other money for personal services (for example: schools, churches, and hobby associations) Private schools provide an alternative means of educating children when one does not trust the culture or capabilities of the local public schools. Taxing them would reduce their prevalence and would worsen the burden on private parents whose economic activity already supports both public (through property tax, etc) and private schools. Churches provide moral support to communities, organize deeds of service, and are generally a force for exercising virtue. I say this as an athiest. Some bad churches exist, but taxing churches would be throwing the baby out with the bathwater. Tax-free hobby organizations are a little less defensible, but it is worth considering that they are limited in scope by law (https://cullinanelaw.com/501c7-social-and-recreational-organizations-how-to-stay-tax-exempt/ https://cullinanelaw.com/501c7-social-and-recreational-organ...). But it is worth considering that making it cheaper to fund hobby organizations makes it easier to participate in the sort of activities that we enjoy, and that improve our physical and mental health. We are already living in a society where we spend every dollar we make, and we still feel lonely and isolated nonetheless. Encouraging these outlets, with their socialization and tight focus on community, is a force for good.
    - jtuente 8y ago
      The whole point of //socialism// is to get together and decide where to focus our resources, and letting people get away with directing funds to their personal causes is an avenue for fraud. The whole point of democracy is to enable legal equality, political freedom and rule of law.
      - lotsofpulp 8y ago
        I meant funds collected from taxes when I wrote "our resources".
      - fjsolwmv 8y ago
        That's not what those words mean all. Socialism and Democracy are orthogont concepts. Socialism is an economic concept; democracy is a political concept.
  - emodendroket 8y ago
    I wonder about this. I've read an argument that charitable tax deductions are a problem because they are essentially giving the wealthy a way to directly redirect taxes into spending on their preferred priorities, rather than those of the government (which obviously has problems, but is at least in theory answerable to the entire polity, rather than a handful of individuals or businesses). I haven't really come down on it one way or the other but I thought it was a compelling line of argument.
    - bluGill 8y ago
      On the other hand when there are more good causes than money (this will always be true) it lets people with a passion for something make the individual choice as to what is worth supporting.
      - emodendroket 8y ago
        Yes, but it lets Jeff Bezos make a lot more choices than Joe Six-Pack.
        icebraining 8y ago
        In practice, that's true of tax money as well.
        emodendroket 8y ago
        That hardly seems like a reason to exacerbate the issue.
      - lmm 8y ago
        People can make their own choices with their post-tax income - that's theirs, free and clear. But they shouldn't get to redirect their democratically-determined share of the tax burden away from its democratically-determined targets.
    - tvanantwerp 8y ago
      If there really is a way to redirect my tax money from F-35s and detaining children at the border to actual charitable causes, then I'm all for it.
  - dragonwriter 8y ago
    Sure, but why is it the tax code’s job to provide a public subsidy to “charities”, legitimate or otherwise? Charity should be voluntary and unsubsidized.
    - Digory 8y ago
      The idea is that money you give away in a tax year offsets your “income.” The money you give to charity represents money you did not keep, and is not part of that year’s income. The idea that government ‘subsidizes’ charity by not calling it income of the donor and the charity is upside down.
      - lmm 8y ago
        > The idea is that money you give away in a tax year offsets your “income.” The money you give to charity represents money you did not keep, and is not part of that year’s income. Why does the same logic not apply to any money you expend that year? We tax people on gross income; making anything tax deductible is completely equivalent to subsidizing that thing.
        Digory 8y ago
        You’re asking what’s different between money that buys something for yourself, and money given away? When you trade money for stuff, you get the benefit. If we’re taxing failure to keep and spend money on yourself, we might as well tax based on failure to earn as much as you can — we’re subsidizing teachers that could be paying taxes like VCs. But no one thinks like that. People seem to think there’s a social contract via government, but no private social contract -- but there is.
        lmm 8y ago
        > When you trade money for stuff, you get the benefit. People exchange their money for all kinds of benefits, tangible and less so, and 503.c status is an extremely poor measure of whether a person is getting a benefit for their money. They could be funding their kind of artists - or buying their favourite art for a "museum" next door, open only by appointment to them. Lobbying for their preferred political causes, investing in their businesses, hiring their friends... plenty of ways to benefit. Certainly it is absurd to imagine that state and local taxes (which are spent in a democratically organised way) are somehow more for your own benefit than private "charitable" donations to foundations you control, and it's obscene that the latter should be more tax deductible than the former. > If we’re taxing failure to keep and spend money on yourself, we might as well tax based on failure to earn as much as you can — we’re subsidizing teachers that could be paying taxes like VCs. But no one thinks like that. Income tax isn't about how much you spend on yourself - if that were the intent it would be a consumption tax rather than an earnings tax. It's about how much you control. If you want to direct a big chunk of society's future production to particular ends, the rest of society gets to take a cut.
andreygrehov 8y ago
I don't believe there are people interested to fix it.
- dahart 8y ago
  Why not? Are you referring only to the donors? It seems like the article quoted some people who’d prefer at least a slightly different outcome: the charities would rather have liquid donations than assets on paper they can’t touch, right? I can imagine several other groups who might also prefer various fixes.
- toast0 8y ago
  There must be some people interested, charitable remainder trusts had their strings brought in quite a bit at some point, and the old rules made for a pretty amazing tax avoidance tool.
- loceng 8y ago
  I believe if you gave people the resources and support to fix it, it could happen - however then the counter-weight of people hoarding their money would be felt; it could only take a single seriously bad actor with extra funds to squash serious efforts.
CompelTechnic 8y ago
I don't think 5% is a safe level. There are many charities that intend to operate in perpetuity, and this practice would eliminate this possibility.
- krn 8y ago
  Foundations often make more than 10% / year by keeping 60% of their funds in S&P500, and 40% in bonds[1]. Therefore, 5% seems to be a completely safe level. [1] https://www.foundationmark.com/indices https://www.foundationmark.com/indices
  - charlesdm 8y ago
    Can yes. In good years. They can also lose 30% in a down year.
    - krn 8y ago
      The average return has been 8.8% since 1926, including 20 years with loses[1]. [1] https://www.vanguard.com/us/insights/saving-investing/model-portfolio-allocations https://www.vanguard.com/us/insights/saving-investing/model-...
      - kgwgk 8y ago
        These are nominal returns, real returns are worse. And the returns over 10 years, for example, are quite irregular and can be negative. And over the next 10 years one should expect to get lower-than-average returns because valuation is high currently. https://www.researchaffiliates.com/en_us/publications/articles/313_year_end_capital_markets_commentary_and_forecast_yesterdays_gone.html https://www.researchaffiliates.com/en_us/publications/articl...
  - CompelTechnic 8y ago
    If you look at safe withdrawal rates that do not result in portfolio depletion, 4% is about the most you could hope for from a fairly stock-heavy portfolio, and this is a rate really intended for funding a 30-year retirement, not indefinite. 3% is more realistic for a permanent withdrawal. 10% is absurd.
usaar333 8y ago
Well, then you have the problem of defining what a DAF vs. regular charity is. Regular charities might also just stockpile your money or give to other charities - and what makes DAFs so special is that they don't have any legal obligation to follow the donor's granting recommendations (it's a trust relationship)

It seems like a relatively simple fix for this is to set the same minimum distribution requirements that private foundations have. The article mentions 5%, which seems like a safe level.

lotsofpulp 8y ago

Simple fix is to remove tax loopholes like deductions for charities.

ModernMech 8y ago
But that's actually helpful for legitimate charities.
- lotsofpulp 8y ago
  There's no reason to introduce subjective terms like charities into the tax code, unless you wish to create a loophole and jobs for lawyers and accountants. Charities can exist with or without tax breaks. The whole point of democracy is to get together and decide where to focus our resources, and letting people get away with directing funds to their personal causes is an avenue for fraud.
  - charlesdm 8y ago
    They can. But without a tax break, people will give less.
    - Retric 8y ago
      But, the government ends up with more money. In theory charities fill in gaps that the public does not want to spend government money supporting. So, why spend public money supporting people giving to charity? It’s not like Tax breaks create new money they just redistribute resources.
      - charlesdm 8y ago
        Because generally local initiatives driven by people are better executed or better managed than government projects. Even if the government wanted to redistribute the same money to charities, there is a significant overhead cost of people that need to be employed to sift through viable projects. I live in Belgium, where the system is a bit different (you get a 45% tax deduction on money donated if a charity has an accreditation) and the tax deduction is a significant part of why I give to charity. If there would be no deduction, I would still give, but a lot less.
        Retric 8y ago
        The problem is not that charities are efficient or not, it's that your spending public money on a tax deduction without vetting what projects are being worked on. Effectively, you collect money from people and then deny those same people a say in what it's spent on. As you say, even the ones you support are not worth giving much of your money to. But, you are also directly supporting charities with your tax money that you actively disagree with. EX: Direct Food Aid is generally (though not always) considered a bad idea, but if even a small portion of people disagree then everyone chips in.
        charlesdm 8y ago
        I'm not saying they're not worth giving money to however. In the case of Belgium there is proper vetting, and not every project can get an accreditation. But the deduction incentivises giving. I tend to gift double the money I would without the deduction, because the cost is exactly the same to me. The US system is probably too generous when comparing both. I personally don't oppose the deduction. Most are not investment vehicles but actual charities, doing something good in the world. I wish more people would do something good in the world. I'm sure more money goes lost every year due to political corruption and graft, than through the charity tax deduction.
        Retric 8y ago
        > I tend to gift double the money I would without the deduction, because the cost is exactly the same to me Then you give ~exactly the same money, it's the public that's giving more money. Forcing everyone else in your country to chip in just a little more for roads is not the same as giving more money.
    - lotsofpulp 8y ago
      Do property taxes, sales taxes, and all the other taxes cause people to give less too? The point is that a society needs funds to function, and in a democracy, society gets together and decides what to do with their pooled resources. We vote on what we want to prioritize, such as military, research, education, infrastructure, spying on its own citizens, etc. Everyone contributes to these causes via taxes, except if you set up your own little organization and call it a "charity". Then you can opt out society's liabilities and fund your own little pet causes, regardless of whether or not they are actually beneficial to everyone. And you can increase opacity since you're not subject to open records (like the government should be ideally), and in general, add a layer of bureaucracy for no reason. I don't see a compelling argument that all the added overhead of lawyers and accountants and inspectors who then need go around checking every stupid charity offset whatever benefit the charity provides. Instead we should be focusing our efforts on making government transparent, reducing waste, and pursuing efforts to benefit all in society.
      - fjsolwmv 8y ago
        If the money goes to taxes instead of charity, you still have the same need for lawyers and accountants and inspectors to check that the funds are used properly and not diverted
        lotsofpulp 8y ago
        There are economies of scale to be had there from not having to deal with fewer laws and individual organizations so I don't see why there would need to be as many lawyers and accountants.
      - prostoalex 8y ago
        > Instead we should be focusing our efforts on making government transparent, reducing waste Why is this stipulated on charitable deductions going away?
        lotsofpulp 8y ago
        It isn't, but the people I'm replying to are suggesting charity is better than taxes because government is wasteful, to which I'm arguing that if that is the case then the solution is to fix government by making it transparent, not opening up more avenues for corruption by giving tax deductions for charity.
    - lmm 8y ago
      If they were genuine donations, then people will donate the same amount of pre-tax income as before (it's just that less of that pre-tax income will go to private charity and more will go on democratically accountable government expenditure. I call that a win). If people "donate" less because they're now getting less "value for money" out of whatever they were buying with their donations, that suggests that these weren't true donations and we're better off with less of them.
  - stochastic_monk 8y ago
    Better yet, tax donations but don’t tax specific expenditures from charities meeting necessary requirements. The burden of proof would be on the charity, and the specific spending would have to be monitored.
  - ModernMech 8y ago
    True, sure, but American capitalism is not set up that way. We are not a centralized economy, but one way the government can get more of one activity and less of another is through tax breaks.
    - lotsofpulp 8y ago
      That's one way the government can open an avenue for corruption without quantifying real costs (since it's all estimates from various "experts"). Since you can fudge the numbers all you want, it's a popular way to do things. The better way in the long term would be to pay for the activity one wants to incentivize, just like we do everything else. Obviously, that would expose all the implicit costs and it's more difficult to win elections.
  - bilbo0s 8y ago
    Not sure "charity" is a subjective term? (Or, more accurately, I know that "charity" is not a subjective term for the IRS.) You shouldn't try to play fast and loose with tax breaks for charitable giving because the IRS actually keeps pretty close tabs on that stuff. As far as they're concerned, an organization either has charitable status with them, or the organization does not have charitable status with them. There is no middle ground. Trying to argue that an organization is a charity, and therefore your gift should be tax deductible, is a losing proposition where the IRS is concerned.
    - lotsofpulp 8y ago
      Why should there be a tax break for paying this organization? https://en.wikipedia.org/wiki/Kars4Kids https://en.wikipedia.org/wiki/Kars4Kids That's just the first example off the top of my head, but also, when someone donates a wing or lecture hall to a school, why do they get to name it? They are gaining prestige and public relations, and admissions status for their descendants. A real charitable donation would be credited to anonymous. But even then, taxes are for the operation of society, that we as voters have come together and decided on. There just isn't a reason to subvert that with a million other little organizations, even if one were to claim that they are being audited and whatnot, when one can clearly see favoritism in the group's beneficiaries and quid pro quo from the donations.
      - fjsolwmv 8y ago
        That first one is a bad example because as the article notes, they are under investigation for suspicion of not being a legally valid charity. That doesn't undermine the concept of legally calid charity. The rest of your argument is spot-on, but one rebuttal is that charitable giving exemption is a way to provide a truly democratic way for citizens to give votes of partial non-confidence in how their tax dollars are spent.
        lotsofpulp 8y ago
        That's actually my point. I've heard that corrupt charity's jingle for over 20 years and they're still only "under investigation"? In the meantime, they and their contributors get evade taxes, and at the end of it all, there is no punishment for anyone. No one is going to go to jail for stretching the definitions in the law, it is all plausibly deniable. The only solution is to remove this option period. The US government even negotiated with Scientology where they kept their charity status even after being proven corrupt: https://en.wikipedia.org/wiki/Tax_status_of_Scientology_in_the_United_States#Negotiations_and_the_resolution_of_the_dispute https://en.wikipedia.org/wiki/Tax_status_of_Scientology_in_t... How can anyone take "charity" as a legal term seriously?
  - CompelTechnic 8y ago
    There is a reason. Charities are able to do beneficial work for the people of the country, and are able to organize themselves to accomplish the work in ways that the structure of the government cannot. Incentivizing the behavior of giving (or rather, removing part of the disincentive of taxing the money a person intends to use in an altruistic way) increases this behavior and helps more people. If your argument is that many of these charities aren't actually doing useful work, and that they only exist as a way to get tax deductions, is shaky when you consider that you still end up poorer when making a charitable contribution than when you don't (in no case does the deduction exceed the amount donated).
    - deleted 8y ago
      [deleted]
    - fjsolwmv 8y ago
      None of that justifies a tax deduction. Taxes are the way the way government funds its social contract. "Giving more to private exharity at the expense of tax revenue" just raised the tax burden of everyone else -- sonwhy shouldn't their extra tax payments also be tax deductible? It leads to absurdity. Especially considering that many tax-deductible "charities" are actually people getting together to pay each other money for personal services (for example: schools, churches, and hobby associations)
      - CompelTechnic 8y ago
        >just raised the tax burden of everyone else -- sonwhy shouldn't their extra tax payments also be tax deductible? It leads to absurdity. It has been born out in practice that these extra tax payments are not deductible. Few people would expect this to be the case, either. The absurdity does not exist. This is not an intellectually honest argument. >Especially considering that many tax-deductible "charities" are actually people getting together to pay each other money for personal services (for example: schools, churches, and hobby associations) Private schools provide an alternative means of educating children when one does not trust the culture or capabilities of the local public schools. Taxing them would reduce their prevalence and would worsen the burden on private parents whose economic activity already supports both public (through property tax, etc) and private schools. Churches provide moral support to communities, organize deeds of service, and are generally a force for exercising virtue. I say this as an athiest. Some bad churches exist, but taxing churches would be throwing the baby out with the bathwater. Tax-free hobby organizations are a little less defensible, but it is worth considering that they are limited in scope by law (https://cullinanelaw.com/501c7-social-and-recreational-organizations-how-to-stay-tax-exempt/ https://cullinanelaw.com/501c7-social-and-recreational-organ...). But it is worth considering that making it cheaper to fund hobby organizations makes it easier to participate in the sort of activities that we enjoy, and that improve our physical and mental health. We are already living in a society where we spend every dollar we make, and we still feel lonely and isolated nonetheless. Encouraging these outlets, with their socialization and tight focus on community, is a force for good.
  - jtuente 8y ago
    The whole point of //socialism// is to get together and decide where to focus our resources, and letting people get away with directing funds to their personal causes is an avenue for fraud. The whole point of democracy is to enable legal equality, political freedom and rule of law.
    - lotsofpulp 8y ago
      I meant funds collected from taxes when I wrote "our resources".
    - fjsolwmv 8y ago
      That's not what those words mean all. Socialism and Democracy are orthogont concepts. Socialism is an economic concept; democracy is a political concept.
- emodendroket 8y ago
  I wonder about this. I've read an argument that charitable tax deductions are a problem because they are essentially giving the wealthy a way to directly redirect taxes into spending on their preferred priorities, rather than those of the government (which obviously has problems, but is at least in theory answerable to the entire polity, rather than a handful of individuals or businesses). I haven't really come down on it one way or the other but I thought it was a compelling line of argument.
  - bluGill 8y ago
    On the other hand when there are more good causes than money (this will always be true) it lets people with a passion for something make the individual choice as to what is worth supporting.
    - emodendroket 8y ago
      Yes, but it lets Jeff Bezos make a lot more choices than Joe Six-Pack.
      - icebraining 8y ago
        In practice, that's true of tax money as well.
        emodendroket 8y ago
        That hardly seems like a reason to exacerbate the issue.
    - lmm 8y ago
      People can make their own choices with their post-tax income - that's theirs, free and clear. But they shouldn't get to redirect their democratically-determined share of the tax burden away from its democratically-determined targets.
  - tvanantwerp 8y ago
    If there really is a way to redirect my tax money from F-35s and detaining children at the border to actual charitable causes, then I'm all for it.
- dragonwriter 8y ago
  Sure, but why is it the tax code’s job to provide a public subsidy to “charities”, legitimate or otherwise? Charity should be voluntary and unsubsidized.
  - Digory 8y ago
    The idea is that money you give away in a tax year offsets your “income.” The money you give to charity represents money you did not keep, and is not part of that year’s income. The idea that government ‘subsidizes’ charity by not calling it income of the donor and the charity is upside down.
    - lmm 8y ago
      > The idea is that money you give away in a tax year offsets your “income.” The money you give to charity represents money you did not keep, and is not part of that year’s income. Why does the same logic not apply to any money you expend that year? We tax people on gross income; making anything tax deductible is completely equivalent to subsidizing that thing.
      - Digory 8y ago
        You’re asking what’s different between money that buys something for yourself, and money given away? When you trade money for stuff, you get the benefit. If we’re taxing failure to keep and spend money on yourself, we might as well tax based on failure to earn as much as you can — we’re subsidizing teachers that could be paying taxes like VCs. But no one thinks like that. People seem to think there’s a social contract via government, but no private social contract -- but there is.
        lmm 8y ago
        > When you trade money for stuff, you get the benefit. People exchange their money for all kinds of benefits, tangible and less so, and 503.c status is an extremely poor measure of whether a person is getting a benefit for their money. They could be funding their kind of artists - or buying their favourite art for a "museum" next door, open only by appointment to them. Lobbying for their preferred political causes, investing in their businesses, hiring their friends... plenty of ways to benefit. Certainly it is absurd to imagine that state and local taxes (which are spent in a democratically organised way) are somehow more for your own benefit than private "charitable" donations to foundations you control, and it's obscene that the latter should be more tax deductible than the former. > If we’re taxing failure to keep and spend money on yourself, we might as well tax based on failure to earn as much as you can — we’re subsidizing teachers that could be paying taxes like VCs. But no one thinks like that. Income tax isn't about how much you spend on yourself - if that were the intent it would be a consumption tax rather than an earnings tax. It's about how much you control. If you want to direct a big chunk of society's future production to particular ends, the rest of society gets to take a cut.

andreygrehov 8y ago

I don't believe there are people interested to fix it.

dahart 8y ago
Why not? Are you referring only to the donors? It seems like the article quoted some people who’d prefer at least a slightly different outcome: the charities would rather have liquid donations than assets on paper they can’t touch, right? I can imagine several other groups who might also prefer various fixes.
toast0 8y ago
There must be some people interested, charitable remainder trusts had their strings brought in quite a bit at some point, and the old rules made for a pretty amazing tax avoidance tool.
loceng 8y ago
I believe if you gave people the resources and support to fix it, it could happen - however then the counter-weight of people hoarding their money would be felt; it could only take a single seriously bad actor with extra funds to squash serious efforts.

CompelTechnic 8y ago

I don't think 5% is a safe level. There are many charities that intend to operate in perpetuity, and this practice would eliminate this possibility.

krn 8y ago
Foundations often make more than 10% / year by keeping 60% of their funds in S&P500, and 40% in bonds[1]. Therefore, 5% seems to be a completely safe level. [1] https://www.foundationmark.com/indices https://www.foundationmark.com/indices
- charlesdm 8y ago
  Can yes. In good years. They can also lose 30% in a down year.
  - krn 8y ago
    The average return has been 8.8% since 1926, including 20 years with loses[1]. [1] https://www.vanguard.com/us/insights/saving-investing/model-portfolio-allocations https://www.vanguard.com/us/insights/saving-investing/model-...
    - kgwgk 8y ago
      These are nominal returns, real returns are worse. And the returns over 10 years, for example, are quite irregular and can be negative. And over the next 10 years one should expect to get lower-than-average returns because valuation is high currently. https://www.researchaffiliates.com/en_us/publications/articles/313_year_end_capital_markets_commentary_and_forecast_yesterdays_gone.html https://www.researchaffiliates.com/en_us/publications/articl...
- CompelTechnic 8y ago
  If you look at safe withdrawal rates that do not result in portfolio depletion, 4% is about the most you could hope for from a fairly stock-heavy portfolio, and this is a rate really intended for funding a 30-year retirement, not indefinite. 3% is more realistic for a permanent withdrawal. 10% is absurd.

usaar333 8y ago

Well, then you have the problem of defining what a DAF vs. regular charity is. Regular charities might also just stockpile your money or give to other charities - and what makes DAFs so special is that they don't have any legal obligation to follow the donor's granting recommendations (it's a trust relationship)