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> These donations are effectively free. A company or wealthy individual can either pay taxes or donate the money to a "non-political" think tank to promote poli

by wahern 7y ago

> These donations are effectively free. A company or wealthy individual can either pay taxes or donate the money to a "non-political" think tank to promote policies they'd like to see. That's not how deductions work. A donation costs the donor much more than the tax reduction. All a deduction does is reduce your adjusted gross income, not literally offset the nominal sum you pay in taxes. Say my top marginal tax bracket is 20%. If I donate $100 then it's costing me precisely $100. If I don't donate then I'm on the hook for $20 ($100 * 20%) in tax. $100 > $20. This presumes the $100 is earned income, and that the donation is in fact tax deductible. If neither of those hold then the relation is $100 > $0. People have similarly mistaken ideas about so-called write-offs: https://www.youtube.com/watch?v=XEL65gywwHQ https://www.youtube.com/watch?v=XEL65gywwHQ

dumbfoundded 7y ago
This is correct. Money becomes slightly leveraged. If your tax rate is 37%, you effectively get spend to $1.37 for every $1 you remove from your taxable income. There's also estate taxes where you can create a foundation for large estates to avoid the ~16% tax rate. These are often used to fund political goals.
- wahern 7y ago
  > you effectively get spend to $1.37 for every $1 you remove from your taxable income But it's still an expenditure, and a bad one at that. Imagine you can spend $1 in the stock market or burn $1.37. Which one would you do? The very point of the article was that if political expenditures actually provided a substantial return we should see orders of magnitude more political expenditures. Estate tax avoidance is also a little misleading because you're only avoiding the estate tax, not income tax. Any money you move into a tax-exempt foundation would have already been taxed as income. So whether you shift it into your foundation or simply spend it all immediately by donating it to existing tax-exempt entities, what's the difference? In no situation does donating money either save you money or come out equal to not donating. Donating always costs you money, period. Your original point was that "donations are effectively free", which is categorically wrong.
gdudeman 7y ago
This isn’t how it works for the rich. If you donate appreciated assets, you don’t pay taxes on the appreciation, so in the best case scenario (e.g. you bought bitcoin at a penny) you donate $100, but it is the equivalent of $80 after tax. Additionally, you get to write that $100 donation off your income. If you’re in the highest tax bracket, that means you’re saving $39 off your tax bill. You’ve effectively given $100 in exchange for the cost of $41.
- asciident 7y ago
  You just agreed with your parent post. He said "A donation costs the donor much more than the tax reduction." In your example, the donation cost the donor $100, which is much more than the tax reduction of $39 + $20. But on another point, didn't you just double count the tax? You donated $100 of bitcoin, and you write it off your taxes (so not having to pay that $39), but you just counted another $20 somewhere.
- prepend 7y ago
  But the donor could have spent the Bitcoin on comic books and paid taxes. So from a personal balance sheet the options are: Donate $100, reduce taxes by $20. (Net expense $80, cash in pocket $0) Cash in $100, pay taxes of $20. (Cash in pocket $80) The donor still gets more cash by not donating. The difference is that they can get more value by donating. In the sense if they donate to a cause they can spend $100 plus the $20 they would pay in taxes for total impact of $120. If they spent it on a taxable cause then they would spend $100 get $80 in impact since they would need to use $20 on taxes.

by wahern 7y ago

dumbfoundded 7y ago

This is correct. Money becomes slightly leveraged. If your tax rate is 37%, you effectively get spend to $1.37 for every $1 you remove from your taxable income. There's also estate taxes where you can create a foundation for large estates to avoid the ~16% tax rate. These are often used to fund political goals.

wahern 7y ago
> you effectively get spend to $1.37 for every $1 you remove from your taxable income But it's still an expenditure, and a bad one at that. Imagine you can spend $1 in the stock market or burn $1.37. Which one would you do? The very point of the article was that if political expenditures actually provided a substantial return we should see orders of magnitude more political expenditures. Estate tax avoidance is also a little misleading because you're only avoiding the estate tax, not income tax. Any money you move into a tax-exempt foundation would have already been taxed as income. So whether you shift it into your foundation or simply spend it all immediately by donating it to existing tax-exempt entities, what's the difference? In no situation does donating money either save you money or come out equal to not donating. Donating always costs you money, period. Your original point was that "donations are effectively free", which is categorically wrong.

gdudeman 7y ago

This isn’t how it works for the rich. If you donate appreciated assets, you don’t pay taxes on the appreciation, so in the best case scenario (e.g. you bought bitcoin at a penny) you donate $100, but it is the equivalent of $80 after tax. Additionally, you get to write that $100 donation off your income. If you’re in the highest tax bracket, that means you’re saving $39 off your tax bill. You’ve effectively given $100 in exchange for the cost of $41.

asciident 7y ago
You just agreed with your parent post. He said "A donation costs the donor much more than the tax reduction." In your example, the donation cost the donor $100, which is much more than the tax reduction of $39 + $20. But on another point, didn't you just double count the tax? You donated $100 of bitcoin, and you write it off your taxes (so not having to pay that $39), but you just counted another $20 somewhere.
prepend 7y ago
But the donor could have spent the Bitcoin on comic books and paid taxes. So from a personal balance sheet the options are: Donate $100, reduce taxes by $20. (Net expense $80, cash in pocket $0) Cash in $100, pay taxes of $20. (Cash in pocket $80) The donor still gets more cash by not donating. The difference is that they can get more value by donating. In the sense if they donate to a cause they can spend $100 plus the $20 they would pay in taxes for total impact of $120. If they spent it on a taxable cause then they would spend $100 get $80 in impact since they would need to use $20 on taxes.