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I have what I hope is a genuine question here: > we need to ... severely limit tax exemptions for charitable donations Why do we need to do this? Wouldn’t th

by nlh 5y ago

I have what I hope is a genuine question here: > we need to ... severely limit tax exemptions for charitable donations Why do we need to do this? Wouldn’t the natural incentive-based result of this be a huge reduction in charitable donations? It’s essentially an asset transfer from charitable causes to the government. I’m not sure I understand why that’s default good.

HenryKissinger 5y ago
People should be giving to charities out of the good of their heart, not to get a tax deduction. The tax deductibility of charitable donations makes them no cost options for the donor. Remove the tax implications, and you will see who really cares about their cause.
- bitcurious 5y ago
  For the sake of argument, assume a flat 20% tax rate for a minute. Scenario A: Your taxable income is $1,000,000. Your tax liability is $200,000. You pay your taxes, you net $800,000. Scenario B: Your taxable income is $1,000,000. Your tax liability is $200,000. You donate $200,00 to charity. Now your taxable income is $800,000 and your tax liability is $160,000. Your net income is $640,000. The only scenario where a charitable contribution doesn’t lower your overall income is Scenario C: you commit fraud.
  - rattray 5y ago
    Scenario D: You donate $800,000 to a foundation you control. Your net income is $960,000 ($160,000 cash and $800,000 with some strings attached).
    - kristjansson 5y ago
      If they cut a string, or even pull on one a bit too much, they’re right back at C.
      - zentiggr 5y ago
        Assuming anyone can get the AG to actually investigate, file charges, and get a conviction. Notoriously more difficult as the amount of financial leverage increases.
  - justanotherguy0 5y ago
    You're forgetting that you can donate appreciated assets for their market value without realizing the capital gains as income.
- AussieWog93 5y ago
  (Legitimate) tax deductible donations aren't no-cost. You can only use it to reduce your tax at the marginal rate you pay. If, for example, you were in the 30% tax bracket and gave a $100 deductible donation, you'd only reduce your tax liability by $30 (ignoring edge cases) - ie you're still $70 out of pocket.
- Tycho 5y ago
  How does this make sense. It’s “tax deductible” because you are giving the income away instead of keeping it. Of course people would give less if they had to give the government a cut. “I want to give a million pounds to charity.” “That’s nice of you. You still need to pay tax first on that sum, though.” “OK I want to give £600,000 to charity.”
  - bdefore 5y ago
    Why should whether it's given away or not mean that government shouldn't receive the same share?
    - Tycho 5y ago
      That's just the way it works. There's numerous alternative arrangements and arguments in favour and against. You could think about if the owner of a business generously decides to give all his employees a pay rise - the government now receives less money because the employees pay a lower marginal tax rate than what the owner would have paid if he kept the money for his own higher salary. Should the government get involved here and claw back that lost tax?
    - brotherofsteel 5y ago
      Why should the state get any of it, regardless of what I spend it on?
- adwn 5y ago
  > Remove the tax implications, and you will see who really cares about their cause. Yes, and donors should be whipped proportionally to the size of their donation – then we'll see who really, really cares about their cause. > People should be giving to charities out of the good of their heart [...] It's not up to you to decide people's motivation for being charitable.
- alok-g 5y ago
  My understanding is that donating to charity, which would ideally be for the good of the common public, is purposefully encouraged, and that is not fundamentally different than giving money to the governments as taxes. In other words, someone may believe more in a given charity spending money towards social good than on the government itself. I see some arguments along these lines here: https://theconversation.com/explainer-why-are-donations-to-some-charities-tax-deductible-72968 https://theconversation.com/explainer-why-are-donations-to-s... Excerpts: * The main argument for tax-deductibility of donations is that it is a form of government assistance or subsidy for what are considered publicly beneficial causes. * A third argument is that indirect support mechanisms, such as tax-deductibility of donations, facilitates choice. So, taxpayers can direct a certain proportion of their tax to causes they choose, rather than the government determining how it should be spent.
  - jameshart 5y ago
    And the counterargument to that would be: Directing money to a charity, to avoid the money going to the government, is explicitly a way of directing your money away from the common good of the public (which is after all theoretically what the government would spend it on) and towards the specific spending goals which the donor supports. The idea that a wealthy person has a 'better' idea of how to spend their money than the collective will of the people expressed through government is fundamentally antidemocratic. A billionaire spending money through a charity that promotes a particular kind of schooling, rather than paying the money as taxes into the general fund where it would be used to fund education as directed by a democratically elected government, is basically a way of using their wealth to obtain a bigger-than-one-vote say in how education spending works, and to bypass democratic decisionmaking about how to spend money for the common good. Of course, democracies are imperfect decisionmakers and they may not always reflect the spending priorities that will maximise collective good - but at least as institutions they are intended to balance interests, and provide a measure of fairness and equality in how decisions are made. And why would we believe that individual wealthy charity donors will make better decisions on how to direct spending? An individual billionaire deciding that all schools should work the way they would prefer might be a positive way to end-run around institutional inertia and advance the state of schooling for everyone; or they might just pay to have every school library stocked with books about how humans coexisted with dinosaurs. They're one person, unconstrained by how the rest of society would like to improve schools.
koheripbal 5y ago
If donations were going to 3rd party charitable organizations, maybe (though they are notoriously inefficient/corrupt themselves), but if you are simply transferring the money to an organization under your full control anyway, then it's not really a charitable organization. This distinction is so hard to make, that I think it simply makes more sense to limit donations to a much smaller percent of AGI. The current limit of 60% is so high, that most donations at that level are providing some sort of unspoken utility to the benefactor.
- kristjansson 5y ago
  Even a charitable organization the donor fully controls must follow regulations on its activity. Surely some people use their foundations as personal piggy banks, but that’s fraud and is pursued as such. It’s like a conservation agreement. The land (wealth) remains in control of the owner, but the state gets some say in its use and the public benefits. Abuse of the the system is a case for stricter enforcement; sanctioned but objectionable uses are a case for stricter regulations
  - koheripbal 5y ago
    Yes, but these regulations are not well policed. They effectively take the accounting books provided at face value. It's almost never investigated, and there is, in the normal course, so much overlap between expenses that benefit ME as a person, and ME as the owner of the charity. Travel is a big one, for example.
    - ryandrake 5y ago
      This type of misbehavior is widespread, too. These foundations are not limited to the ultra wealthy. Tons of even moderately rich people (say, tens of millions in wealth) take advantage of these vehicles. Pumping their income into "charity" where charity is not Habitat For Humanity, but "MR JOHN B ENTREPRENEUR CHARITABLE FOUNDATION LLC". The foundation is run within a millimeter of the law, and basically funds the owner's lavish lifestyle tax-free. It's such an obvious scam but since it's just barely legal, nobody bats an eye. And if anyone questions the practice, you have people coming out of the woodwork saying "why are you against charities like Habitat For Humanity?"
fallingknife 5y ago
I'm not convinced that most charities really get much done other than making their donors feel good. I think the government is actually more efficient. And I'm saying that as someone who really doesn't like the government.
- storf45 5y ago
  Really??? Like the government needs more tanks and F-35s.
- bretpiatt 5y ago
  I encourage you to go take a look at the larger 501(c)3 non-profit "aka. charities" in your area. Here's a few from San Antonio where I live: Haven for Hope (transformational campus to combat homelessness) https://www.havenforhope.org/ https://www.havenforhope.org/ San Antonio Food Bank (part of a national network of food banks) https://safoodbank.org/ https://safoodbank.org/ Catholic Charities, Archdiocese of San Antonio (I'm the Board Chair, we run ~40 programs meeting people where they are and helping them on a path to self sufficiency) https://ccaosa.org/ https://ccaosa.org/
- ike77 5y ago
  I'm pretty sure a lot of them really invest in the common good. The issue is more with the ones that actively promote the interests of their founders. https://en.wikipedia.org/wiki/Koch_family_foundations https://en.wikipedia.org/wiki/Koch_family_foundations https://en.wikipedia.org/wiki/Cato_Institute https://en.wikipedia.org/wiki/Cato_Institute https://en.wikipedia.org/wiki/The_Heritage_Foundation https://en.wikipedia.org/wiki/The_Heritage_Foundation Are just a few examples of far right think tanks that are tax exempted.
  - hackeraccount 5y ago
    What charity doesn't promote the interests of the people giving it money? Who doesn't believe their interests are for the common good? If the problem is that you think some interests should be promoted and other not - well, I'm all in favor of that. The two of us just need to sort out which will be favored. My plan is for me to decide and you to agree with me. Sound good?
bradleyjg 5y ago
A tax deduction is essentially a matching grant from the rest of the tax payers. I don’t know that I’m totally opposed to the idea, but it’s ripe for abuse and conceptually difficult to fully define in such a way as to eliminate any possibility of such abuses. Why not instead have people donate their own money to causes they believe in, and have no matching grants?
- lotsofpulp 5y ago
  That is exactly the reason to be opposed to them. There’s zero reason for them to exist, other than to enable corruption and enabling a way to direct your taxes towards your own tribe (churches, synagogue, etc) rather than the public as a whole.
jdikatz 5y ago
Typical estimates suggest a 1% increase in tax expenditure on charitable deductions (so government forgone revenue due to deductions) leads to a more than 1% increase in charitable giving, so deductions increase social spending (see p170 in https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.25.2.157 https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.25.2.157) But could be distributional issues as well depending on where the rich choose to donate — lots of that money is probably implicit transfers from government revenues to the Met
- koheripbal 5y ago
  This logic is similar to trickle down economics. It's not useful. Government expenditures have a high multiplier as well, so even if true it's not better than tax revenue.
  - jdikatz 5y ago
    Should have been more precise. By "social spending" I mean sum of (tax revenue) + (donations to charities), since 1% decrease in revenue translates to >1% increase in donations to charity. Agreed that this says nothing about "net social benefits," since it depends on the value of government vs. social spending. My point is only that the elasticity is above 1, since if it were below 1 then there would be literally no justification for deductions. In that case, 1% reduction in tax revenue from deductions would lead to a less than 1% increase in giving, so the government could increase aggregate funding for charities by killing deductions and issuing grants. Elasticity >1 opens the door for deductions being sensible depending on objectives and use of funds by gvt vs. charities. Note this is not a spending multiplier, so the comparison with government spending multipliers is irrelevant. The relevant comparison there would be, for example, GDP (or ideally the "social") impact of each dollar in charitable spending. I don't know what that is and it probably varies by charity.
gilbetron 5y ago
https://www.nytimes.com/2018/08/03/business/donor-advised-funds-tech-tax.html https://www.nytimes.com/2018/08/03/business/donor-advised-fu... It's complicated and corrupt, basically.

by nlh 5y ago

HenryKissinger 5y ago

People should be giving to charities out of the good of their heart, not to get a tax deduction. The tax deductibility of charitable donations makes them no cost options for the donor. Remove the tax implications, and you will see who really cares about their cause.

bitcurious 5y ago
For the sake of argument, assume a flat 20% tax rate for a minute. Scenario A: Your taxable income is $1,000,000. Your tax liability is $200,000. You pay your taxes, you net $800,000. Scenario B: Your taxable income is $1,000,000. Your tax liability is $200,000. You donate $200,00 to charity. Now your taxable income is $800,000 and your tax liability is $160,000. Your net income is $640,000. The only scenario where a charitable contribution doesn’t lower your overall income is Scenario C: you commit fraud.
- rattray 5y ago
  Scenario D: You donate $800,000 to a foundation you control. Your net income is $960,000 ($160,000 cash and $800,000 with some strings attached).
  - kristjansson 5y ago
    If they cut a string, or even pull on one a bit too much, they’re right back at C.
    - zentiggr 5y ago
      Assuming anyone can get the AG to actually investigate, file charges, and get a conviction. Notoriously more difficult as the amount of financial leverage increases.
- justanotherguy0 5y ago
  You're forgetting that you can donate appreciated assets for their market value without realizing the capital gains as income.
AussieWog93 5y ago
(Legitimate) tax deductible donations aren't no-cost. You can only use it to reduce your tax at the marginal rate you pay. If, for example, you were in the 30% tax bracket and gave a $100 deductible donation, you'd only reduce your tax liability by $30 (ignoring edge cases) - ie you're still $70 out of pocket.
Tycho 5y ago
How does this make sense. It’s “tax deductible” because you are giving the income away instead of keeping it. Of course people would give less if they had to give the government a cut. “I want to give a million pounds to charity.” “That’s nice of you. You still need to pay tax first on that sum, though.” “OK I want to give £600,000 to charity.”
- bdefore 5y ago
  Why should whether it's given away or not mean that government shouldn't receive the same share?
  - Tycho 5y ago
    That's just the way it works. There's numerous alternative arrangements and arguments in favour and against. You could think about if the owner of a business generously decides to give all his employees a pay rise - the government now receives less money because the employees pay a lower marginal tax rate than what the owner would have paid if he kept the money for his own higher salary. Should the government get involved here and claw back that lost tax?
  - brotherofsteel 5y ago
    Why should the state get any of it, regardless of what I spend it on?
adwn 5y ago
> Remove the tax implications, and you will see who really cares about their cause. Yes, and donors should be whipped proportionally to the size of their donation – then we'll see who really, really cares about their cause. > People should be giving to charities out of the good of their heart [...] It's not up to you to decide people's motivation for being charitable.
alok-g 5y ago
My understanding is that donating to charity, which would ideally be for the good of the common public, is purposefully encouraged, and that is not fundamentally different than giving money to the governments as taxes. In other words, someone may believe more in a given charity spending money towards social good than on the government itself. I see some arguments along these lines here: https://theconversation.com/explainer-why-are-donations-to-some-charities-tax-deductible-72968 https://theconversation.com/explainer-why-are-donations-to-s... Excerpts: * The main argument for tax-deductibility of donations is that it is a form of government assistance or subsidy for what are considered publicly beneficial causes. * A third argument is that indirect support mechanisms, such as tax-deductibility of donations, facilitates choice. So, taxpayers can direct a certain proportion of their tax to causes they choose, rather than the government determining how it should be spent.
- jameshart 5y ago
  And the counterargument to that would be: Directing money to a charity, to avoid the money going to the government, is explicitly a way of directing your money away from the common good of the public (which is after all theoretically what the government would spend it on) and towards the specific spending goals which the donor supports. The idea that a wealthy person has a 'better' idea of how to spend their money than the collective will of the people expressed through government is fundamentally antidemocratic. A billionaire spending money through a charity that promotes a particular kind of schooling, rather than paying the money as taxes into the general fund where it would be used to fund education as directed by a democratically elected government, is basically a way of using their wealth to obtain a bigger-than-one-vote say in how education spending works, and to bypass democratic decisionmaking about how to spend money for the common good. Of course, democracies are imperfect decisionmakers and they may not always reflect the spending priorities that will maximise collective good - but at least as institutions they are intended to balance interests, and provide a measure of fairness and equality in how decisions are made. And why would we believe that individual wealthy charity donors will make better decisions on how to direct spending? An individual billionaire deciding that all schools should work the way they would prefer might be a positive way to end-run around institutional inertia and advance the state of schooling for everyone; or they might just pay to have every school library stocked with books about how humans coexisted with dinosaurs. They're one person, unconstrained by how the rest of society would like to improve schools.

koheripbal 5y ago

If donations were going to 3rd party charitable organizations, maybe (though they are notoriously inefficient/corrupt themselves), but if you are simply transferring the money to an organization under your full control anyway, then it's not really a charitable organization. This distinction is so hard to make, that I think it simply makes more sense to limit donations to a much smaller percent of AGI. The current limit of 60% is so high, that most donations at that level are providing some sort of unspoken utility to the benefactor.

kristjansson 5y ago
Even a charitable organization the donor fully controls must follow regulations on its activity. Surely some people use their foundations as personal piggy banks, but that’s fraud and is pursued as such. It’s like a conservation agreement. The land (wealth) remains in control of the owner, but the state gets some say in its use and the public benefits. Abuse of the the system is a case for stricter enforcement; sanctioned but objectionable uses are a case for stricter regulations
- koheripbal 5y ago
  Yes, but these regulations are not well policed. They effectively take the accounting books provided at face value. It's almost never investigated, and there is, in the normal course, so much overlap between expenses that benefit ME as a person, and ME as the owner of the charity. Travel is a big one, for example.
  - ryandrake 5y ago
    This type of misbehavior is widespread, too. These foundations are not limited to the ultra wealthy. Tons of even moderately rich people (say, tens of millions in wealth) take advantage of these vehicles. Pumping their income into "charity" where charity is not Habitat For Humanity, but "MR JOHN B ENTREPRENEUR CHARITABLE FOUNDATION LLC". The foundation is run within a millimeter of the law, and basically funds the owner's lavish lifestyle tax-free. It's such an obvious scam but since it's just barely legal, nobody bats an eye. And if anyone questions the practice, you have people coming out of the woodwork saying "why are you against charities like Habitat For Humanity?"

fallingknife 5y ago

I'm not convinced that most charities really get much done other than making their donors feel good. I think the government is actually more efficient. And I'm saying that as someone who really doesn't like the government.

storf45 5y ago
Really??? Like the government needs more tanks and F-35s.
bretpiatt 5y ago
I encourage you to go take a look at the larger 501(c)3 non-profit "aka. charities" in your area. Here's a few from San Antonio where I live: Haven for Hope (transformational campus to combat homelessness) https://www.havenforhope.org/ https://www.havenforhope.org/ San Antonio Food Bank (part of a national network of food banks) https://safoodbank.org/ https://safoodbank.org/ Catholic Charities, Archdiocese of San Antonio (I'm the Board Chair, we run ~40 programs meeting people where they are and helping them on a path to self sufficiency) https://ccaosa.org/ https://ccaosa.org/
ike77 5y ago
I'm pretty sure a lot of them really invest in the common good. The issue is more with the ones that actively promote the interests of their founders. https://en.wikipedia.org/wiki/Koch_family_foundations https://en.wikipedia.org/wiki/Koch_family_foundations https://en.wikipedia.org/wiki/Cato_Institute https://en.wikipedia.org/wiki/Cato_Institute https://en.wikipedia.org/wiki/The_Heritage_Foundation https://en.wikipedia.org/wiki/The_Heritage_Foundation Are just a few examples of far right think tanks that are tax exempted.
- hackeraccount 5y ago
  What charity doesn't promote the interests of the people giving it money? Who doesn't believe their interests are for the common good? If the problem is that you think some interests should be promoted and other not - well, I'm all in favor of that. The two of us just need to sort out which will be favored. My plan is for me to decide and you to agree with me. Sound good?

bradleyjg 5y ago

A tax deduction is essentially a matching grant from the rest of the tax payers. I don’t know that I’m totally opposed to the idea, but it’s ripe for abuse and conceptually difficult to fully define in such a way as to eliminate any possibility of such abuses. Why not instead have people donate their own money to causes they believe in, and have no matching grants?

lotsofpulp 5y ago
That is exactly the reason to be opposed to them. There’s zero reason for them to exist, other than to enable corruption and enabling a way to direct your taxes towards your own tribe (churches, synagogue, etc) rather than the public as a whole.

jdikatz 5y ago

Typical estimates suggest a 1% increase in tax expenditure on charitable deductions (so government forgone revenue due to deductions) leads to a more than 1% increase in charitable giving, so deductions increase social spending (see p170 in https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.25.2.157 https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.25.2.157) But could be distributional issues as well depending on where the rich choose to donate — lots of that money is probably implicit transfers from government revenues to the Met

koheripbal 5y ago
This logic is similar to trickle down economics. It's not useful. Government expenditures have a high multiplier as well, so even if true it's not better than tax revenue.
- jdikatz 5y ago
  Should have been more precise. By "social spending" I mean sum of (tax revenue) + (donations to charities), since 1% decrease in revenue translates to >1% increase in donations to charity. Agreed that this says nothing about "net social benefits," since it depends on the value of government vs. social spending. My point is only that the elasticity is above 1, since if it were below 1 then there would be literally no justification for deductions. In that case, 1% reduction in tax revenue from deductions would lead to a less than 1% increase in giving, so the government could increase aggregate funding for charities by killing deductions and issuing grants. Elasticity >1 opens the door for deductions being sensible depending on objectives and use of funds by gvt vs. charities. Note this is not a spending multiplier, so the comparison with government spending multipliers is irrelevant. The relevant comparison there would be, for example, GDP (or ideally the "social") impact of each dollar in charitable spending. I don't know what that is and it probably varies by charity.

gilbetron 5y ago

https://www.nytimes.com/2018/08/03/business/donor-advised-funds-tech-tax.html https://www.nytimes.com/2018/08/03/business/donor-advised-fu... It's complicated and corrupt, basically.