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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 cos

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.

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.