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Don’t End the Charitable Deduction!

Written by Gary North on December 20, 2012

This article was written by one of my GaryNorth.com subscribers. It nails the issue, and it nails the Cato Institute’s Dr. Mitchell, who systematically ignores the obvious.

In the past 15 years, I have made a lot of charitable contributions, with the total recently crossing the line to eight figures. When I retired six years ago, I decided I would give half of my future annual income to charity, and so far I have done that. So I can speak with authority about one man’s charitable motivation.

Let’s say that I still own some highly appreciated long-term-capital-gains stock, where my tax basis is close to zero. Under current tax law, if I sell that stock, I pay federal and state taxes totaling approximately 35% of the current value of the stock. So I get to keep 65% of the value of the stock.

If I donate the stock, I get federal and state income-tax deductions against my ordinary income (mostly interest and dividends) worth approximately 45% of the current value of the stock.

So, at the margin, it costs me only 20% of the stock’s value to put 100% of the stock’s value in the charity’s hands. Do I think that the charity can do more good with $100 than I could do with $20? Unless my charitable choices are really bone-headed, the answer is obviously “yes.” Can a charity do more good with $100 than government can do with $35? Here the answer is a resounding YES! Actually, the charity will do more good than government could do with ten times that amount, if you believe that government spending’s net effect on society is negative.

If I give cash, my marginal cost is currently 55% — much higher than 20%, but it’s still enough of a discount to motivate my giving. For various reasons, about half of my giving is in cash.

In the past few months, I’ve actually been thinking about how I would change my plans next year if the charitable deduction were to be limited. There’s no question that I would reduce my giving, stopping at the tax-deductible limit. That is in fact what I already do, since the 50% I now give is the maximum percentage of my gross income for which I can currently take a federal charitable deduction.

If the charitable deduction is capped or eliminated, will I scream bloody murder? No, the charities will do that for me. I can afford to wait for a new Congress and a new administration, and a better deal.

Dr. Mitchell is an imbecile, at least insofar as this topic is concerned. “The Rich” are not some amorphous class; they are individuals with real motivations and preferences.

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10 thoughts on “Don’t End the Charitable Deduction!

  1. I don’t make a lot of money, but I believe in giving all I can afford.These past few years have really made it hard to maintain my giving. I’ve been forced to make cutbacks do to having to pay my own personal bills that have gone up, heating fuel, gas for car, groceries, utilities, etc… It’s sad that because of the poor choices Obama has made to have Americans pick up the financial tab, my Charities suffer… The very rich should never be capped on their Charitable donations. Some Charities servive sourly on their gifts…

  2. My giving is not based on what I can deduct on my taxes because first of all I can't afford to donate much and second I am not able to use Schedule A for any deductions including the over the top property taxes I pay. I give because I want to give and though I am not rich I have lots more than some and so I share what I can.

  3. olduglycarl says:

    The idea here is that most charities make much better use of funds donated and has a net positive effect on society that government ever could. One should not be taxed on what it costs to earn an income and equaly, one should not be taxed on one's controbutions to society. The only valid purpose for government is for protection only. Protection from those that coerse, defraud or use initory force toward any person, property or contract. That includes, our volintary controbutions to society. Contributing to society is a selfish act. It is what we wish to do, according to our own desires and concerns. Our forefathers understood this process. If we as a country were only taxed enough to insure government protection of our nature as human beings, we all would have abundance to share and would not be forced to choose how best to help without empowering government any further.

  4. Make no mistake. This is an attempt to destroy all competition to messianic government as saviour. Education, medical treatment, arts and charity that are not controlled by the government are competition. If they are eliminated, then the government becomes everythng.

  5. Stopstealing says:

    What Mr. North is ignoring is that all his deductions come out of the pockets of other taxpayers. Why is this fair? Why should I subsidize your "charity?" Eliminate the deductions. Then, truy charitable pepole (not those gaming the system) can calculate what their net contribution would be under whatever system the would prefer, and donate that amount to charity – without subsidies from taxpayers.

    If the charities want to complain – let them. It is not charity to take money from taxpayers through force of law.

    • Public_Citizen says:

      Stopstealing is attempting to muddy the discussion by confusing a lawful deduction with some sort of tax credit that results in a person who has not paid any tax [or very little tax] actually receiving a check from the government.
      I'm sure that Stopstealling would be truly amazed at the number of community organizations that he/she is in favor of, and possibly supports financially in some fashion, that qualify for what is loosely called the "charitable deduction"
      The American people are collectively some of the most generous on the planet. If government statistics are to be believed wealthy Republicans are even more generous than wealthy Democrats.
      Try this thought on for size:
      We average all the charitable deductions in each tax bracket. If your reported deductions fall below the median average then you get a tax increase. If your reported deductions are above the median average then you get an additional tax deduction credit [no actual refund] as a reward.
      I can guarantee if such a system were tried that the ones screaming the loudest about "fairness" would be the multi-millionaire cheap-scates that donate what would be a small fortune to those of us of average means to liberal democrat candidates.

      • Public_Citizen, it is surprising the number of people who do not know the difference between a deduction from taxable income and a tax credit–for example the argument over subsidies to the oil and gas industry versus subsidies for 'green' energy. For the o&g industry to get a tax deduction, they must by tax code definition spend money at a rate of about $2.86 per $1 reduction in income tax. For the wind industry to get a tax credit, there is no tax code required expenditure. If the wind farm which "earns" the tax credit does not make a profit on which to pay taxes, they (or their parent company(s) get the tax credit that directly, dollar-for-dollar, decreases their tax bill. The missing revenue is replaced by the rest of us so in essence the taxpayers are paying some of the tax bill for GE, BP, Google etc..

  6. I would suggest the following:
    It is well known that government programs deliver about 20% to the recipient, the rest is "overhead"
    It is well known that private charities deliver about 80% to the recipient, the rest is "overhead"
    It is well known that religious charities deliver about 90% to the recipient, the rest is "overhead"

    Suppose you allowed a dollar for dollar tax CREDIT up to 30% of the tax due from the citizen for charitable deductions. Hence, if the tax bill was $300, you would allow $100 tax credit. Now, consider:

    If that $100 was paid in taxes, about $20 would get to the "poor"
    If that $100 was paid to a private charity, about $80 would get to the poor
    If that $100 was paid to a religious charity, about $90 would get to the poor.

    LOOKIE, LOOKIE, FOUR TIMES as much going to the poor with no increase in taxes. And that doesn't count the savings by getting rid of all those federal employees.

    tony

  7. I respectfully disagree with your assessment I agree with Mitchell. It is time to end or at least cap this special interest deduction and yes I am a Christian but why should anyone subsidize another's favorite charity? People who are truly charitable will continue to be so. This loophole is used by the likes of the bailed out warren buffoon. Not only is the money he put in gate's foundation to be kept as tax exempt the so called charities he set up for his kids to run will make them millions a year.

    Buffett, Soros Join List of Billionaires Calling for Tax Hikes They Won’t Pay
    http://finance.yahoo.com/blogs/breakout/buffett-s

    How Buffett Saves Billions On His Tax Return
    http://www.forbes.com/sites/greatspeculations/201

    Implementing Warren Buffett's Gift

    The foundation must continue to satisfy the legal requirements qualifying Warren’s gift as charitable, exempt from gift or other taxes.
    http://www.gatesfoundation.org/about/Pages/implem

    Warren Buffett Is A Punk

    Meanwhile, Buffett has given each of his kids a charitable foundation with billions each to manage. If a foundation has $3bb in it, then something like $90mm can go to salaries.
    http://techcrunch.com/2012/05/12/warren-buffett-i

    Buffett’s Betrayal (his firms got $95 Billion in bailout cash)
    http://blogs.reuters.com/rolfe-winkler/2009/08/04

  8. This is the addled logic of one who believes that the government is entitled to taxes, Just look at the poster's handle.
    This logic is found more in Europe than here, but the gap is diminishing.
    People who minimze, or gasp, hide their income are NOT stealing anything from the government.
    It is the government who is stealing from the people when it taxes, period.
    "others subsidize" one making a charitable contribution, pshaw!
    What is THEFT and subsidization, OTOH, is when a minority group, such as parents WITH children IN school, cause ALL members of that community to have to pay for THEIR children's eduction.
    The average community tends to have <30 of taxpaying households with kids in school, but all households have to fund that with their property taxes. Generational contract my A**: at the rate of eduction-inflation, what a long term resident pays in school taxes over a generation far exceeds any amount received when that residents kids were in school.
    That is an example of theft and subsidies, not the other way around as you would have it.

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