Deductions for Wealthy May Stand

[newporttony]

Deductions for Wealthy May Stand - WSJ.com

Mr. Obama in his budget blueprint last week proposed a cap on itemized deductions for mortgage interest and charitable donations to help pay for his health-care overhaul. The plan would cost wealthier taxpayers about $318 billion in new taxes over 10 years, according to government estimates.
But after objections from Democratic lawmakers, Treasury Secretary Timothy Geithner indicated Wednesday that the administration was willing to consider dropping or modifying the proposal.

The resistance from Mr. Obama's own party -- focusing on a single element of the president's tax plans -- could foreshadow broader troubles for the rest of his proposed tax increases.

 

[Htown Harry]

Or....it could foreshadow that the president's budget won't look much like what is finally passed, certainly once you drill into the fine details.

That's pretty typical for all variations of D and R that have occupied the Congress and the White House.

Remember, this is a proposal for a budget year that doesn't start until October 1st. Other than Baucus, I don't read much into the popoff comments of some stray congressmen looking for a microphone a few days after the proposal is released.

 

[Leonidas]

Or....it could foreshadow that the president's budget won't look much like what is finally passed, certainly once you drill into the fine details.

That's pretty typical for all variations of D and R that have occupied the Congress and the White House.

Yep, everybody has to "touch" it a little so they can claim ownership, and then everyone wants to get face time on the tube so they can tell their constituents what a fine job they're doing. Government by sound bites!

Giving to charity is important for me , and I hope that the charity deduction survives. If it goes away I don't think I'll stop giving, but I might reduce what I give based on my tax situation.

 

[ziggy29]

Giving to charity is important for me , and I hope that the charity deduction survives. If it goes away I don't think I'll stop giving, but I might reduce what I give based on my tax situation.

Same here, and yet, we don't even itemize. We have no mortgage interest or state income tax, so it's pretty hard to imagine the deduction will ever help us anyway -- but that's not why we do it.

 

[Leonidas]

Same here, and yet, we don't even itemize. We have no mortgage interest or state income tax, so it's pretty hard to imagine the deduction will ever help us anyway -- but that's not why we do it.

Giving to charity is both a budget item and a spiritual thing for us. We feel there is a personal obligation to give to people who need help. Because we budget and itemize I guess we're more attuned to how the tax deduction plays a role. If the budget gets tight, our charity giving will have to take its turn under scrutiny and probably will have to be trimmed. Losing the deduction will mean that we're going to be more aware of the cost being bifurcated between the actual gift and the tax advantage.

The tax picture doesn't dictate most of my financial decisions, but there is a definite impact. I guess we'll have to look at the new tax structure after the details are provided just like we'll reevaluate our unrealized capital gains and possibly paying off the remainder of the mortgage a few years early. There will be a time for that later - who knows what the changes will be after the politicians and bureaucrats get their hands in the mix.

 

[FIRE'd@51]

This is true, especially among the more wealthy, and the impact is large. Say someone in the 40% bracket were to give 100K to a charity. The after-tax cost of this gift is 60K with a full deduction. If the deduction is limited to 28% as Obama wants, 60K will be the after-tax cost of an 83.33K gift (60/0.72). This is a very significant reduction to the recipient charities.

Probably the most ridiculous statement was the one Geithner made, when he said this is the same level of deduction (28%) that one got during the Reagan years. What he didn't say was that the top bracket rate was 28% during the Reagan years.

 

[Independent]

I'm never comfortable with the single word "charity" for this deduction. The tax instructions say "religious, charitable, educational, scientific, or literary in purpose". I'd feel better about a deduction for a contribution to a soup kitchen than for a contribution for a fancy new church building, or the new football stadium at your alma mater.

 

[Gumby]

I always enjoy a tax deduction, but my contributions will remain the same regardless of the tax law changes.

 

[samclem]

Charitable giving is great and I give. But I also disagree with having a tax deduction for it.

First, as Independent mentions, there's the matter of what kind of things should qualify. You could make a good argument that citizen participation in the electoral process (through donations to elections or political groups) is at least as important to our society as building a college football stadium, but the latter is tax deductible and the former is not. (BTW, Ohio offers a limited tax credit for political contributions to campaigns for statewide political office. Makes as much sense as some other tax laws.)

Second, why do I get a tax deduction for donating to the local soup kitchen, but no deduction for helping out an indigent relative or a friend who is broke?

It would be better and more defensible for the government to simply say that it is laying claim to X% of my earnings above a certain (subsistence) level (as embodied in the present "personal exemption"). They are next in line for the money, and how I allocate the portion remaining after they take their cut is my own business (this would also eliminate all other deductions for mortgage interest, etc). No carrots/sticks to encourage this or that favored/disliked behavior.

And, before anyone asks, I do NOT believe it is hypocritical to oppose the policy of offering deductions for charitable contributions and yet take that deduction if I qualify for it. (For more, see ERD50's illustrations featuring luncheon economic oppression of the minority and tipping the bus driver scenarios (posts 62, 74, 76)--the exchange is not recommended for the humor impaired.)

 

[Gumby]

And, before anyone asks, I do NOT believe it is hypocritical to oppose the policy of offering deductions for charitable contributions and yet take that deduction if I qualify for it.

No argument here. As I have said before, I will play the hand I am dealt as well as I can, even though I believe the game needs to be changed.

 

[Alan]

Same here, and yet, we don't even itemize. We have no mortgage interest or state income tax, so it's pretty hard to imagine the deduction will ever help us anyway -- but that's not why we do it.

This is probably the only thing I liked better in the UK tax system than here. In the UK it is the charity that claims the tax back not the individual. The tax break is fixed at, say, 30%, but it does mean that every contribution gets the break whether or not you itemize. Like Ziggy we have no mortgage or state income tax so our contributions have no tax break.

In the UK if I donate $1,000 the charity gets $1,300. Here the charity gets $1,000 and I get no tax break.

I have no idea whether or not more money would end up in charities' coffers or not as a result of the tax breaks from all the small donors or not, but it puts the onus on the organizations to keep accurate records rather than individuals.

 

[samclem]

In the UK if I donate $1,000 the charity gets $1,300. Here the charity gets $1,000 and I get no tax break.

I'm not sure I follow you. In the US, charitable organizations don't need a tax break or tax deduction, since they aren't subject to taxation. Are you saying that in the UK charitable organizations show the UK government how much they brought in, and the government cuts them a check for 30% additional? So the government is writing checks to churches, mosques, radical charities, etc? I don't think I'd like that system. As much as I don't like that people get a reduction in taxable income for donating to causes I oppose, it would be more galling if tax money taken from me by the government was going to these causes.

 

[Alan]

I'm not sure I follow you. In the US, charitable organizations don't need a tax break or tax deduction, since they aren't subject to taxation. Are you saying that in the UK charitable organizations show the UK government how much they brought in, and the government cuts them a check for 30% additional? So the government is writing checks to churches, mosques, radical charities, etc? I don't think I'd like that system. As much as I don't like that people get a reduction in taxable income for donating to causes I oppose, it would be more galling if tax money taken from me by the government was going to these causes.

That is exactly how it works. When the plate is passed around in churches for example any loose cash deposited is NOT deductible as there is no audit trail. It must either be a check payable to the church or placed in a church envelope with your name printed on it as a church member.

I don't like the tax breaks to

churches, mosques, radical charities, etc?

either but I don't see the difference between the government cutting a check to them or giving the donors a tax break - that is the same thing in that tax money not collected falls on every tax payer's shoulders.

 

[haha]

That is exactly how it works. When the plate is passed around in churches for example any loose cash deposited is NOT deductible as there is no audit trail. It must either be a check payable to the church or placed in a church envelope with your name printed on it as a church member.

I don't like the tax breaks to either but I don't see the difference between the government cutting a check to them or giving the donors a tax break - that is the same thing in that tax money not collected falls on every tax payer's shoulders.

Taxpayers and charities like it, as the donations go to a lot of organizations including churches that would not get a dime from the government. If I give money to my church I can have some say in how it is spent, including the sub-charities they spend it on. When the government takes my money from me, it spends it on whatever some congressman or governmental process has decided, even if that particular use of my funds is repellent to me.

I am in favor of charitable deductions. What the government doesn't collect from givers will not necessarily fall on everyone else, because the lack of tax revenues at times (rare I know) can put a brake on stupid government spending.

ha

 

[Alan]

Taxpayers and charities like it, as the donations go to a lot of organizations including churches that would not get a dime from the government. If I give money to my church I can have some say in how it is spent, including the sub-charities they spend it on. When the government takes my money from me, it spends it on whatever some congressman or governmental process has decided, even if that particular use of my funds is repellent to me.

We still donate to our church as well but no longer get a tax break because we have no mortgage interest to take us above the standard deduction. If charities, including churches, collected the tax rebates rather than the individual the church would get more value out of our donations.

The thing I don't like about donations to churches getting tax breaks is the Constitution's stand on separation between Church and State.

I am in favor of charitable deductions. What the government doesn't collect from givers will not necessarily fall on everyone else, because the lack of tax revenues at times (rare I know) can put a brake on stupid government spending.

The main thing that bothers me about individuals claiming the tax breaks is the potential to cheat the system.

 

[OAG]

For everyone living in a high RE tax area (without a mortgage or a small one) I am sure you all know it is proper to do what I call "double up" on your RE taxes. This is easy to do, just pay your RE taxes twice in one year; as an example say the RE tax notice is sent out in December and payable in January, just pay them in December which along with the ones you paid last January can put you over the standard deduction. This would allow you to group other deductions, to the extent you can, in the same year (double up on Church deductions for example). In the alternate years you take the standard deduction. Can save a few bucks.

 

[ziggy29]

The thing I don't like about donations to churches getting tax breaks is the Constitution's stand on separation between Church and State.

Well, the alternative is that the church is taxed and then is allowed to engage in active politics and contribute to political candidates like anyone else. Of course, some churches do that already and some don't much bother to hide it, and I think they should lose their exemptions when they do.

 

[Independent]

Well, the alternative is that the church is taxed and then is allowed to engage in active politics and contribute to political candidates like anyone else. Of course, some churches do that already and some don't much bother to hide it, and I think they should lose their exemptions when they do.

I've never thought of this angle. But now that you've pointed it out, I'd still like to eliminate the deduction for religious contributions. Religious groups should be able to participate in the political process to the same extent that other groups do, but some of the things they might like (for example, a direct subsidy from the gov't) would still be unconstitutional.

 

[OAG]

I've never thought of this angle. But now that you've pointed it out, I'd still like to eliminate the deduction for religious contributions. Religious groups should be able to participate in the political process to the same extent that other groups do, but some of the things they might like (for example, a direct subsidy from the gov't) would still be unconstitutional.

Why would it be unconstitutional? Could not the Government contribute to Education? I saw something in the "Budget Proposal/Guide" about a 0-5 program for education which IMHO would be [-]glorified[/-] child care/education and I could see the Government giving "earmarked" money for this purpose which I doubt would be unconstitutional. There must be other ways "around" it. However, I would not want to hold my breath waiting for any "religious" group losing their tax exempt status.

 

[youbet]

No carrots/sticks to encourage this or that favored/disliked behavior.

Dream on. We are entering a cycle of more succulent carrots and bigger sticks. The targeted behaviors will change and the encouragement/discouragement will intensify.