Soak the generous

The administration has brought back the idea of reducing the tax deduction that wealthy people get for charitable gifts. Michael Gerson shows how wrong-headed this idea is:

For the second budget in a row, President Obama has proposed to reduce the tax deductions on donations by the wealthy, making it about 10 percent more costly for them to give to charity — and gaining the federal government about $300 billion in revenue over 10 years.

The public justification for this tax increase is fairness. The budget reads: “Currently, if a middle-class family donates a dollar to its favorite charity or spends a dollar on mortgage interest, it gets a 15-cent tax deduction, but a millionaire who does the same enjoys a deduction that is more than twice as generous.” In the last budget season, Obama argued this tax increase would “equalize” a disparity and “raise some revenue from people who benefited enormously over the past several years.”

Seldom has economic foolishness been more audacious, or populism more destructive to actual people. To begin with, the wealthy currently receive a 35 percent deduction for their charitable donations because they pay taxes at a 35 percent rate. Excluding a dollar in income from their taxes gains them a larger percentage benefit only because they pay a higher, progressive tax rate on their income. So why not boost the charitable deduction for the middle class to 35 percent in order to end this disparity? Because the administration’s goal is not fairness, it is federal revenue.

And who would provide this revenue? The administration responds: the wealthy. But that is not quite accurate. Under this proposal, the selfish rich — people who buy Bentleys instead of donating to colleges, hospitals and charities — would not be affected. Only the generous rich would be targeted. Instead of punishing the wealthy, this proposal punishes that subset of the wealthy who are giving away their wealth. That’ll serve ‘em.

The administration goes further, arguing that this tax on the generous rich won't influence the level of charitable giving very much, presumably because these idealistic saps will keep on donating even after they are penalized. But economic research shows what common sense indicates: When you tax something, you get less of it, and when you subsidize something, you get more of it. Roberton Williams of the Tax Policy Center estimates this tax proposal would cause a $10 billion drop in donations out of the $300 billion that Americans give annually — not a charitable apocalypse but a strain, particularly as nonprofits deal with the effects of the recession. Nonprofits, it turns out, depend on support from people who make profits.

via Michael Gerson – President Obama betrays his community-organizer roots – washingtonpost.com.

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • Josh V

    I think that this is a gross misuse of government. I would rather see the rich, charitable and uncharitable alike, keep their income and wealth, than have the government used as a means redistribute that wealth in a way that seems right to those in control. I think this is an example of acquiring and/or stealing our neighbor’s property in a way that only appears right (via the government/law). Luther’s explanations on the seventh and ninth commandments seem fitting for this:

    The Seventh Commandment
    You shall not steal.
    What does this mean? We should fear and love God so that we do not take our neighbor’s money or possessions, or get them in any dishonest way, but help him to improve and protect his possessions and income.

    The Ninth Commandment
    You shall not covet your neighbor’s house.
    What does this mean? We should fear and love God so that we do not scheme to get our neighbor’s inheritance or house, or get it in a way which only appears right, but help and be of service to him in keeping it.

    Quotes taken from Luther’s Small Catechism with Explanation Concordia Publishing House, Copyright 1991.

  • Josh V

    I think that this is a gross misuse of government. I would rather see the rich, charitable and uncharitable alike, keep their income and wealth, than have the government used as a means redistribute that wealth in a way that seems right to those in control. I think this is an example of acquiring and/or stealing our neighbor’s property in a way that only appears right (via the government/law). Luther’s explanations on the seventh and ninth commandments seem fitting for this:

    The Seventh Commandment
    You shall not steal.
    What does this mean? We should fear and love God so that we do not take our neighbor’s money or possessions, or get them in any dishonest way, but help him to improve and protect his possessions and income.

    The Ninth Commandment
    You shall not covet your neighbor’s house.
    What does this mean? We should fear and love God so that we do not scheme to get our neighbor’s inheritance or house, or get it in a way which only appears right, but help and be of service to him in keeping it.

    Quotes taken from Luther’s Small Catechism with Explanation Concordia Publishing House, Copyright 1991.

  • Bruce Gee

    I guess I just don’t understand the short-sightedness of this approach, which seems to come mostly from Democrats. Surely the rich among them–and there is a host of rich Dems–can point out to the rest of them that this is not a policy that will likely lead anywhere good. I think the writer makes a great point: it isn’t the selfish rich who will be punished, but the generous rich who will find their generosity met with government greed.

    How to increase government revenue, how to increase government revenue….hmm. Just can’t seem to think of anything.

  • Bruce Gee

    I guess I just don’t understand the short-sightedness of this approach, which seems to come mostly from Democrats. Surely the rich among them–and there is a host of rich Dems–can point out to the rest of them that this is not a policy that will likely lead anywhere good. I think the writer makes a great point: it isn’t the selfish rich who will be punished, but the generous rich who will find their generosity met with government greed.

    How to increase government revenue, how to increase government revenue….hmm. Just can’t seem to think of anything.

  • EconJeff

    I totally agree with the above. This is just to raise revenue. It seems to imagine a static world, not the dynamic one we live in where people change their behavior based on the incentives they face. If the goal of the administration is to increase the welfare state, this would fit in well with the plan. Why is it that when things are done in the name of “equality” that always means making things worse for the rich? Don’t get me wrong, this change would in no way affect me, and likely never would, but just how does it make things more equal? I guess if your only concern is the equality of outcomes instead of the equality of opportunity, this would be in line. But I think I’m rambling…

  • EconJeff

    I totally agree with the above. This is just to raise revenue. It seems to imagine a static world, not the dynamic one we live in where people change their behavior based on the incentives they face. If the goal of the administration is to increase the welfare state, this would fit in well with the plan. Why is it that when things are done in the name of “equality” that always means making things worse for the rich? Don’t get me wrong, this change would in no way affect me, and likely never would, but just how does it make things more equal? I guess if your only concern is the equality of outcomes instead of the equality of opportunity, this would be in line. But I think I’m rambling…

  • Peter Leavitt

    The wealthy, often without complaint, pay a hugely disproportionate amount of taxes and provides much of the capital investment that in the long run provide good paying jobs. During the Depression, Roosevelt in a burst of vicious populism went after wealthy people with increased taxes and lawsuits, causing them to cautiously invest their funds in safe investments rather than the usual risky ones that power the economy.

    Amity Shlaes addresses this in an article, How to Make a Weak Economy Worse: FDR’s war against business showed that a president must choose between retribution and recoveryincluding the following summary para.:

    The 1930s story suggests not that any individual reform is wrong per se. It reminds us rather that frustrated presidents are inconsistent, that antibusiness policies are cumulative, and that hostility yields more damage than benefit. Presidents can choose between retribution and recovery. They cannot have both.

    The article is at:

    http://online.wsj.com/article/SB10001424052748703808904575024981110918808.html

  • Peter Leavitt

    The wealthy, often without complaint, pay a hugely disproportionate amount of taxes and provides much of the capital investment that in the long run provide good paying jobs. During the Depression, Roosevelt in a burst of vicious populism went after wealthy people with increased taxes and lawsuits, causing them to cautiously invest their funds in safe investments rather than the usual risky ones that power the economy.

    Amity Shlaes addresses this in an article, How to Make a Weak Economy Worse: FDR’s war against business showed that a president must choose between retribution and recoveryincluding the following summary para.:

    The 1930s story suggests not that any individual reform is wrong per se. It reminds us rather that frustrated presidents are inconsistent, that antibusiness policies are cumulative, and that hostility yields more damage than benefit. Presidents can choose between retribution and recovery. They cannot have both.

    The article is at:

    http://online.wsj.com/article/SB10001424052748703808904575024981110918808.html

  • DonS

    The argument that the proposal is based on “fairness” is about as specious and cynical an argument that could possibly be made. It is akin to the routine argument that if we cut taxes the “wealthy” will benefit inordinately, because their dollar cuts will be larger, which argument conveniently ignores the fact that this will be the case because they pay an overwhelming percentage of the total taxes collected.

    Of course, at its root, doctrinaire liberals hate private charity. First, it is largely faith-based, which they consider to be a governmental subsidy of religion (strange logic, that, but it comes from the notion that all wealth really belongs to the government, and it just lets us keep some of it as a benificent gesture). Second, they prefer that government be the mode by which wealth is transferred, so that government unions can grab their share and politicians can both direct goodies to their friends and buy votes.

    Of course, the appropriate solution would be a flat tax with no deductions. That would solve the problem, but will never happen because it would take from politicians much of their power.

  • DonS

    The argument that the proposal is based on “fairness” is about as specious and cynical an argument that could possibly be made. It is akin to the routine argument that if we cut taxes the “wealthy” will benefit inordinately, because their dollar cuts will be larger, which argument conveniently ignores the fact that this will be the case because they pay an overwhelming percentage of the total taxes collected.

    Of course, at its root, doctrinaire liberals hate private charity. First, it is largely faith-based, which they consider to be a governmental subsidy of religion (strange logic, that, but it comes from the notion that all wealth really belongs to the government, and it just lets us keep some of it as a benificent gesture). Second, they prefer that government be the mode by which wealth is transferred, so that government unions can grab their share and politicians can both direct goodies to their friends and buy votes.

    Of course, the appropriate solution would be a flat tax with no deductions. That would solve the problem, but will never happen because it would take from politicians much of their power.


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