Cutting charitable deductions

The Republican proposal to step away from the fiscal cliff is to raise revenue by cutting tax deductions while also lowering overall tax rates.  Democrats would keep rates higher for those who make over $250,000, and probably cap their tax deductions at $50,000.   So it looks like we have some agreement from both sides and that deductions for home mortgages, state taxes, and charitable giving will be cut, if not cut out entirely.  From Ezra Klein:

“Base-broadening, rate-lowering tax reform.” It sounds so good, right? But what if you call it what it really is? Charity-destroying, home-shrinking, state-burdening tax reform.

Doesn’t sound as good, does it?

But that’s really what we’re talking about. The term ”base-broadening, rate-lowering tax reform” has the advantage of vagueness: No one knows what it means. But the practical definition, at least the one that’s emerging in the ongoing “fiscal cliff” negotiations, is tax reform that limits itemized deductions among high-income taxpayers. And as former OMB director Peter Orszag points out, 90 percent of the value of those deductions comes from just three categories: “taxes paid (mostly state and local taxes), home-mortgage interest and charitable contributions.”

So when we say “base-broading, rate-lowering tax reform,” here’s what we’re really saying: Tax reform that’s paid for by cutting tax breaks for charities, homes, and state and local taxes.

Most economists will tell you that cutting the home-mortgage interest deduction, particularly for high-income taxpayers, is a good idea. There’s no real reason the tax code should be subsidizing McMansions. But cutting the break for charities is more complicated. As Orszag writes:

In 2009, households with incomes of more than $200,000 claimed almost $60 billion in charitable deductions — or about 20 percent of total charitable giving in the U.S. that year. Households with incomes of more than $10 million claimed an average of $1.75 million each in charitable donations in 2009, and they accounted for roughly 5 percent of all giving.

Charitable giving reacts to tax incentives, and in response to any limits on deductions it could even fall by about the same amount as the increase in the tax bill, according to John List of the University of Chicago, who recently reviewed the literature on this subject. Other studies have suggested an effect about half as large. Even that smaller estimate, though, suggests that limiting deductions to $50,000 a year could easily reduce giving by tens of billions of dollars.

via The reality of tax reform: Less charity, smaller homes, higher state taxes.

As Klein says, “limiting itemized deductions in order to raise revenues is a tax increase.”  So the Republican plan to eliminate or cut back on these deductions as a way to raise revenue is a tax increase, even if other rates are lowered.

People complain about “the rich,” but whenever there is a capital campaign for a museum, a college, an arts group, a charity, or a church, the wealthy are wooed and generally come up with most of the money.  Conservatives want “the private sector” instead of the government to bear more of the responsibility to help the poor, support the arts, and do other good works.  That means those worthy causes would need the support of wealthy donors.  Do you think that donors would be as generous as they are without the incentive of a large tax deduction?   I am convinced many of them would, but I worry about the practical effect on non-profit organizations (which incorporate for that status precisely so they can become tax  deductible).

What impact do you think cutting deductions for charitable giving might have on churches?  Specifically, on your congregation?  Probably most of your members come nowhere near the high-income level that would trigger the limits.  And yet a total limit of $50,000–including home mortgage, state taxes, charitable giving, and everything else–would hit people who don’t consider themselves all that wealthy.  [Tote up how much you deducted last year.]   And yet, very often a big chunk of a congregation’s revenue comes from a few families.  Again, one would hope that they give because the Lord loves a cheerful giver, because they believe in tithing, because they see themselves as stewards of the Lord’s gifts, etc., etc.  But a tax deduction is surely an incentive to generosity.  What would happen if all deductions for giving to the church were eliminated for everybody?

Perhaps this would become liberating in the long run.  No more would churches or other organizations have to operate under the regulations for non-profits.  They could express political opinions and endorse candidates without  the threat of losing their tax-exempt status.

At any rate, we need to consider the consequences–including especially the unintended consequences–of these proposed changes.  (And remember, these ideas aren’t coming primarily from liberals but from Republicans.)

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.

  • SKPeterson

    It will be interesting to see what happens in those states that have high income taxes or a combination of high income and property taxes. To some extent they have been subsidized by low tax states, but if the federal tax write-off disappears, how many of the “rich” will seek to move to low tax burden states? The fiscal situation of California, Illinois and New York is tenuous enough as it is.

  • SKPeterson

    It will be interesting to see what happens in those states that have high income taxes or a combination of high income and property taxes. To some extent they have been subsidized by low tax states, but if the federal tax write-off disappears, how many of the “rich” will seek to move to low tax burden states? The fiscal situation of California, Illinois and New York is tenuous enough as it is.

  • Random Lutheran

    More Statism. More control. No surprises.

  • Random Lutheran

    More Statism. More control. No surprises.

  • Michael B.

    “Probably most of your members come nowhere near the high-income level that would trigger the limits. ”

    This ought to be something we all roll our eyes at. As most of us on here are middle class, we realize that many of the basic expenses for our kids (food, college, housing) are not tax deductible, but if you’re rich you can have these pet projects that are. You realize how easy it is to get a non-profit status? At the very least we ought to be saying, “look, if the rich can deduct these off their taxes, there is a lot more that I should be able to deduct from my taxes”.

  • Michael B.

    “Probably most of your members come nowhere near the high-income level that would trigger the limits. ”

    This ought to be something we all roll our eyes at. As most of us on here are middle class, we realize that many of the basic expenses for our kids (food, college, housing) are not tax deductible, but if you’re rich you can have these pet projects that are. You realize how easy it is to get a non-profit status? At the very least we ought to be saying, “look, if the rich can deduct these off their taxes, there is a lot more that I should be able to deduct from my taxes”.

  • MarkB

    If reduction in tax deductions happen now for mostly rich people, it won’t be long before almost all tax deductions will be gone. Once the camel gets its nose in the tent, it will want to be completely inside of the tent.

  • MarkB

    If reduction in tax deductions happen now for mostly rich people, it won’t be long before almost all tax deductions will be gone. Once the camel gets its nose in the tent, it will want to be completely inside of the tent.

  • Joe

    I don’t really have a problem with ending the practice of directing or subsidizing personal behaviors through the tax code. That is what deductions are. We give you a mortgage deduction because have this idea that home ownership is an inherent good. Its not, it just an economic choice.

    As for charities, ending the deduction will let the market decide what charities society really wants. My guess is that giving would re-concentrate itself on the most important things: groups providing food, shelter and job training.

    As for you’re congregation, this should be irrelevant. Of course, it won’t be totally irrelevant – but the tax break is not the reason we tithe. If it is, repent and seek the Lord.

  • Joe

    I don’t really have a problem with ending the practice of directing or subsidizing personal behaviors through the tax code. That is what deductions are. We give you a mortgage deduction because have this idea that home ownership is an inherent good. Its not, it just an economic choice.

    As for charities, ending the deduction will let the market decide what charities society really wants. My guess is that giving would re-concentrate itself on the most important things: groups providing food, shelter and job training.

    As for you’re congregation, this should be irrelevant. Of course, it won’t be totally irrelevant – but the tax break is not the reason we tithe. If it is, repent and seek the Lord.

  • DonS

    I favor limiting or eliminating tax deductions and credits, as well as eliminating the AMT, in exchange for lower rates. The myriad of available deductions and credits, many with phaseouts and limitations above certain income levels, a lot of which are solidly middle class (anywhere from $60,000 to $200,000) makes the preparation of a tax return very complex, and results in some people subsidizing the spending activities of other people. In short, the system of tax deductions and credits we have in our tax code allow the government to favor certain businesses and donors over others. We need to reduce government’s power and simplify the tax code.

    To that end, I would move toward doing so gradually, so that the economy is not unduly jolted. Cap mortgage and charitable deductions, and then lower the cap each year until it is zero. At the same time, tax rates are scheduled to reduce accordingly each year, with the cap reductions. This will give charities time to adapt to the new reality of having to convince donors to part with their money because of the worthiness of the cause, rather than because they will get a discount on their otherwise bloated taxes (because rates are higher than they should be to compensate for all of the deductions and credits). It will also give the housing market time to adapt, and those who have committed to mortgages in reliance on the available tax deduction time to re-arrange their finances.

  • DonS

    I favor limiting or eliminating tax deductions and credits, as well as eliminating the AMT, in exchange for lower rates. The myriad of available deductions and credits, many with phaseouts and limitations above certain income levels, a lot of which are solidly middle class (anywhere from $60,000 to $200,000) makes the preparation of a tax return very complex, and results in some people subsidizing the spending activities of other people. In short, the system of tax deductions and credits we have in our tax code allow the government to favor certain businesses and donors over others. We need to reduce government’s power and simplify the tax code.

    To that end, I would move toward doing so gradually, so that the economy is not unduly jolted. Cap mortgage and charitable deductions, and then lower the cap each year until it is zero. At the same time, tax rates are scheduled to reduce accordingly each year, with the cap reductions. This will give charities time to adapt to the new reality of having to convince donors to part with their money because of the worthiness of the cause, rather than because they will get a discount on their otherwise bloated taxes (because rates are higher than they should be to compensate for all of the deductions and credits). It will also give the housing market time to adapt, and those who have committed to mortgages in reliance on the available tax deduction time to re-arrange their finances.

  • Steve Billingsley

    In some ways this mirrors parts of the health-care debate. We have a system (in this case the federal income tax code, previously the code governing health care coverage) that is horribly distorted by various features (in the income tax code by a maze of deductions, variable marginal rates, credits etc. – in the health care code by the treatment of health insurance that is linked to one’s employer, among various other distortions). So the debate is on the margins (how to tinker with the distortions to marginally improve the performance of the overall code) and not on the central questions of whether any of these distortions are wise to begin with.

    What would capping these deductions do? I am not sure anyone could accurately predict. It seems certain that they would have an effect and one can probably surmise the general direction of these effects (i.e. capping charitable deductions would lessen the frequency of very large gifts to some types of non-profits). But I am also equally certain that these changes would have unintended consequences that lawmakers would not take into consideration.

  • Steve Billingsley

    In some ways this mirrors parts of the health-care debate. We have a system (in this case the federal income tax code, previously the code governing health care coverage) that is horribly distorted by various features (in the income tax code by a maze of deductions, variable marginal rates, credits etc. – in the health care code by the treatment of health insurance that is linked to one’s employer, among various other distortions). So the debate is on the margins (how to tinker with the distortions to marginally improve the performance of the overall code) and not on the central questions of whether any of these distortions are wise to begin with.

    What would capping these deductions do? I am not sure anyone could accurately predict. It seems certain that they would have an effect and one can probably surmise the general direction of these effects (i.e. capping charitable deductions would lessen the frequency of very large gifts to some types of non-profits). But I am also equally certain that these changes would have unintended consequences that lawmakers would not take into consideration.

  • Grace

    → → Joe @5 “As for charities, ending the deduction will let the market decide what charities society really wants. My guess is that giving would re-concentrate itself on the most important things: groups providing food, shelter and job training.

    “Society really wants” is not my gift to whomever I believe should be helped. What you’re advocating is letting “society” choose how mine, and others who give should be directed. That is nothing less than “SOCIALISMS” most obvious directive.

    Those who give, and direct their giving to needy causes, are much more aware, and careful as to how their money is spent.

    As for “food, shelter and job training.” – we have a raft of government operations/schools/teachers that ‘function? in this capacity, doing a bang up zero job. This country has a growing majority of children who cannot read well, or pass simple math tests. If you believe that will change with “society” driving the bus, you’re wrong.

    Our last election, all packaged without an intelligent choice, from either the Dem’s or the GOP, proves how little “society” can think past free cell phones, free food, free health care, free – - whatever they can get!

    → → Don @6 “Cap mortgage and charitable deductions, and then lower the cap each year until it is zero.”

    There is already a “cap” on mortgage deductions.. The deduction is limited to the interest on 1.1 million on mortgage debt.

  • Grace

    → → Joe @5 “As for charities, ending the deduction will let the market decide what charities society really wants. My guess is that giving would re-concentrate itself on the most important things: groups providing food, shelter and job training.

    “Society really wants” is not my gift to whomever I believe should be helped. What you’re advocating is letting “society” choose how mine, and others who give should be directed. That is nothing less than “SOCIALISMS” most obvious directive.

    Those who give, and direct their giving to needy causes, are much more aware, and careful as to how their money is spent.

    As for “food, shelter and job training.” – we have a raft of government operations/schools/teachers that ‘function? in this capacity, doing a bang up zero job. This country has a growing majority of children who cannot read well, or pass simple math tests. If you believe that will change with “society” driving the bus, you’re wrong.

    Our last election, all packaged without an intelligent choice, from either the Dem’s or the GOP, proves how little “society” can think past free cell phones, free food, free health care, free – - whatever they can get!

    → → Don @6 “Cap mortgage and charitable deductions, and then lower the cap each year until it is zero.”

    There is already a “cap” on mortgage deductions.. The deduction is limited to the interest on 1.1 million on mortgage debt.

  • DonS

    Grace @ 8: “There is already a “cap” on mortgage deductions.. The deduction is limited to the interest on 1.1 million on mortgage debt.” — yes, correct. But my proposal is for harder, disappearing caps, in exchange for lower overall rates in a greatly simplified tax code.

    “Society really wants” is not my gift to whomever I believe should be helped. What you’re advocating is letting “society” choose how mine, and others who give should be directed. That is nothing less than “SOCIALISMS” most obvious directive.

    You misunderstand Joe’s proposal. By “society” he means we the citizens, individually. In other words, he is saying, as I said, that charities should stand on the merits and compete for donors on their own merits, without the crutch of tax deductibility. Of course, I believe his thought is similar to mine — this change should be made in the context of much lower overall tax rates so that donors have more disposable income and the tax breaks are not as vital to them.

  • DonS

    Grace @ 8: “There is already a “cap” on mortgage deductions.. The deduction is limited to the interest on 1.1 million on mortgage debt.” — yes, correct. But my proposal is for harder, disappearing caps, in exchange for lower overall rates in a greatly simplified tax code.

    “Society really wants” is not my gift to whomever I believe should be helped. What you’re advocating is letting “society” choose how mine, and others who give should be directed. That is nothing less than “SOCIALISMS” most obvious directive.

    You misunderstand Joe’s proposal. By “society” he means we the citizens, individually. In other words, he is saying, as I said, that charities should stand on the merits and compete for donors on their own merits, without the crutch of tax deductibility. Of course, I believe his thought is similar to mine — this change should be made in the context of much lower overall tax rates so that donors have more disposable income and the tax breaks are not as vital to them.

  • http://steadfastlutherans.org/ SAL

    Tax deductions can have a good purpose but too often you just open the floodgate to special interests gaming the tax code.

    Right now the tax code is too complex and it reduces economic growth. People invest in tax shelters and loopholes instead of investing in business.

    I’d like to see Corporate tax reform along with Income tax reform. However I think we ought to be careful in all this that we don’t balance the budget by overburdening people with onerous taxes.

    Primarily we need to deal with the budget by means testing entitlements and reducing their enrollment.

  • http://steadfastlutherans.org/ SAL

    Tax deductions can have a good purpose but too often you just open the floodgate to special interests gaming the tax code.

    Right now the tax code is too complex and it reduces economic growth. People invest in tax shelters and loopholes instead of investing in business.

    I’d like to see Corporate tax reform along with Income tax reform. However I think we ought to be careful in all this that we don’t balance the budget by overburdening people with onerous taxes.

    Primarily we need to deal with the budget by means testing entitlements and reducing their enrollment.

  • Grace

    DonS @9

    → → Don @6 “Cap mortgage and charitable deductions, and then lower the cap each year until it is zero.”

    → → Don @9 “yes, correct. But my proposal is for harder, disappearing caps, in exchange for lower overall rates in a greatly simplified tax code.”

    That Don, is not what you stated originally – The cap is already in place, doing very nicely, at 1.1 million on mortgage debt. You made a statement, omitting the fact that there was ALREADY A CAP. Your statement was misleading, if in fact you actually knew a cap already existed.

    You go on to state @9 “You misunderstand Joe’s proposal. By “society” he means we the citizens, individually. In other words, he is saying, as I said, that charities should stand on the merits and compete for donors on their own merits, without the crutch of tax deductibility.”

    “Tax deductibility” should stand as it is – citizens have the right to choose a charity, using “tax deductions. The government has no right to interfere. I understood Joe’s “proposal” – making excuses for his comment doesn’t change what he stated.

    Government does a sub-zero job, spending citizens tax dollars, they can’t balance the budget as it is. With more money to spend on THEIR SPECIAL INTERESTS, the real needs of the people would be ignored.

    Of course the government would love to get their greedy hands on ALL the tax deductions, to inherit and spend.

    → Joe @5 “As for charities, ending the deduction will let the market decide what charities society really wants. My guess is that giving would re-concentrate itself on the most important things: groups providing food, shelter and job training.

    You should know better then to ‘back and fill, as though I or others cannot understand what you posted, or Joe stated. That’s a worn out attorney ‘slide’ almost anyone can recognize.

  • Grace

    DonS @9

    → → Don @6 “Cap mortgage and charitable deductions, and then lower the cap each year until it is zero.”

    → → Don @9 “yes, correct. But my proposal is for harder, disappearing caps, in exchange for lower overall rates in a greatly simplified tax code.”

    That Don, is not what you stated originally – The cap is already in place, doing very nicely, at 1.1 million on mortgage debt. You made a statement, omitting the fact that there was ALREADY A CAP. Your statement was misleading, if in fact you actually knew a cap already existed.

    You go on to state @9 “You misunderstand Joe’s proposal. By “society” he means we the citizens, individually. In other words, he is saying, as I said, that charities should stand on the merits and compete for donors on their own merits, without the crutch of tax deductibility.”

    “Tax deductibility” should stand as it is – citizens have the right to choose a charity, using “tax deductions. The government has no right to interfere. I understood Joe’s “proposal” – making excuses for his comment doesn’t change what he stated.

    Government does a sub-zero job, spending citizens tax dollars, they can’t balance the budget as it is. With more money to spend on THEIR SPECIAL INTERESTS, the real needs of the people would be ignored.

    Of course the government would love to get their greedy hands on ALL the tax deductions, to inherit and spend.

    → Joe @5 “As for charities, ending the deduction will let the market decide what charities society really wants. My guess is that giving would re-concentrate itself on the most important things: groups providing food, shelter and job training.

    You should know better then to ‘back and fill, as though I or others cannot understand what you posted, or Joe stated. That’s a worn out attorney ‘slide’ almost anyone can recognize.

  • DonS

    Grace @ 11: Your reply is why people give up on having a discussion with you. It’s totally pointless, since you would apparently rather disparage than engage. Nobody was “misleading” anyone — I assumed a basic knowledge of our current tax code when offering the proposal of a cap sliding to zero. Maybe I should have also explained that we have an income tax, and what the current graduated rates are? Otherwise, my parallel proposal to broadly lower those rates is also “misleading”.

    As for your statement “The government has no right to interfere”, what are you saying? That the income tax cannot be changed? That tax deductions are a constitutional right? The government has every right to “interfere”, which it has done by instituting a complex scheme of tax deductions and credits, coupled with very high tax rates to compensate for the loss of revenue because of those deductions and credits. The government prefers this system because it gives the government the power to pick losers and winners by adjusting the deductions and credits it offers at its whim.

    Sharply lowering the tax rates while sharply reducing or eliminating the deductions and credits would greatly simplify our tax returns, while also taking power away from the government. That is a win-win for the private citizen.

  • DonS

    Grace @ 11: Your reply is why people give up on having a discussion with you. It’s totally pointless, since you would apparently rather disparage than engage. Nobody was “misleading” anyone — I assumed a basic knowledge of our current tax code when offering the proposal of a cap sliding to zero. Maybe I should have also explained that we have an income tax, and what the current graduated rates are? Otherwise, my parallel proposal to broadly lower those rates is also “misleading”.

    As for your statement “The government has no right to interfere”, what are you saying? That the income tax cannot be changed? That tax deductions are a constitutional right? The government has every right to “interfere”, which it has done by instituting a complex scheme of tax deductions and credits, coupled with very high tax rates to compensate for the loss of revenue because of those deductions and credits. The government prefers this system because it gives the government the power to pick losers and winners by adjusting the deductions and credits it offers at its whim.

    Sharply lowering the tax rates while sharply reducing or eliminating the deductions and credits would greatly simplify our tax returns, while also taking power away from the government. That is a win-win for the private citizen.

  • Grace

    DonS @12 ” I assumed a basic knowledge of our current tax code when offering the proposal of a cap sliding to zero. Maybe I should have also explained that we have an income tax, and what the current graduated rates are? Otherwise, my parallel proposal to broadly lower those rates is also “misleading”. “

    Sarcasm at it’s lowest point – not the first time!

    You make statements, which aren’t correct. When I responded to your post, you then (as usual) made excuses, as though I didn’t understand what you said. The point being, you didn’t know what you were talking about, when confronted, you slip and slide.

  • Grace

    DonS @12 ” I assumed a basic knowledge of our current tax code when offering the proposal of a cap sliding to zero. Maybe I should have also explained that we have an income tax, and what the current graduated rates are? Otherwise, my parallel proposal to broadly lower those rates is also “misleading”. “

    Sarcasm at it’s lowest point – not the first time!

    You make statements, which aren’t correct. When I responded to your post, you then (as usual) made excuses, as though I didn’t understand what you said. The point being, you didn’t know what you were talking about, when confronted, you slip and slide.

  • Lou G.

    DonS: “I favor limiting or eliminating tax deductions and credits, as well as eliminating the AMT, in exchange for lower rates.”
    I agree with you quite a bit on a lot of topics here, but cannot understand this position at all.
    Take the tale of two professional, middle class coworkers, both single men age 35, making about $65,000 per year.
    One rents a bachelor pad near the inner harbor in the city limits, owns a sports car with a 450/month car payment, and spends his extra cash on bolstering his social life, girls, bars, and cigarettes, etc.
    The other invested in buying a home in a rural/suburban family-oriented development and owns his 5 year old car outright. He splits the extra 30% of his earnings between home improvements and his church tithe.
    Which of these two will benefit from “lowering the standard rate” and eliminating the AMT and phasing out the property tax deductions? It’s not even a matter of which will “Benefit More”. The only one who will benefit is the one who has made the absolute worst economic decisions over a lifetime. The one who is being a responsible citizen will suffer dramatically.

    I’m all for making sure that more people are paying taxes in this country, but eliminating middle class tax deductions and incentives is barking up the wrong tree. This is about the worst idea I’ve seen yet for tax reform.

    I say, let the Bush Tax Cuts expire across the board for now.
    Then reform taxes in a responsible way, based on merit first and foremost.

  • Lou G.

    DonS: “I favor limiting or eliminating tax deductions and credits, as well as eliminating the AMT, in exchange for lower rates.”
    I agree with you quite a bit on a lot of topics here, but cannot understand this position at all.
    Take the tale of two professional, middle class coworkers, both single men age 35, making about $65,000 per year.
    One rents a bachelor pad near the inner harbor in the city limits, owns a sports car with a 450/month car payment, and spends his extra cash on bolstering his social life, girls, bars, and cigarettes, etc.
    The other invested in buying a home in a rural/suburban family-oriented development and owns his 5 year old car outright. He splits the extra 30% of his earnings between home improvements and his church tithe.
    Which of these two will benefit from “lowering the standard rate” and eliminating the AMT and phasing out the property tax deductions? It’s not even a matter of which will “Benefit More”. The only one who will benefit is the one who has made the absolute worst economic decisions over a lifetime. The one who is being a responsible citizen will suffer dramatically.

    I’m all for making sure that more people are paying taxes in this country, but eliminating middle class tax deductions and incentives is barking up the wrong tree. This is about the worst idea I’ve seen yet for tax reform.

    I say, let the Bush Tax Cuts expire across the board for now.
    Then reform taxes in a responsible way, based on merit first and foremost.

  • Lou G.

    SAL: “Primarily we need to deal with the budget by means testing entitlements and reducing their enrollment.”
    I agree with this, and would also argue for letting the Bush tax cuts expire. There is no justifiable reason to keep them in place. They were supposed to be temporary, so let them expire. We can’t afford them anymore.

    But to your point about means testing entitlements — AMEN! That is a huge, huge issue. Since I started working in outreach ministry to those who fall into the lower rung of the socio-economic strata, I have been utterly alarmed at the hoards of people who live off social security and welfare – in their 20s and 30s. Don’t want to get into a big debate about whether the programs should exist – I think they should. But the means testing is either non-existent or is unenforceable. Something has to give on the means testing, to be sure.

  • Lou G.

    SAL: “Primarily we need to deal with the budget by means testing entitlements and reducing their enrollment.”
    I agree with this, and would also argue for letting the Bush tax cuts expire. There is no justifiable reason to keep them in place. They were supposed to be temporary, so let them expire. We can’t afford them anymore.

    But to your point about means testing entitlements — AMEN! That is a huge, huge issue. Since I started working in outreach ministry to those who fall into the lower rung of the socio-economic strata, I have been utterly alarmed at the hoards of people who live off social security and welfare – in their 20s and 30s. Don’t want to get into a big debate about whether the programs should exist – I think they should. But the means testing is either non-existent or is unenforceable. Something has to give on the means testing, to be sure.

  • DonS

    Grace @ 13: If you want to engage my comment substantively, I welcome that. Otherwise, I guess we’re done.

  • DonS

    Grace @ 13: If you want to engage my comment substantively, I welcome that. Otherwise, I guess we’re done.

  • Grace

    DonS @16 “If you want to engage my comment substantively, I welcome that. Otherwise, I guess we’re done.”

    “substantively”

    According to definition, that would be ‘your way.

    Definition Substantively

    1. Substantial; considerable.
    2. Independent in existence or function; not subordinate.
    3. Not imaginary; actual; real.
    4. Of or relating to the essence or substance; essential: substantive information.
    5. Having a solid basis; firm.

    You were finished (“done” as you like to call it) when you once again started the “slip and slide” – “back and fill” routine.

  • Grace

    DonS @16 “If you want to engage my comment substantively, I welcome that. Otherwise, I guess we’re done.”

    “substantively”

    According to definition, that would be ‘your way.

    Definition Substantively

    1. Substantial; considerable.
    2. Independent in existence or function; not subordinate.
    3. Not imaginary; actual; real.
    4. Of or relating to the essence or substance; essential: substantive information.
    5. Having a solid basis; firm.

    You were finished (“done” as you like to call it) when you once again started the “slip and slide” – “back and fill” routine.

  • DonS

    Lou G. @ 14: Thanks for your comment.

    I don’t think my thoughts are that at odds with yours. Let’s see if there is any common ground between us, first of all.

    1) AMT — absent the annual “patch” passed at the whim of Congress, both single taxpayers, at that income level, will have to prepare their taxes both ways, to determine whether or not they must pay AMT, adding needless complexity. Moreover, they are increasingly likely to fall under AMT, especially since the income brackets for AMT are not indexed for inflation. I think we can both agree that the tax system should be fairly designed to avoid the need for AMT, and it should be eliminated.

    2) Deduction for state and local income and property taxes — this deduction essentially amounts to a subsidy from low tax red states to high tax blue states. It should be eliminated in order to ensure federal tax parity between the states and to encourage blue state taxpayers to fight for lower state taxes. Agreed?

    3) Presumably, the rest of your argument is for the continuation of mortgage interest and charitable deductions. I agree with you that these are the most worthy deductions to continue. But, that does not change the fact that these deductions amount to social engineering on the part of the government. In fact, you have engaged in that kind of thinking here — stating a preference for the lifestyle and economic decisions of the second man in your example over the first. Fair enough, I agree with you that the second man has made better and more worthy choices.

    However, whenever we condone the government’s preference of certain behaviors over others in the tax code, we are risking the coming of a time when the government will prefer choices and behaviors we do NOT agree with. I think that day is nearly upon us, and we need to face the fact that we are a much more pluralistic society than we once were. Our focus should be on liberty and freedom to make our own choices, good or bad, rather than the government preferring some choices over others.

    In your examples, it’s not as clear cut as you think anyway. The renter is gaining a similar advantage over the housing owner because the landlord of the renter is deducting the property taxes on his apartment. What the mortgage interest deduction is doing, essentially, is driving up housing costs because of the government subsidy for that behavior. Eliminating it, gradually, as I suggested, to minimize economic shock, will stabilize housing costs over what they would otherwise be, and probably also reduce real mortgage interest rates from what they would otherwise be.

    The second man’s home improvements, in your example, are not subject to tax deduction under current law, so I am not proposing any change there. They are added to the cost basis of the property, to reduce capital gains upon sale.

    As for charitable deductions, I would have no objection to a somewhat lesser reduction in general tax rates in exchange for retaining that deduction, probably with the imposition of some kind of cap, say $50,000 (the current cap is 50% of AGI — not much of one, but I mention it so Grace doesn’t accuse me of being misleading).

    Bottom line — Significantly lower general tax rates is more than a fair trade-off for giving up all or most of these tax credits and deductions. Either man in your example will have more money in-pocket, because of the lower rates, and will not require the subsidy of the deduction or credit to continue doing what he has been doing and living the lifestyle he chooses for himself, in his own freedom and liberty.

  • DonS

    Lou G. @ 14: Thanks for your comment.

    I don’t think my thoughts are that at odds with yours. Let’s see if there is any common ground between us, first of all.

    1) AMT — absent the annual “patch” passed at the whim of Congress, both single taxpayers, at that income level, will have to prepare their taxes both ways, to determine whether or not they must pay AMT, adding needless complexity. Moreover, they are increasingly likely to fall under AMT, especially since the income brackets for AMT are not indexed for inflation. I think we can both agree that the tax system should be fairly designed to avoid the need for AMT, and it should be eliminated.

    2) Deduction for state and local income and property taxes — this deduction essentially amounts to a subsidy from low tax red states to high tax blue states. It should be eliminated in order to ensure federal tax parity between the states and to encourage blue state taxpayers to fight for lower state taxes. Agreed?

    3) Presumably, the rest of your argument is for the continuation of mortgage interest and charitable deductions. I agree with you that these are the most worthy deductions to continue. But, that does not change the fact that these deductions amount to social engineering on the part of the government. In fact, you have engaged in that kind of thinking here — stating a preference for the lifestyle and economic decisions of the second man in your example over the first. Fair enough, I agree with you that the second man has made better and more worthy choices.

    However, whenever we condone the government’s preference of certain behaviors over others in the tax code, we are risking the coming of a time when the government will prefer choices and behaviors we do NOT agree with. I think that day is nearly upon us, and we need to face the fact that we are a much more pluralistic society than we once were. Our focus should be on liberty and freedom to make our own choices, good or bad, rather than the government preferring some choices over others.

    In your examples, it’s not as clear cut as you think anyway. The renter is gaining a similar advantage over the housing owner because the landlord of the renter is deducting the property taxes on his apartment. What the mortgage interest deduction is doing, essentially, is driving up housing costs because of the government subsidy for that behavior. Eliminating it, gradually, as I suggested, to minimize economic shock, will stabilize housing costs over what they would otherwise be, and probably also reduce real mortgage interest rates from what they would otherwise be.

    The second man’s home improvements, in your example, are not subject to tax deduction under current law, so I am not proposing any change there. They are added to the cost basis of the property, to reduce capital gains upon sale.

    As for charitable deductions, I would have no objection to a somewhat lesser reduction in general tax rates in exchange for retaining that deduction, probably with the imposition of some kind of cap, say $50,000 (the current cap is 50% of AGI — not much of one, but I mention it so Grace doesn’t accuse me of being misleading).

    Bottom line — Significantly lower general tax rates is more than a fair trade-off for giving up all or most of these tax credits and deductions. Either man in your example will have more money in-pocket, because of the lower rates, and will not require the subsidy of the deduction or credit to continue doing what he has been doing and living the lifestyle he chooses for himself, in his own freedom and liberty.

  • http://facebook.com/mesamike Mike Westfall

    I think America would be better off if the tax codes didn’t include all the deductions, credits, loopholes and other interesting features devised by the social engineers to coerce, er umm, I mean encourage certain behaviors, and to enrich cronies.

    However, I have no confidence that the our tax code will ever be anything but labyrinthine and mysterious. “You are in a maze of twisty little passages, all different.” Without any light. You’re gonna get eaten by a Grue.

    We can’t simplify the tax code. We’ve got social programs to pay for. We have to keep up the pretense that the taxes (that other people pay) or for our individual benefit.

    What ever happened to the American ideal that, “It’s a free country, ain’t it?” What happened to, “Root hog, or die” (as in be self sufficient)?

    No, we’d rather be cared for like a herd of farm animals these days. The farmer will pay for it all. I wonder where the farmer gets the money for the feed, though…

  • http://facebook.com/mesamike Mike Westfall

    I think America would be better off if the tax codes didn’t include all the deductions, credits, loopholes and other interesting features devised by the social engineers to coerce, er umm, I mean encourage certain behaviors, and to enrich cronies.

    However, I have no confidence that the our tax code will ever be anything but labyrinthine and mysterious. “You are in a maze of twisty little passages, all different.” Without any light. You’re gonna get eaten by a Grue.

    We can’t simplify the tax code. We’ve got social programs to pay for. We have to keep up the pretense that the taxes (that other people pay) or for our individual benefit.

    What ever happened to the American ideal that, “It’s a free country, ain’t it?” What happened to, “Root hog, or die” (as in be self sufficient)?

    No, we’d rather be cared for like a herd of farm animals these days. The farmer will pay for it all. I wonder where the farmer gets the money for the feed, though…

  • P.C.

    Veith wrote, “What impact do you think cutting deductions for charitable giving might have on churches? ”

    For my family, we don’t give to our churches (i.e., the Lord) or to the myriad of other charities that we support for the tax break. We give to these organizations because of what He has given us. If we are giving only because of the tax break then in Christian charity, we are not really giving at all, are we?

    No matter what the tax code I believe churches and charities will still recieve monetary, as well as increased personal time and talent gifts. During the Great Depression people still supported their churches and charities. For cryin’ out loud, the widow who gave all, out of her poverty, wasn’t doing so because she was motivated to give only due to her tax situation. And neither should we.

  • P.C.

    Veith wrote, “What impact do you think cutting deductions for charitable giving might have on churches? ”

    For my family, we don’t give to our churches (i.e., the Lord) or to the myriad of other charities that we support for the tax break. We give to these organizations because of what He has given us. If we are giving only because of the tax break then in Christian charity, we are not really giving at all, are we?

    No matter what the tax code I believe churches and charities will still recieve monetary, as well as increased personal time and talent gifts. During the Great Depression people still supported their churches and charities. For cryin’ out loud, the widow who gave all, out of her poverty, wasn’t doing so because she was motivated to give only due to her tax situation. And neither should we.

  • Grace

    P.C. @20 “No matter what the tax code I believe churches and charities will still recieve monetary, as well as increased personal time and talent gifts. During the Great Depression people still supported their churches and charities. For cryin’ out loud, the widow who gave all, out of her poverty, wasn’t doing so because she was motivated to give only due to her tax situation. And neither should we.”

    I agree with what you said wrote. People often time, help out others who are not within the network of charities, or church donations. It is Christian Believers giving a helping hand to those who need it, .. it would never be covered by a “tax deduction” nor would anyone else ever know how much was needed and provided.

    1“Be careful not to do your ‘acts of righteousness’ before men, to be seen by them. If you do, you will have no reward from your Father in heaven.
    2 “So when you give to the needy, do not announce it with trumpets, as the hypocrites do in the synagogues and on the streets, to be honored by men. I tell you the truth, they have received their reward in full.
    3 But when you give to the needy, do not let your left hand know what your right hand is doing,
    4 so that your giving may be in secret. Then your Father, who sees what is done in secret, will reward you.

    Matthew 6

  • Grace

    P.C. @20 “No matter what the tax code I believe churches and charities will still recieve monetary, as well as increased personal time and talent gifts. During the Great Depression people still supported their churches and charities. For cryin’ out loud, the widow who gave all, out of her poverty, wasn’t doing so because she was motivated to give only due to her tax situation. And neither should we.”

    I agree with what you said wrote. People often time, help out others who are not within the network of charities, or church donations. It is Christian Believers giving a helping hand to those who need it, .. it would never be covered by a “tax deduction” nor would anyone else ever know how much was needed and provided.

    1“Be careful not to do your ‘acts of righteousness’ before men, to be seen by them. If you do, you will have no reward from your Father in heaven.
    2 “So when you give to the needy, do not announce it with trumpets, as the hypocrites do in the synagogues and on the streets, to be honored by men. I tell you the truth, they have received their reward in full.
    3 But when you give to the needy, do not let your left hand know what your right hand is doing,
    4 so that your giving may be in secret. Then your Father, who sees what is done in secret, will reward you.

    Matthew 6

  • Joe

    Grace – perhaps my comment was unclear — the market decides what charities are important through the individual choices of people like you and me. I’m not advocating for some agency to direct our giving. My comment was that we as individuals will most likely be more selective as to where we donate our money if the tax deduction goes away. The individual motivation will be “I have decided that this charity is worthy of my money because it focuses on X.” Under the current code, we have an additional motivation – “I need to reduce my taxable income so I’ll donate this charity even though I don’t think what they do is very important.”

    I believe that this increase in selectivity by individual actors will result in an aggregation of individuals (i.e. society) demonstrating by where they puts their money that food, shelter etc. are the charities that our society thinks are the most important.

    So — I am not advocating for socialism. But rather the exact opposite — the market.

  • Joe

    Grace – perhaps my comment was unclear — the market decides what charities are important through the individual choices of people like you and me. I’m not advocating for some agency to direct our giving. My comment was that we as individuals will most likely be more selective as to where we donate our money if the tax deduction goes away. The individual motivation will be “I have decided that this charity is worthy of my money because it focuses on X.” Under the current code, we have an additional motivation – “I need to reduce my taxable income so I’ll donate this charity even though I don’t think what they do is very important.”

    I believe that this increase in selectivity by individual actors will result in an aggregation of individuals (i.e. society) demonstrating by where they puts their money that food, shelter etc. are the charities that our society thinks are the most important.

    So — I am not advocating for socialism. But rather the exact opposite — the market.

  • Grace

    Joe @22 “Under the current code, we have an additional motivation – “I need to reduce my taxable income so I’ll donate this charity even though I don’t think what they do is very important.”

    After being part of charities, knowing the motivation of those who give – I doubt that anyone takes the view which you stated as “I need to reduce my taxable income so I’ll donate this charity even though I don’t think what they do is very important.” What they will do, is give to the charities they have always belieived were worthwhile, helping those in need, be it medical, research and hospitals, or feeding the hungry and those who are unable to care for themselves.

    I don’t know anyone who has money to give, who gives just for tax purposes – the reason I say this is .. there are SO many needs, which need funds, there is no reason to give just for tax purposes.

    A heart, willing to give, researching the organizations THOROUGHLY are capable of finding those who will use donations carefully.

  • Grace

    Joe @22 “Under the current code, we have an additional motivation – “I need to reduce my taxable income so I’ll donate this charity even though I don’t think what they do is very important.”

    After being part of charities, knowing the motivation of those who give – I doubt that anyone takes the view which you stated as “I need to reduce my taxable income so I’ll donate this charity even though I don’t think what they do is very important.” What they will do, is give to the charities they have always belieived were worthwhile, helping those in need, be it medical, research and hospitals, or feeding the hungry and those who are unable to care for themselves.

    I don’t know anyone who has money to give, who gives just for tax purposes – the reason I say this is .. there are SO many needs, which need funds, there is no reason to give just for tax purposes.

    A heart, willing to give, researching the organizations THOROUGHLY are capable of finding those who will use donations carefully.

  • http://facebook.com/mesamike Mike Westfall

    I dunno, Grace. A lot of people give to charity via the United Way through payroll deductions. Who knows where the money ends up? But it gets you a tax deduction at the end of the year.

  • http://facebook.com/mesamike Mike Westfall

    I dunno, Grace. A lot of people give to charity via the United Way through payroll deductions. Who knows where the money ends up? But it gets you a tax deduction at the end of the year.

  • Lou G.

    Thanks, Don #18. Blessings.

  • Lou G.

    Thanks, Don #18. Blessings.

  • Lou G.

    Oh, yes, with one quibble: TurboTax. The complexity of which you speak is the only thing I would say didn’t resonate. Since the proliferation of TurboTax, doing a return full of deductions is a total snap.

  • Lou G.

    Oh, yes, with one quibble: TurboTax. The complexity of which you speak is the only thing I would say didn’t resonate. Since the proliferation of TurboTax, doing a return full of deductions is a total snap.

  • DonS

    Lou G. @ 25, 26: Thank you — same to you!

    I agree that software makes tax preparation simpler, but it still requires an expenditure of time and money to develop and purchase the software. This is a cost to society. And most higher income people feel the need, because of the intense complexity of their returns, to pay for a professional preparer, who usually charges by the number of required schedules. Making the tax return simpler and inherently understandable to the layman reading through it would be a good thing, especially since that layman has to sign it. I hate signing a return without understanding, where I have to trust the software or the preparer even though I am legally liable for any error.

  • DonS

    Lou G. @ 25, 26: Thank you — same to you!

    I agree that software makes tax preparation simpler, but it still requires an expenditure of time and money to develop and purchase the software. This is a cost to society. And most higher income people feel the need, because of the intense complexity of their returns, to pay for a professional preparer, who usually charges by the number of required schedules. Making the tax return simpler and inherently understandable to the layman reading through it would be a good thing, especially since that layman has to sign it. I hate signing a return without understanding, where I have to trust the software or the preparer even though I am legally liable for any error.

  • Grace

    Mike @24 “I dunno, Grace. A lot of people give to charity via the United Way through payroll deductions. Who knows where the money ends up? But it gets you a tax deduction at the end of the year.”

    I would not give to United Way, or any other “payroll deductions” –

    A Clear United Way National Abortion Federation Connection

    Posted on October 6, 2012 by Editor
    Rockford, Il – (ProLifeCorner.com) – 10-6-2012 – by Rockford Pro-Life Initiative – Many people are disappointed that the United Way funds Planned Parenthood, the nation’s largest killer of pre-born children. The United Way rationalizes its funding of the abortion giant by saying the money it gives Planned Parenthood is not used to kill babies but helps Planned Parenthood in other ways. New information has come to light that shows funds donated to the United Way can go directly to an organization that seemingly is in business for only one reason – to kill babies in the womb.

    The web site for the National Abortion Federation lists the United Way as a vehicle to donate money to their organization. The National Abortion Federation is a professional association of abortionists. The National Abortion Federation also helps people find abortionists and helps pay directly for the killing of children by abortion.

    A random sampling by phone and email of individual United Way agencies across America proved the United Way is indeed willing to send money to the National Abortion Federation.

    http://prolifecorner.com/a-clear-united-way-national-abortion-federation-connection/

  • Grace

    Mike @24 “I dunno, Grace. A lot of people give to charity via the United Way through payroll deductions. Who knows where the money ends up? But it gets you a tax deduction at the end of the year.”

    I would not give to United Way, or any other “payroll deductions” –

    A Clear United Way National Abortion Federation Connection

    Posted on October 6, 2012 by Editor
    Rockford, Il – (ProLifeCorner.com) – 10-6-2012 – by Rockford Pro-Life Initiative – Many people are disappointed that the United Way funds Planned Parenthood, the nation’s largest killer of pre-born children. The United Way rationalizes its funding of the abortion giant by saying the money it gives Planned Parenthood is not used to kill babies but helps Planned Parenthood in other ways. New information has come to light that shows funds donated to the United Way can go directly to an organization that seemingly is in business for only one reason – to kill babies in the womb.

    The web site for the National Abortion Federation lists the United Way as a vehicle to donate money to their organization. The National Abortion Federation is a professional association of abortionists. The National Abortion Federation also helps people find abortionists and helps pay directly for the killing of children by abortion.

    A random sampling by phone and email of individual United Way agencies across America proved the United Way is indeed willing to send money to the National Abortion Federation.

    http://prolifecorner.com/a-clear-united-way-national-abortion-federation-connection/

  • Wayne A.

    If the religious deductions were cut it would help the church spiritually. Giving would be more genuine. The true living church would thrive and the goofyness of some of these mega-churches would disappear.

  • Wayne A.

    If the religious deductions were cut it would help the church spiritually. Giving would be more genuine. The true living church would thrive and the goofyness of some of these mega-churches would disappear.

  • Patrick kyle

    Does anyone believe that the government will be a better steward of these increased revenues if we allow them to take more taxes and kill deductions? No….I didn’t think so….

  • Patrick kyle

    Does anyone believe that the government will be a better steward of these increased revenues if we allow them to take more taxes and kill deductions? No….I didn’t think so….

  • Grace

    Patrick @ 30 “Does anyone believe that the government will be a better steward of these increased revenues if we allow them to take more taxes and kill deductions? No….I didn’t think so….

        Your’re right !

    Wayne A. “If the religious deductions were cut it would help the church spiritually.

        NO it wouldn’t! You don’t have a clue.

    .

  • Grace

    Patrick @ 30 “Does anyone believe that the government will be a better steward of these increased revenues if we allow them to take more taxes and kill deductions? No….I didn’t think so….

        Your’re right !

    Wayne A. “If the religious deductions were cut it would help the church spiritually.

        NO it wouldn’t! You don’t have a clue.

    .

  • Joe

    Grace — I work at a law firm and one of my close friends and partners is in our Wealth Planning Group (that is new lingo for what used to be called Trusts and Estates). I can tell you that a very large amount of his practice is dedicated to helping people lower their taxable income and one of the tools he uses is charitable deductions. It happens a lot and it yields a tremendous amount of unthoughtful giving.

  • Joe

    Grace — I work at a law firm and one of my close friends and partners is in our Wealth Planning Group (that is new lingo for what used to be called Trusts and Estates). I can tell you that a very large amount of his practice is dedicated to helping people lower their taxable income and one of the tools he uses is charitable deductions. It happens a lot and it yields a tremendous amount of unthoughtful giving.

  • Grace

    Joe @ 32 “I work at a law firm and one of my close friends and partners is in our Wealth Planning Group (that is new lingo for what used to be called Trusts and Estates). I can tell you that a very large amount of his practice is dedicated to helping people lower their taxable income and one of the tools he uses is charitable deductions. It happens a lot and it yields a tremendous amount of unthoughtful giving.

    IF, individuals are so busy, that they are unable, or unwilling to research the charities they give to, that falls under the “unthoughtful giving” group.

    Lowering ones deductions is not predicated upon letting others choose their charities, it’s not very intelligent!

    I know a great many people, they most certainly CARE, and research to whom they support. They are well acquainted with those who do the most good, using as little administrative costs as possible – making sure the end result of distribution will have results.

    “Wealth Planning Groups” have a variety of interests, it certainly isn’t just giving to charities.

    No one knows better to whom they should donate, then the one who writes the check. Those who have a great deal of wealth, most often have in mind, ways to help, such as supporting, or contributing to building a hospital, supporting research for disease, helping those who are mentally disabled, setting up relief funds for disaster. The government is far from adequate and careful when using money, THEY NEVER EARNED.

  • Grace

    Joe @ 32 “I work at a law firm and one of my close friends and partners is in our Wealth Planning Group (that is new lingo for what used to be called Trusts and Estates). I can tell you that a very large amount of his practice is dedicated to helping people lower their taxable income and one of the tools he uses is charitable deductions. It happens a lot and it yields a tremendous amount of unthoughtful giving.

    IF, individuals are so busy, that they are unable, or unwilling to research the charities they give to, that falls under the “unthoughtful giving” group.

    Lowering ones deductions is not predicated upon letting others choose their charities, it’s not very intelligent!

    I know a great many people, they most certainly CARE, and research to whom they support. They are well acquainted with those who do the most good, using as little administrative costs as possible – making sure the end result of distribution will have results.

    “Wealth Planning Groups” have a variety of interests, it certainly isn’t just giving to charities.

    No one knows better to whom they should donate, then the one who writes the check. Those who have a great deal of wealth, most often have in mind, ways to help, such as supporting, or contributing to building a hospital, supporting research for disease, helping those who are mentally disabled, setting up relief funds for disaster. The government is far from adequate and careful when using money, THEY NEVER EARNED.


CLOSE | X

HIDE | X