Tax reform: one small proposal

Tax reform: one small proposal July 25, 2013

So it seems that Congress is considering tax reform again.  The last time this was in the news, I pulled out my old copy of Jeffrey Birnbaum’s Showdown At Gucci Gulch, which seems to have taken place in a different era entirely.

What deductions/credits would I dump?  Ideally, I’d remove the idea of tax credits entirely, and replace it with an alternate schedule, “subsidies and benefits delivered through the tax filing system,” in which one receives child benefits, winterizing benefits, and any other such benefits that we collectively choose to pay out to people.

Deductions?  Of course, the home mortgage tax deduction doesn’t benefit anyone because, in the long run, it just serves to increase the cost of housing.  (My pet peeve:  when the cost of any other commodity rises, we call it “inflation” and try to avoid it; when the cost of a home rises, we deem this a good thing, even when politicians then have to simultaneously celebrate rising real estate values and bemoan declining housing affordability.)

Healh care?  If it were eliminated in a tax-neutral sort of way, then yes, intellectually, dumping tax-free benefits for employer-paid health insurance is the right way to go.  (But it’s probably still permissible to pay for on-site or employer-owned/sponsored clinics, health clubs, etc.)

Day care (e.g, in spending accounts)?  Well, that’s essentially a cost-of-employment deduction, like buying work tools.  Keep.

Tax-deferred retirement savings?  Well, it’s tax-deferred, not tax deductible, so a different animal.

The big one:  charity.  At a minimum — and this is something I haven’t seen elsewhere — get rid of in-kind gifts or heavily restrict them.  Car donations allow taxpayers to deduct sums far in excess of the amount of money the charity actually receives for the donation, because of the tremendous administrative cost of selling the car, usually through a third party with high fees.  This is “lost money” and there is a lot of money lost this way.  (I belive this has tightened up and, in certain circumstances, the taxpayer can deduct only the amount the car actually sells for at auction, not the “blue book value” — but this still doesn’t take into account that the charity actually receives only a fraction of this amount, with the remainder going to the auction company and the fundraising/marketing company.)  Even other sorts of donations:  donated clothing should be valued at the amount of money one could receive selling in through e-bay after paying a fee to a “drop-shop” not the amount that a thrift shop sells it for.  (Consider the Savers business model, a for-profit thrift store chain which pays a portion of their proceeds to local charities — the value of one’s donation is, ultimately, the amount of money that Savers pays the charity in response to your donation, not the amount they price the merchandise for.) 

Am I willing to take the leap and say that charitable donations shouldn’t be deductible at all?  Well, that is a big leap.  Maybe in another blog post!

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