Washington Post – President Shifts Emphasis From Wall Street to Budget:
A similar moralizing tone was evident in his defense of his budget Tuesday night. Even as he urged against demonizing the business class, Obama made clear that he thinks affluent Americans have not been doing their fair share as he defended his plan to shrink tax deductions for wealthy taxpayers’ charitable contributions and mortgage interest payments.
“If it’s really a charitable contribution, I’m assuming that [smaller tax savings] shouldn’t be a determining factor as to whether you’re giving that $100 to the homeless shelter down the street,” he said. “I think it is a realistic way for us to raise some revenue from people who benefited enormously over the last several years. It’s not going to cripple them; they’ll still be well-to-do. And ultimately, if we’re going to tackle the serious problems that we’ve got, then in some cases those who are more fortunate are going to have to pay a little bit more.”
Elsewhere in the Washington Post – A Deduction From Charity:
What would this mean in practice? Suppose someone would give $10,000 to a university if that amount were deductible at 35 percent. That deduction would reduce the individual’s tax bill by $3,500. Limiting the deduction to 28 percent would lower the individual’s tax saving on a $10,000 gift to $2,800.
This is where things get interesting: If the 10 percent increase in the cost of giving caused the person to reduce his gift by 10 percent, to $9,000, his tax savings would be 28 percent of $9,000, or $2,520. The government’s revenue loss would be reduced by $980 (from $3,500 to $2,520). The person’s gift to the university would be reduced by $1,000, almost the same amount. Since this high-income person would pay $980 more in taxes but give away $1,000 less, he would end up with an extra $20 for personal consumption.
So Obama is making it financially preferable to donate less to charity. Nice.
Does it seem like the government here is really looking out for the people, or is the government acting like a crime syndicate running the Salvation Army off of their turf so they can pick the money out of people’s pockets?
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Just think if they took that $20 and gave it to the university!
That has to be the stupidest calculation ever included in a piece of professional journalism. 35 to 28 is a 20% decrease, not 10%, and the computation they perform is not relevant.
Here is the relevant calculation: $10,000 to the alma mater lowers your tax bill $3,500, for a $6,500 net loss. Assume the donor wishes to wind up with that same $6,500 budget, what size donation should he or she make? That is the relevant question, and the answer is $9,028. To the extent that charitable giving is rational, it should drop 7.2% due to this change.
Obama is obviously aware of the potential impact on giving, but he feels it is more important to increase revenues to combat Bush’s debt and the lost trillions in our elite financial institutions.
If rich people are looking for ways to maintain their charitable giving in light of tax increases, they can always cut back on political donations. Those are not deductible.
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