With the fiscal (cliff, bump, curve, impediment) approaching, everyone is writing about how this will affect (investing, jobs, taxes, mortgages, home building, charity). I figured that gave me the right to write (had to use that one) about their crazy thoughts. The chart that is seen right below is the one that forced me to respond.
Oh, I understand why non-profits worry about the dollar limitation that was floated around for mortgage deductions (the Republican side). And, they were less than thrilled with a 28% capitation on the tax rate for charitable deductions proposed by Obama for those making more than $ 250K. Then, again, they recognize that if the (cliff, bump, curve, impediment) is not breached, there will be severe cuts in Federal spending- and they derive some 32% of their revenue from government grants and fees.
But, let’s think about it. If the (cliff, bump, curve, impediment) is breached, there will be cuts. That will definitely affect the non-profits. And, the Boehner idea about dollar limitation- that will have an affect- probably as much as- if not greater than- cutting any Federal grants.
But, Obama’s proposal… I’m not so sure. Oh, I know the tax rate is supposed to rise to 39% for those making more than $ 250K (or, more likely, $ 400K) of adjusted gross income. That’s not gross income- that’s after deductions. And, if Obama gets his limitation, it means that not all charitable deductions will be able to lower one’s gross income on a dollar for dollar basis.
But, let’s also get real. Most really rich people have arranged to pay taxes at a rate much closer to 15%, since capital gains and dividends are the bulk of their annual revenue. (Especially with that special provision that lets many of them convert their income to “carried profits”- a provision that demands repeal!) And, the proposed new rates will change those levels to barely 24% (including the Obamacare provisions that kick in next year).
Now, let’s look at that graph again. Oh, I know it purports to show that since the marginal rate dropped from 70% to 35%, charitable giving has grown. But, look again- carefully. Take a look at the amount of charity given during the Clinton years. It skyrocketed from $130 to $ 220 billion…which is where it is right now, with the exception of the 3 years when it hit $ 250 billion when the derivatives market was looting our economy and rich folks were besides themselves trying to dispose of their money.
But, there’s more. Take a look at this chart above. One that shows the average charitable deductions given by state. Notice that folks in Wyoming, where the state tax burden is high, where there’s lots of oil money… they gave the highest amount in charity. So did the folks in DC, New York, Florida, and Connecticut. All states where the tax burden is high. (You can see that by looking at the column to the left of the charitable deductions, where the state/local tax deduction on Schedule A is listed.)
So, let’s stop creating Chicken Little scenarios (or, should I say Mayan Calendar scenarios). There is no true trend one can discern from tax rates and charity. (It seems that the “Great Recession” is making a slew of new rules- including those about grand deficits… but, that’s a topic for another discussion.) So, let’s go with the fact that our tax system has to be fairer. Raise the taxes on all those folks making tons of money and only paying 15% of their income- after deductions.
Before I say this, Roy, let me just say I do realize my own limitations. I know some stuff, but no where near everything. So, if this is a terrible idea please I’d like to read a post (from you whom I trust) about why it is. I have always supported the concept of a 10% flat tax on everyone. No deductions, no refunds, no nothing just a flat tax. If you make a dollar or two billion, just a straight flat tax. How that would work with state taxes ect…perhaps sales tax in each state would fund the state…but it seems like a more logical thing in my mind and ultimately would probably save everyone a lot of grief. That said, I would like to read a post about why or why not it is a good idea. Well, other than the fact it probably would never happen.
Lisa Brandel recently posted..Only What You See by Lisa Brandel
Well, first of all, Lisa… Are you a subscriber to Mitt Romney’s belief that corporations are people, too? If so, then, 10% could possible work.
But, realistically, even if we were to tax every entity- person, corporation, trust on what they SPEND, the number would have to be closer to 18%. if we were to keep the (convoluted) system that pertains to corporations, the number would have to be about 25%. That would supplant the payroll tax for social security and medicare, as well.
The states would have to impose a flat tax that ranges from 2% to 4%, since we have various levels of services (like virtually no money for education in Mississippi to the vast sums spent in DC).
Moreover, there would have to be some sort of grant system for those below the poverty level, since any flat tax beyond the 7% they pay now would attenuate their ability to survive -almost to the point of desperation.
I am not sure it won’t happen, Lisa. But, I fear if it were adopted, folks (politicians) would find a way to add other taxes onto the system- and then the cycle would start anew…
(By the way, the numbers I am using completely assume that the gasoline tax, the tire tax, the telephone tax, etc. ALL disappear.)
Roy, here in Fort Worth, the poor are unable to get help from charities that used to be able to. They say that their former donors are now clients that they cannot help. There is no rent relief, utilities help or money for gas to go looking for a job. I don’t know how you can say that there is more charity available when there is not.
Ann Mullen recently posted..Senior Care—Discover the Fountain of Youth
There actually is more money, Ann. But, that does not mean each charity is receiving more money- not that Texas is among those states participating (it’s not), and the state slashed its social network budget, to boot.