Wednesday, March 25, 2009

Tax Deductions for Charity

Last night Obama held a press conference during which a reporter asked him about his administration's plans to reduce tax deductions on residential mortgages and contributions to charitable organizations.

I'd like to make two comments about this topic: one about the issue generally, and another about Obama's specific answer to the question.

First, a comment on the more despicable of the two.

Here is a portion of Obama's answer to the reporter:

"In that sense, what it would do is it would equalize -- when I give $100, I'd get the same amount of deduction as when some -- a bus driver who's making $50,000 a year, or $40,000 a year, gives that same $100. Right now, he gets 28 percent -- he gets to write off 28 percent. I get to write off 39 percent. I don't think that's fair..."

This logic is either twisted, or fundamentally dishonest. Because it fails to acknowledge that the reason the wealthy tax payer gets a 39% deduction and the bus driver gets a 28% deduction is because the wealthy tax payer pays a 39% marginal tax rate and the bus driver pays a 28% marginal tax rate. It is only by virtue of a person's paying money to the government that he or she gets a tax deduction!

When I hear someone making an argument like this I honestly want to know what has caused him do so. There can only be a couple of reasons: 1) he's dishonest, and doesn't mind pulling the wool over the eyes of modestly stupid people; or 2) he's modestly stupid himself; or 3) he believes that all money is actually the government's money, so it doesn't matter what marginal tax rates are when contemplating tax deductions; or 4) he's a sadist, and wants to hopelessly complicate the tax code.

In this case, I believe Obama's words were some combination of #1 and #3, with a wee, tiny bit of #2. (I say #2, because I don't think that Obama has ever operated an Excel spreadsheet, so probably has a hard time visualizing things like gross and net). In any event, it makes me sick to my stomach.

But onto the issue itself, because it illuminates another of piece of Obama's mind which has always been blindingly clear to me, but apparently was not to such people as Christopher Buckley or David Brooks.

In a later portion of his answer, Obama said "there's very little evidence that this has a significant impact on charitable giving."

Now, every study I've ever seen concludes the exact opposite. Common sense would conclude the exact opposite. The Executive Director of every 501(c)(3) in this country would probably conclude the exact opposite.

I do not believe for a moment that Obama actually believes what he said. But, it really does not matter. Because Obama really would like it if government expenditures crowded out private donations.

Why would we need privately funded soup kitchens if the government provided soup for everyone? Why would we need privately funded performing arts centers (disclosure: I am on the board of a privately funded performing arts center) if the government, through the NEA, funded all of our performing arts centers? Why would we need any 501 (c)(3) if government provided all the goods and services that these organizations provide?

Well, we wouldn't.

So, what I've concluded is that Obama was dishonest about the issue in furtherance of his ultimate principle: that government is the solution to everyone's problems.

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