In the US, charitable contributions are deductible if and only if you itemize your deductions. Apparently most people in the US don't (only about 35% according to http://www.taxfoundation.org/research/show/22499.html ).
So an awful lot of charitable contributions by US taxpayers don't get deducted.
I have a few questions for my readers. As always, you're perfectly welcome to appropriate any of these ideas if you find them useful.
1) Since a business can basically take off charitable contributions as a cost of doing business, in much the same way as they can take off your salary if you're their employee, why is it that we don't see job benefits of this form offered:
Say you're an 80K/year employee for Acme Enterprises. Acme offers to write an 8K check to your church next year while paying you 72K instead of 80K. In fact, they're willing to instead donate any amount you'd like to your church or favorite charitable organization from the 80K it costs them to employ you. You'd get around the charitable contribution limits (only a certain fraction of your AGI can be deducted, but you can carry it over from year to year), and your deduction would be effectively 'above the line', because it'd never show up as your AGI. This means that any phase outs wouldn't hit you and in many cases you'd just claim the standard deduction instead of itemizing. So why don't we see this on cafeteria benefit plans?
2) People are allowed to give money to other people without tax implications if the gifts are below a certain (fairly large) amount. Could a person in a lower tax bracket not then effectively 'sell' their charitable deduction to another person? Imagine Joe, who is below the threshold of itemization and Bob, who pays nearly 50% between federal, state, and local taxes. Joe gives 1000 each year to the Campus Crusade for Cthulhu. This gift does not lower Joe's taxes a cent. But what if Joe instead gives the money to Bob. Bob then gives 1k to the Campus Crusade, and gets 500 back from Leviathan. Or Bob could give 2k to the work of Cthulhu, receiving 1K back from Leviathan. There are all kinds of 'production possibilities' here. I've heard of companies effectively 'buying losses' for tax purposes. Would something like this be feasible/legal, and if not, why not? Obviously this scheme has the disadvantage of requiring some measure of trust between Joe and Bob.
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5 comments:
One thing is for sure:
These ultra-convoluted parameters of the income tax are effectively a surtax on the bottom half or more of the bell curve. They don't know how to manipulate the system to their advantage, and dont have the brainpower or inclination to ponder doing so, as smarter people do. As you have proposed here.
"The hardest thing in the world to understand is the income tax." --Albert Einstein
Note that the "% of filers itemizing their tax returns" table on the site you link to seems to correlate perfectly with the "IQ by state" tables. Yet the whole point of the income tax, originally, was to help the little guy (by replacing the import-tarrifs which taxed consumption).
A lot of imports were luxury goods---in fact, something being 'imported' or 'European' was something of a status symbol. So tarrifs in the US, which was able to produce most of the things it needed really amounted to a tax on status striving. I prefer that to an income tax. You're quite correct though that increasing the complexity of the world is a tax on those not significantly above the IQ mean. I bet lots of people would love to strangle the guy who made the rules for the FSA (plan the amount in advance, use it or lose it rules).
Jehu,
A tax on status-striving does seem a good idea.
My understanding of the issue was that import-levies tended to raise prices on all goods, in the way monopolies tend to do the same.
It is forgotten today, but probably the main political struggle in U.S. history (through 1913) was the seesaw-like battle between pro- and anti-tarrif forces.
It is a question with no easy answer. Which is more important: protecting U.S. industry, or providing the public with the cheapest goods possible? What if protecting industry means doubling prices? That would really squeeze the average working man.
Let us also remember that besides income-tax and import-tax, there is also sales tax and property tax.
Interestingly, in terms of stability of tax base, I was recently reading that property-tax was shown to be best during the the Great Depression. Whereas income and other taxes fell off immediately, property-taxes stayed level through 1932.
As school systems apparently drew their funding from property taxes, they were thus able to avoid the pinch until the '32'-'33 school year. It was only then that they began to cut back.
I'm not sure if this would still apply today. It seems to me that what Sailer called "The Diversity Recession" (then "The Minority Mortgage Meltdown") would have hit property taxes pretty hard.
(Also, property-tax is probably the most unfair of all taxes: It means no one actually owns land, because if you do not pay your property-taxes, it is confiscated... It's in effect rent to the government).
Property taxes usually have automatic stabilizers built into them---i.e., they're not allowed to rise more than X% per year. Thus even when your property values go down, your assessed value still usually goes up, because of 'catch-up' against the X% per year limit. This does have the desireable property of being fairly stable and predictable as a source of government funds. Tarriffs have two big advantages in my view:
1) They require very little intrusion into people's business, customs offices at all points of entry into your country is about it. And hey, a job in a customs office seems to be a tremendous aid to scientific and artistic creative output (I recall a lot of authors that got their start working in such) and,
2) Because it's your major source of government funds, there is a VERY strong incentive for TPTB to maintain tight control over the nation's borders. This would give them an incentive to stop assaulting the demographic hegemony of me and mine.
In the final analysis though, all forms of government taxation cause damage to the economy. It's really the auxilliary powers granted to enforce the mode of taxation and the secondary effects that are the question.
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