The charity scam. Another way the wealthy avoid paying taxes on their billions is to make charitable donations. If you donate property, you never have to pay income tax on that donation, whatever it costs you and how much it’s worth right now. Well you might say, at least someone benefits from the charity. Whether or not the charitable donation is a scam in whole or in part depends on the answer to that old question: qui bono? Aka, who benefits? That’s where the real scam takes place.
And there’s no legal requirement that a charity must spend its wealth. In fact, IRS rules require only that charities spend about 5 percent of their investment assets annually, and all or part of this amount can be spent on salaries and “expenses,” rather than devoted to the charitable purpose the charity purports to be serving. So, what happens with a charitable trust, set up by a billionaire, and controlled by one of the billionaire’s children? The child gets a job and a salary for life. Maybe a mansion to live in and entertain in as a fringe benefit. This is a great gig for the heir.
What about the taxes due? No income tax is due on the money the parent donated to set up the charity—even though the parent may have made the charitable donation so as not to pay any tax on an appreciated asset.
Similarly, no estate tax is due on this donation, ever. And all the money donated to the charity is protected from divorce, or any creditors because even though the donor’s heir controls the charity, the law says that heir does not “own” the trust.
Except these are things the government wants done anyway. It wants homeless shelters, it wants people to vote, and yes it wants gun safety training.
If the government didn’t want an organization to get charity money, it would revoke its charity status.
This is a good argument for changing the definition of “charity”. It is not a good argument for eliminating all charitable tax deductions.
Again, if the government worked right, we wouldn’t need charities. Why not just do that instead.
And note, we have non profits that do a lot of what you talk about that are contracted by the federal government.
Because right now, it doesn’t work right. So we still need them.
The government sends less than $400 as a tax refund when someone donates $1000 to a nonprofit. That’s a lot more effective than sending the $400 directly to the nonprofit.
The government is basically getting a 2:1 match from the private sector.
I think it’s a bit of both, but we can at least agree on the first part.
Of course that first part will never change because Congresscritters and their funders love it, which is why they basically all do it.
It isn’t hard to imagine what’s objectionable about the NRA offering tax-advantaged donation opportunities which are used to ‘defend the right to keep and bear arms’ or ‘supporting shooting sports’ or ‘encouraging people to vote’ or ‘operating adventure camps for young people’. Two of those are about indoctrinating people with a political message, and the other two are direct political activity. That they’re tax-advantaged charitable donations is a good argument for not having tax-advantaged charitable donations.
(I’m not arguing that we should eliminate tax-advantaged donations, just that we should police them better. But these NRA ‘charities’ are an obvious abuse, and should be eliminated.)
I agree. Before Reagan, in the 70s, we had tax tables with 34 brackets ranging from 0% to 70% (e.g. head of household 1976). Reagan argued that it was the brackets and the high marginal rates that were destroying America, people believed him, and the rest is history. But 34 brackets were no more complicated than 4; all one does is look on the tax table, find the place where one’s income matches, and there’s the income tax amount. Nobody calculates their taxes by breaking their income up into each bracket component then multiplying each by the marginal tax rate then summing the results.
So we can have much more progressive marginal rates, and we can have many more. We need the latter too. Treating incomes of $500k, $1m, $5m, $10m, $100m and $1b as the same for tax purposes is insane. So is treating people in the 20th percentile like people in the 30th or the 40th or the 50th. More is better.
Right, but continuing to fund them indirectly via tax incentives isn’t required. Start diverting that money to building a better social safety net. If I was feeling extra ironic I’d probably find a way to work “starve the beast” into that sentence, but I’m not wearing my hipster glasses today.
First of all, you are assuming that after eliminating the charity deduction, all the savings will be used for social services. I have zero faith that would actually happen.
Secondly, as I already wrote, money sent indirectly to charity via the deduction is effectively matched by additional private sector spending. So after diverting all tax refunds to social spending, the government needs to cough up even more just to maintain the status quo. Yeah right.
Tell you what, we can talk about eliminating the deduction after the government properly funds social services. I won’t hold my breath.
Any penny that isn’t given to the NRA (or charitable thingy) or cult, or Trump like foundation, or Koch Brother Initiative is a good thing.
Charities are fine, but we give huge tax breaks to people so that they can have their name on a building at a local college or library, and that’s not something I’m in favor of. The tax payer shouldn’t have to pay for your ego.
Anyway, interesting Marketwatch article
That’s such a pointless argument in any discussion of taxation. The only people who can use “but the government will waste the tax money on dumb stuff!” argument honestly are anarchists who advocate for complete abolishment of government. Yes, there’s a danger of inefficiency or mis-spending in any increase of taxation or elimination of deductions/incentives/etc (effectively the same thing). That sucks, but it’s a separate issue.
It’s interesting to me that implicit in your argument is the assumption that, dollar-for-dollar, charity uses money to help the needy at least as efficiently as the government would. I don’t buy that. I also don’t buy that the lack of incentive would flatline charitable giving. It would decrease it some, yes, but not zero it.
That was my point. We have charitable giving to act as a band-aid for our consciences. While we have that we find it easy to look the other way and ignore the fundamental injustices in how we treat the less fortunate in our own society.
I won’t hold my breath either.
I don’t think they will waste the money on dumb stuff. If they had extra funds, I think they would spend it roughly the same way they are already spending it: mostly the military, health care for retired people, infrastructure, etc. Spending for poor people has always been a relatively low priority. These are not necessarily “dumb” expenses, but they certainly do not prioritize poor people in the same way that charities do.
I think they are probably roughly comparable in efficiency. But the priorities are much different, as above.
Well, decreased spending is bad. What’s the benefit?
Do you really think the decrease will be outweighed by increased government spending on poor people? I don’t. In fact, this sounds suspiciously like the wishful thinking from the Right that if we cut social spending, charities will more than make up the difference and poor people will come out ahead.
Possible, yes. Plausible, no. I’m certainly not going to accept either theory without a lot more supporting evidence. And until I see it, I think we should do everything we can to increase spending from the public and the private sector.
This is a false dichotomy. You can try to directly relieve suffering at the same time that you address the root causes. Neither one is a band aid.
Federal taxes went up by 1700 this year solely due to the fact that I can no longer claim all of my mortgage and property taxes on top of the loss of the 2 personal exemptions. It might not seem like much to a lot of people on this forum but that effectively wipes us out for the foreseeable future. On top of regular bullshit like car repairs, the cost of heating oil and a blown boiler last week, I’m pretty fucking stressed out. Enough to the point where just assaulting someone red hat wearing asshole would almost be worth it. Fuck every last one of his idiot voters, and I’m glad that assholes like Schultz can buy their third fucking yacht. Fuck.
I’m still waiting for one more W-2 to see how fucked we are. Deepest sympathies @DeForrestation and everyone else feeling the pain :(
Finished our taxes this morning. Had 2x the deductions as last year and still managed to owe $500 more in federal.
🤔🤮
I got money back, but less than I did the previous year.
I assure you it would take a lot of time and mounds of money for me to ever sneeze at 1700. The only reason I think my taxes will be slightly lower this year is because property tax here is extremely low, and that’s noticeable too.
I am sorry you have to weather this.
Thanks everyone, and I hope your own situation turns out for the better. I proudly pay my taxes every year and hate to be lamenting a civic duty, it’s just we know the groups that are really benefiting from the Tax Cuts and Jobs Act, and I would guess it isn’t most of us :(
It’s gonna be “fun” when the middle class parts expire.
I expect the loss of the State and Local exemption is going to hurt badly. My first pass has us paying about $3K more than last year. I haven’t finished all the deduction work though, so hopefully it gets a bit better.
Thanks Mitch and Paul, much appreciated.