Why value the donations of rich people more than those of the poor?

January 17, 2011 9:33 AM

How Private Is 'Private Charity'? Private charity may be more accurately described as "private donations coupled with involuntary, tax-financed public subsidies." And it's not fair: "very low-income people paying only payroll taxes get hardly any leverage for their donations. Very high-income people in states with high income-tax rates – such as New Jersey and New York – can through the tax code virtually double the money funneled to a charity per dollar of their own sacrifice." (previously)
posted by kliuless (39 comments total)

The smart money invests in the street.
posted by clavdivs at 9:39 AM on January 17, 2011

yeah.... when they address the 3/5 of my federal tax dollars going to developing, current or previous military related expenses I will then turn my outrage upon the injustice of poor people being able to contribute less than rich people to charities.
posted by edgeways at 9:46 AM on January 17, 2011 [7 favorites]

Why value the donations of rich people more than those of the poor?

Um, those donations have more... value?
posted by roll truck roll at 9:50 AM on January 17, 2011 [1 favorite]

Yeah, that's one of the side effects of a progressive income tax. All things considered, I'm ok with this. I get the feeling that the American poor don't have a hell of a lot of money left over to donate to charity anyway.
posted by deadmessenger at 9:54 AM on January 17, 2011

In seriousness: I can get behind the change that Thaler is suggesting. An across-the-board tax credit for charitable donations makes more sense than the deduction system.

Reinhardt just seems sort of confused. Like, he's trying to be a troll ("Let the debate begin!"), but doesn't quite know what he's supposed to be trolling about.

Take, for example the quote below.

As the chart below suggests, a good part of private donations in the United States would be more accurately described as voluntary private financing of civic institutions that benefit all members of society. Museums, educational and religious institutions, public parks and monuments and so on come to mind.

Is supporting such institutions really providing charity?

Yes? His argument seems to hinge on a willfully naive idea of what charity is. He should have had someone who actually works in the nonprofit sector read this before he hit send.
posted by roll truck roll at 9:56 AM on January 17, 2011 [1 favorite]

Would we all have been better off if Carnegie had simply paid his workers higher wages? Would we all have been better off if Carnegie had simply charged lower prices? These were the opportunity costs of those libraries, universities and foundations. Wouldn't it have been better to increase consumer surplus and consumer sovereignty (and consumer wages)? I mean, my tastes and preferences happen to coincide with Carnegie's, at least as far as libraries, hospitals, universities, and foundations go. But what if the people working for him would have preferred to buy their own books or educate their children their own way? Or even party hard and long? Why do a wealthy philanthropist's tastes and preferences trump those of the people they employ? Make no mistake here. We're talking paternalism by a group of elites, just as surely as when the guvmint does it.

So... rich people can't buy libraries, universities and foundations, because that's paternalism. But government also can't buy libraries, iniversities and foundations, because THAT is also paternalism...

So, where do we get the libraries, universities and foundations from, then?
posted by hippybear at 10:00 AM on January 17, 2011 [2 favorites]

Intuitively, it makes sense. The basic idea is to reward charitable donations, and the people who can afford to make those donations reap a greater reward, as they have a higher tax rate to begin with.

People who make $20,000 a year are much less likely to donate $10,000 to a charity than someone who makes $200,000. I am having a little trouble getting worked up over that.

Also, it's not public support of charity. The government doesn't share the revenue. It's just lost revenue. The way to recover the revenue is to do away with the tax credit or increase taxes.

Of course, if we simplify the tax code, as many Tea Partiers and Libertarians claim they would like to do*, this is one thing that could change that would compensate for lost revenue. Of course charitable organizations would take a serious beating in the process.

*Which is a lie. They want to establish a flat tax rate for everyone, which would drastically reduce taxes for people making higher incomes. Any increase in the tax rate to compensate for lost revenue would disproportionately be borne on the backs of lower income earners, compared to the current system.
posted by Xoebe at 10:04 AM on January 17, 2011 [1 favorite]

3/5 of my federal tax dollars going to developing, current or previous military related expenses

That figure is only attainable if you attribute fully 80% of the interest we pay on federal debt to military spending.

That attribution is, to put it mildly, a little controversial.
posted by valkyryn at 10:10 AM on January 17, 2011

The reason those donations are worth more is because the rich people PAID MORE TAX ON THE MONEY IN THE FIRST PLACE. Sorry for shouting. It's a zero-sum game.
posted by unSane at 10:12 AM on January 17, 2011

It's not really a charity thing, so much as it is a tax thing. Mortgages don't even play a role, you don't need one to itemize your return. Everyone should file an itemized return, you can deduct all sorts of things, for every income that *owes* income tax. Lower income families get what they pay in back, most of the time, ergo claiming deductions would be pointless.
posted by dejah420 at 10:17 AM on January 17, 2011

unSane, no, the rich people didn't pay tax on the money if they earned it the same year they donate it, which is usually how it's done.
posted by stbalbach at 10:30 AM on January 17, 2011

Yeah, that's one of the side effects of a progressive income tax. All things considered, I'm ok with this. I get the feeling that the American poor don't have a hell of a lot of money left over to donate to charity anyway.

Actually, most charity comes from the middle class in the U.S. At least that was a case a while ago, with all the wealth concentration I'm not sure. But the middle class does donate more of a proportion of it's income.

The other thing is just how corrupt the whole "philanthropy" scene is. Remember the Givewell fiasco? A lot of the charities are self-indulgent luxuries for other rich people to enjoy, like symphonies or dorms at Harvard and so on. Even the Peterson foundation, which just rails against the deficit is a "charity". Even donations to Wikileaks are tax deductable in Germany.

Oh well.
posted by delmoi at 10:40 AM on January 17, 2011

It's almost as if this was designed to encourage higher income people to donate more money to charitable causes.
posted by jefflowrey at 10:41 AM on January 17, 2011 [7 favorites]

And it's not fair

That's a willfully perverse definition of fairness. Poor people are better off if rich people pay higher income tax rates. The obvious consequence of that is that tax deductions for charitable giving are proportionately more valuable to the rich.
posted by Horace Rumpole at 10:54 AM on January 17, 2011

Also, it's not public support of charity. The government doesn't share the revenue. It's just lost revenue.

It's public support of charity. The deduction is economically identical to a matching donation from the Feds.

It's not really a charity thing, so much as it is a tax thing. Mortgages don't even play a role, you don't need one to itemize your return. Everyone should file an itemized return, you can deduct all sorts of things, for every income that *owes* income tax.

Unless you have a mortgage or have endured a catastrophe, the probability that your itemized deductions will be more than your standard deduction is very low. so you will have done that work for, literally, nothing.

Even people with low to moderate mortgages face this. Since we paid Western NY prices for our house, it's likely that within three to five years the standard deduction will have grown enough to make itemizing no longer worthwhile for us.
posted by ROU_Xenophobe at 11:04 AM on January 17, 2011 [1 favorite]

Mortgages don't even play a role, you don't need one to itemize your return. Everyone should file an itemized return, you can deduct all sorts of things, for every income that *owes* income tax.

Do you have some sort of citation for this? An individual with wages (not self-employed) of $100,000 in IL pays $5000 in state income tax, and probably has very little else to itemize if they use pre-tax medical accounts. They're on the boundary of it being worthwhile. Last year they would have paid $3000, which means that they'd need to donate $2000 before it's worth it at all.

For a married couple making that $100,000 they need to donate $7400 before it's worth it.

Once you add in property taxes and mortgage interest that all changes dramatically.
posted by a robot made out of meat at 11:11 AM on January 17, 2011

I think the author's argument is sound. Let's look at the options here:

1. Don't incentivize charitable donations at all
Maybe this is the right solution in a perfect world, but currently we're in a system where various forms of "good behavior" (giving to charity, buying a hybrid car, upgrading your home insulation, etc) are incentivized through the tax code, so it's off the table for now.

2. Incentivize through a flat-rate refundable tax credit
There are "refundable" tax credits which allow your total tax liability to go negative. The government could institute a policy that 20% of all your contributions, limited by your total gross income that year, are eligible for a refundable tax credit. This would level the playing field while still encouraging giving.

3. Incentivize by deducting from taxable income
This is the shitty in-between option we have now. People who don't deduct enough to surpass the standard deduction (essentially everyone without a large-ish mortgage or lots of dependents) get a 0% incentive to give, whereas people with high marginal rates and a mortgage to meet the standard deduction threshold get a substantial (up to 45% in some cases?) incentive to give. Logically there's no reason we should incentivize giving from people with mortgages but not those without. It's unfair and comes at the cost of a larger tax burden (or larger deficit) for everyone.

The argument that "the rich pay more so of course they get a bigger break" misses the point that #2 is an option which is available to us.
posted by 0xFCAF at 11:20 AM on January 17, 2011 [2 favorites]

I work in the non-profit sector and most of the evidence I've seen is that tax deductions are the least important incentive, even for rich people, to give to charity.

The most important tax credits for charitable giving tend to be for bequests, which encourage the surviving relatives to donate as much of the estate as they can.
posted by Pseudoephedrine at 11:44 AM on January 17, 2011

Let's look at the options here:

As someone said upthread, those aren't all the options. Another option is to make wages more equitable so there isn't such a pronounced disparity between the top and bottom.

One reading of history would suggest that Carnegie needed to pay sums many times over his donations to pay for the lives Frick and Mellon et al. took at Johnstown in 1889 in the flood. He could have given his entire fortune away and never pay for the willful disregard to human life engendered by the collapse of the earthen dam at South Fork. Frick and the others involved in the South Fork Hunting and Fishing Club almost assuredly had a hand in the devastation there, and Carnegie could not have been unaware of the bloodshed awaiting the workers at the Homestead works as he once again left affairs in the hands of Frick. I don't give one rat's behind whether he gave away ALL his money and how philanthropic and charitable he felt. That money was the blood of workers and of innocents. And such is it always.

If we working poor had more disposable money we could buy the books we want and the art that we want. Of course our tastes are inferior to the wealthy such as Paris or Oprah, so what we buy will naturally be crass and inferior.
posted by beelzbubba at 12:27 PM on January 17, 2011

Uh, yeah, no, in the US, your itemized deduction will almost never exceed your standard deduction unless you're making huge charitable deductions, have huge medical bills, or have a mortgage on a home.

And I do think that fundamentally, the idea that we somehow only--or at least primarily--want to incentivize charitable giving for those who have debt on their homes is just flatly ridiculous, and also inevitably leads to a change in charitable giving that provides the most advantage to the sorts of places that mortgaged homeowners and the very wealthy give to. I have no idea what those sorts of places are, but there it is. They get to give pre-tax dollars, everybody else has to give post-tax.

I can't help but think that this is part of what props up certain religious groups which shall remain nameless that appeal largely to the middle class and are very dismissive towards the poor. And for that matter, it also means that, for example, churches which have congregations which are largely poor and elderly have a harder time making ends meet than those that serve well-dressed middle-class suburbanites with stadium seating and hate. Or any charitable group, for that matter, that serves the under-privileged in a way which is not packaged up nicely in marketing to the middle class for donations.
posted by gracedissolved at 12:47 PM on January 17, 2011 [1 favorite]

your itemized deduction will almost never exceed your standard deduction unless you're making huge charitable deductions

Not to put too fine a point on it, but this is complete and utter bullshit. In 2010 I made about $60,000 and donated about $5,000. Combine that with state income tax and it's worth it for me to itemize. I don't consider those donations to be "huge"--I was aiming for 10% but screwed up my timing, so December's contributions didn't hit until after Dec. 31--I incurred almost nothing in the way of medical bills, and I rent my apartment.
posted by valkyryn at 1:29 PM on January 17, 2011 [1 favorite]

All things considered, I'm ok with this. I get the feeling that the American poor don't have a hell of a lot of money left over to donate to charity anyway.

They don't, but a lot of them do it anyway. Think of the senior on a fixed income who always saves a crisp $10 for the collection plate every week (and 2/3 of US donations go to non-religious causes). This chart shows a nice breakdown of charitable giving by income. Families making less than $20,000 gave 4.6% of their income, while families making $20K-100K gave only 2.8-2.4%. It's only until you get into the $100K+ group that giving as a proportion of income rises, but only to 3.1% The "poor" (however you define it) in America give a larger proportion of their income to charity than anyone else.

Now, to be fair, many families making $20K or less aren't paying much in the way of federal income taxes. Some are getting free money through EITC. Even if charitable donations were handled separately from Schedule A, it wouldn't make much of a difference to these families. On the other hand, they are still paying payroll taxes and possibly state income taxes, and not getting any tax benefit for their charitable donations.

What this article is about is why some Americans receive government incentives to encourage them (reward them even) for giving to charity, thus multiplying their donations with the tax savings, while the ones making the largest sacrifice to donate do not. The result of all this is that the bulk of the government support for charitable contributions goes to the charities supported by wealthier Americans and not to those favored by the poor.
posted by zachlipton at 1:34 PM on January 17, 2011

Hey guys, rich people should pay taxes on money that they give to charity, because otherwise they'll give too much money to charity.
posted by grobstein at 1:49 PM on January 17, 2011

Not to put too fine a point on it, but this is complete and utter bullshit. In 2010 I made about $60,000 and donated about $5,000. Combine that with state income tax and it's worth it for me to itemize. I don't consider those donations to be "huge"

You're wrong; those are huge in percentage terms. If we buy the Fraser Institute's numbers drawn from tax information, where they mostly only include the US to help hector Canadians, it's about six times the average charitable contribution rate on itemized tax returns, which was 1.38 percent of income.
posted by ROU_Xenophobe at 2:06 PM on January 17, 2011

I'm trying to understand the outrage here. Suppose there were three wealthy people in town - Messrs Generous, Mediocre and Stingy. Mr Generous gives as much as he can afford. Mr Mediocre is only concerned with results - he gives as much as he thinks a charity needs. Mr Stingy doesn't donate at all. Each of them pays a 40% tax rate, and has $166,666 of surplus pre-tax income.

Let's assume there is no tax break for donations. Each of the wealthy people has $100,000 of surplus after-tax income. Messrs Generous and Mediocre decide to sponsor an orphanage with their $100,000. Mr Stingy spends it on hookers and blow.

Now, let's alter the scenario - there is no tax on money given to charity. Mr Generous sacrifices all his pre-tax income and gives $166,666 to the orphanage. Mr Mediocre is only concerned with the amount the orphanage receives. He gives them $100,000, leaving $66,666 of pre-tax income. After he pays tax on it he has $40,000 in after-tax discretionary income. Mr Stingy makes no donation. He spends his $100,000 of after-tax income on hookers and blow.

Now, what are we afraid of? Do we think donors (like Mr Mediocre) are primarily concerned with the amount the charity receives, so that removing tax breaks wouldn't hurt charities but would increase tax revenue? That seems unlikely to me. Or do we think that on average charities do less good work with their money than the government would? That might be the case, but I'd like to see some figures - remember that this would be extra government money, over and above everything it currently spends.
posted by Joe in Australia at 3:40 PM on January 17, 2011

easy, make Generous mayor, hire Mediocre to do the books and send Stingy three ghosts beginning at the 1:00 a.m.
posted by clavdivs at 4:07 PM on January 17, 2011

Now, what are we afraid of? Do we think donors (like Mr Mediocre) are primarily concerned with the amount the charity receives, so that removing tax breaks wouldn't hurt charities but would increase tax revenue? That seems unlikely to me.

We're not afraid of any of these wealthy people. We're concerned here with Mr. John Q. Public, who doesn't have $166,666 of surplus income to lay around, he has, say, $25K of net pre-tax income. He donates, say, 3% or $750 to the local soup kitchen. Meanwhile, Mr. Generous gave his $166,666 to start the Generous Center for Bionanocoldfusion Studies at the local University and Mr. Mediocre gave his $100,000 to the local Symphony. With a tax break for donations, the government subsidized the Generous Center for $66,666 and the symphony to the tune of $33,333 (symphony...tune of...heh...). Meanwhile, the government didn't subsidize Mr. Public's donation to the soup kitchen at all, because Mr. Public comes out behind by itemizing his deductions. The point is that the government is effectively subsidizing the charitable donations of those Americans who make more money, but not those of lower income individuals.
posted by zachlipton at 4:34 PM on January 17, 2011

I'm trying to understand the outrage here.

A few years ago, we didn't itemize. Didn't make sense for us. Back then, if we gave $100 to a charity, that was it. The Feds didn't do squat.

Now that we have a house and itemize, if we give $100 to a charity, the Feds give us back $25. Or, if you want to think of it that way, back in the day if we gave $100 to a charity, it came completely out of our pockets. Now, if we give $100 to a charity, we only pay $75 of it. The Feds pick up the other $25 for us.

If we were richer and gave the same amount to the same charity, we would pay even less. We'd only have to pay $65, and the Feds would kick in the other $35.

The way things are structured now, the feds pay almost half of what rich people donate, but don't help poorer people donate at all. While it's obvious how things like this come about, there is some level at which it's fundamentally irrational.
posted by ROU_Xenophobe at 6:17 PM on January 17, 2011

ROU_Xenophobe and zachlipton did a good job of explaining, but here's one more way to look at it, with tax deductions essentially being taxpayer-funded "matching contributions" for charitable donations, but with the "matching rates" being wildly uneven:

-- Person A makes $380K+ in the 35% marginal tax bracket (with mortgage payments that lead them to exceed the standard deduction even before starting to count their charitable deductions): For every $100 they pay out of their own pocket to charity [i.e. the actual net cost to them, not the amount the charity actually receives], the government-- i.e. all of us taxpayers-- functionally pay $53.84 to the charity of that person's choice. [$153.84 paid originally by the donor with a tax deduction of 35% or $53.84 paid by the taxpayers leads to a net of $100 paid by the donor.]
-- Person B makes $70K in the 25% tax bracket (with mortgage payments that lead them to exceed the standard deduction even before starting to count their charitable deductions): For every $100 they pay out of their own pocket to charity, the government-- i.e. all of us taxpayers-- pay $33.33 to the charity of that person's choice. [$133.33 paid originally by the donor with a tax deduction of 25% or $33.33 paid by the taxpayers leads to a net of $100 paid by the donor.]
-- Person C makes $70K in the 25% tax bracket but without mortgage payments: Until they do enough in charitable giving to reach the standard deduction, the taxpayers pay $0 to the charity of their choice. Let's say the person has a state tax rate of 5% so is paying $3500 in state taxes they could deduct. The standard deduction is $5700. So for the first $2200 they donate, the taxpayers pay nothing to their charity of choice because they don't itemize. For every $100 above that $2200, then taxpayers chip in $33.33. (If this is a married couple, their standard deduction would be $11400, and they wouldn't get any matching from taxpayers until after the first $7900 they donate.)
-- Person D makes $30K in the 15% marginal tax bracket without mortgage payments: If this person has a state tax rate of 5% they're paying $1500 in state taxes, which means the first $4200 they donate, the taxpayers don't match any of it, $0. Once they exceed the standard deduction and it makes sense to itemize, taxpayers pay $17.65 towards their charity of choice for every $100 the taxpayer contributes (or about a third of what we pay towards Person A's charity of choice.)

Now, if higher income people and homeowners tend to support certain kinds of charities and non-profits, we the people are spending our tax money to support those charities much more than we spend them on supporting the charities and non-profits that are preferred by low and moderate income people and renters. This would happen anyway based on the fact that richer people have much more money to spend on donating to charity, but the fact that we do it at such wildly variant rates just adds insult to injury. If Person A can afford to give $10,000 to the Cato Institute and Person D can only afford to give $1000 to their local tenants rights organization, it would be bad enough for taxpayers to be spending 10 times more to support Cato than the tenants rights organization just because the Cato supporter is richer. But it's not just that, it's compounded by matching Person A's donation at 53% and spending $5384 in lost tax revenues to support Cato, and likely $0 to support the tenants rights organization, or even if that person somehow is above the standard deduction threshhold, still matching it at only 18% percent or only $177.

I will freely agree with anyone who says there are much bigger issues to be concerned about when it comes to both income inequality and the use of taxpayer dollars. But just because other things are bigger problems doesn't mean this isn't problematic.
posted by EmilyClimbs at 8:12 PM on January 17, 2011

And that's not even mentioning the actual impact on the taxpayers themselves. I volunteer doing tax preparation for people with low incomes, and there are plenty of people making barely enough to get by and still paying a hefty tax bill (if my experience is anything to go on, most of those people you hear about who don't owe taxes have kids; single adults with shockingly low incomes are required to pay a shockingly high tax burden when you think about it in relation to their cost of living)-- and who give hundreds or sometimes thousands of dollars to charity. They show me their receipts and are hoping to get something back, but virtually always I have to tell them no, sorry, this won't get you a refund, it's better for you to take the standard deduction instead, your donations won't make a difference in the amount of taxes you owe. Often when we've finished their taxes they actually owe the government money because they didn't have enough withheld, and frequently they don't know where they're going to find the money to pay it... they're struggling themselves, yet they still made the sacrifice of giving money away to others, but the government won't recognize that in terms of giving them a break on their tax burden. But tax breaks for donations from millionaires? Sure, no problem!

(Or just someone like me who's something like Person C above, for whom the first $3000-ish I donate to charity gets me no tax deduction since I don't have a mortgage to deduct and so it takes a lot of spending to make itemizing worthwhile. Versus all of those who are like Person B and, with the same income as me, get $750 back in their pocket as a tax deduction for giving that same $3000.)
posted by EmilyClimbs at 8:34 PM on January 17, 2011

The rich aren't giving their money to charity, they're giving everyone's. In effect they get to decide what our tax money should be spent on, whether endowments for Harvard, or homes for stray poodles. But this spending is not politically accountable to the rest of us and hence reflects their peculiar whims rather than our values and priorities. It is a travesty of democracy.
posted by Philosopher's Beard at 4:40 AM on January 18, 2011 [1 favorite]

Philosopher's Beard wrote: The rich aren't giving their money to charity, they're giving everyone's.

What a strange statement. Would you accuse them of robbing "everyone" if they chose not to earn the money which they have been giving to charity?
posted by Joe in Australia at 5:42 AM on January 18, 2011 [1 favorite]

Valkyryn, I was speaking from my experience doing tax prep, which mirrors the statistics given above--$5k is definitely huge for your income level based on the returns that I've done in the past. As much as certain religious groups push for the 10% tithe, I had one year where of the hundreds of returns I did, I could count on one hand the number of people who hit 10% of income. I wouldn't even need the whole hand.

So, yeah, "huge" is a relative figure, it may not feel to you like you gave that much, but at least in my geographic area, that's a very unusual level of giving. Which is good for you to be doing that! But most folks don't, and it'd be a huge jump for them to do so, and it's quite unusual.
posted by gracedissolved at 5:48 AM on January 18, 2011

What a strange statement.

This has been explained several times. If a well-off person donates $10000, only $6500 actually comes from them. The other $3500 comes, effectively, as a match from the federal government.

However, the federal government does not match poor people's donations at all. Or even middle-class families who rent their home, at least not until they've donated $11000 or so.

You could solve it quite simply by pulling charitable donations out of the itemized deduction area and allowing all taxpayers the same tax break for them.
posted by ROU_Xenophobe at 6:22 AM on January 18, 2011

"What a strange statement. Would you accuse them of robbing "everyone" if they chose not to earn the money which they have been giving to charity?"

We have a democracy. We set up a tax system to collect money to spend on the things we consider important, like pensions and education. Whether that system is fair or not with respect to tax brackets etc can and is debated at length democratically.

This is a cheat whereby rich people get to spend money that was supposed to be taxed (i.e. belonged to all of us) on their personal pet projects and whims (most of these charities don't seem very 'charitable'). Pretty much as if there was no tax system in the first place. That means less money from the rich to spend on what society democratically decided was important.

Hence my strange sentiment
posted by Philosopher's Beard at 6:29 AM on January 18, 2011

Now that we have a house and itemize, if we give $100 to a charity, the Feds give us back $25. Or, if you want to think of it that way, back in the day if we gave $100 to a charity, it came completely out of our pockets. Now, if we give $100 to a charity, we only pay $75 of it. The Feds pick up the other $25 for us.

and

However, the federal government does not match poor people's donations at all. Or even middle-class families who rent their home, at least not until they've donated $11000 or so.

That's not 100% true. The standard deduction accounts for that. The standard deduction is just an abstration for having to do all the accounting. The feds said "if everyone itemized their taxes, it would average about $3750. So, instead of making everyone do all that work, we'll just let them deduct that."

We have a democracy. We set up a tax system to collect money to spend on the things we consider important, like pensions and education. Whether that system is fair or not with respect to tax brackets etc can and is debated at length democratically.

This is a cheat whereby rich people get to spend money that was supposed to be taxed (i.e. belonged to all of us) on their personal pet projects and whims (most of these charities don't seem very 'charitable'). Pretty much as if there was no tax system in the first place. That means less money from the rich to spend on what society democratically decided was important.

In the first place, I bet their tax bills are still pretty high. If someone makes 50,000 and donates 10% of their income, their effective fed tax rate is about 15%. In order to flatten out the tax curve and make their effective tax rate about 15%, this is what percentage of their income richer people would have to donate:

Income      % of Income Donated    Amount Donated    Tax bill
$    100 000        25%            $    25 000       $    14 937
$    250 000        38%            $    95 000       $    37 120
$    500 000        46%            $   230 000       $    74 243
$  1 000 000        51%            $   510 000       $   149 184
$ 10 000 000        58%            $ 5 750 000       $ 1 465 184

And that is just to maintain a 15% effective tax rate. It takes A LOT to counteract the progressive tax rates. Not that I wouldn't mind having those kinds of problems, but it isn't the walk in the park it would seem to be.

In the second place, the same democracy that set up the tax system also set up the deduction system. Neither is more purely democratic than the other; they stem from the same expression of democracy.

Thirdly, it isn't like you can just say "this Buick for my grandmother is a charitable expense! Fa Fa!" There is a fairly high barrier to creating a charity.
posted by gjc at 8:16 AM on January 18, 2011

Philospher's Beard: you can't just drop something like "most of these charities don't seem very 'charitable'" without backing it up. You're doing the same thing Reinhardt does in the linked article: making weird declarations about what is and isn't charity without ever defining charity.
posted by roll truck roll at 9:39 AM on January 18, 2011

That's not 100% true. The standard deduction accounts for that. The standard deduction is just an abstration for having to do all the accounting. The feds said "if everyone itemized their taxes, it would average about $3750. So, instead of making everyone do all that work, we'll just let them deduct that."

Yes, that's the stated purpose of the standard deduction, but the end result is that for me and many Americans, there's no difference tax-wise between donating $0 and donating close to $5,700/year. I get that same tax deduction whether I'm charitable or stingy. The problem isn't even that this is unfair taxation, but rather that the charitable donation deduction acts as an effective government subsidy on charitable giving. This subsidy isn't a bad thing by any means, but the result of our tax system is that many Americans, including those who, by far, give the most to charity as a percentage of their income, don't get the benefit.

In the second place, the same democracy that set up the tax system also set up the deduction system. Neither is more purely democratic than the other; they stem from the same expression of democracy.

Ok, but by that logic anything the US government does is purely democratic, because it all comes from a democratic constitution. It's irrelevant. The point is that the system essentially allows taxpayers to "vote" with their dollars to decide which charities receive a government subsidy. The problem is that wealthier taxpayers and those who are homeowners get more votes while the poor get none, and these groups likely choose to support different types of charities. Philosopher's Beard called that undemocratic. I'm not sure that's a particularly helpful word here, but feel free to substitute whatever term you prefer for this concept:

Some charitable donations get a government subsidy, others don't. If you itemize, the amount of the subsidy depends on how much money you make. if you don't, there is no subsidy.

Some of us think that's a poor way of dividing up public funds, whether it was democratically decided or not.

Thirdly, it isn't like you can just say "this Buick for my grandmother is a charitable expense! Fa Fa!" There is a fairly high barrier to creating a charity.
Did anyone say you can do this?
posted by zachlipton at 3:02 PM on January 18, 2011

The arguments were that taxes were democratic, and charitable contributions were loopholes. And that rich people charities were just whims and self-indulgences.
posted by gjc at 3:06 PM on January 19, 2011