Taxes

Obama's Charitable Taking

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One of President Obama's proposed tax increases involves limiting itemized deductions for higher-income taxpayers. According to The New York Times, everyone in the 35 percent bracket and many people in the 33 percent bracket would be treated, for the purpose of calculating deductions, as if their marginal rate were 28 percent. Hence a $10,000 charitable donation that currently reduces the tax bill of someone in the top bracket by $3,500 would instead be worth $2,800. The Times explains the official rationale for the change this way: "The White House says it is unfair for high-income people to get a bigger tax break than middle-income people for claiming the same deductions or making the same charitable contributions." The equity argument here is questionable, since the reason high-income people get "a bigger tax break" is that they pay more in taxes to begin with, not just in absolute terms but proportionally. In other words, this is the natural result of having a progressive income tax. Note that the unfairness perceived by the Obama administration also could be remedied by eliminating deductions or by taxing everyone at the same rate.

To my mind, those are both good ideas, but the government is not likely to stop using the tax code for social engineering anytime soon. And assuming that tax deductions aimed at encouraging certain kinds of behavior work as advertised, reducing them should be expected to result in less of the desired behavior. Hence the worries about how Obama's tax plan will affect charitable donations:

"This will lead people to give less to charities if they behave the way they've behaved in the past," [Roberton Williams, senior fellow at the Tax Policy Center,] said. "We've already seen a drop in giving as a result of the economic collapse. On top of that, this will just reduce the amount of giving."

Asked about that, Office of Management and Budget Director Peter Orszag said Mr. Obama took care of that by giving charities government money to make up part of the difference.

"Contained in the recovery act, there's $100 million to support nonprofits and charities as we get through this period of economic difficulty," he said.

In essence, then, Obama plans to take money people otherwise would have given to the charities of their choice and give it to the charities of his choice. In a similar maneuver, Obama is floating the idea of taxing health insurance to pay for health insurance:

To finance health care reform, administration officials suggested to senior aides in Congress on Wednesday that revenues could be raised by ending the policy of excluding the value of employer-provided health insurance from income taxes.

But the officials emphasized that the administration was not advocating that option, which not only is anathema to some in organized labor and business but also conflicts with Mr. Obama's position in last fall's presidential campaign.

I'm not sure I understand the distinction between suggesting something is a good idea and advocating it. But assuming that Obama really does want to tax employer-provided health insurance, he may be onto something. The government should stop encouraging businesses to give employees medical coverage in lieu of cash or other benefits, a policy that perpetuates the artificial link between employment and health insurance. That link, in turn, impairs mobility, fosters anxiety and insecurity, contributes to rising health care costs, and retards the development of a competitive and flexible health insurance market. But the problem can be fixed without a net increase in taxes. One approach, backed by George W. Bush, is to allow a standard deduction for medical expenses, whether they're paid by individuals or by employers. During last year's presidential campaign, John McCain suggested a variation on that theme, a tax credit for medical coverage that would go directly to the insurer chosen by the taxpayer. Another option, which I'd prefer in the interest of a simpler, less intrusive tax code, is to compensate for the increase in taxable income by cutting rates. For Obama, of course, raising revenue is the whole point.

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  1. Look, why don’t they just subject all of the “rich” to a sound thrashing? Jesus, can we stop with the class crap already?

  2. Asked about that [reduced charitable donations], Office of Management and Budget Director Peter Orszag said Mr. Obama took care of that by giving charities government money to make up part of the difference.

    “Contained in the recovery act, there’s $100 million to support nonprofits and charities as we get through this period of economic difficulty,” he said.

    And they’re giving it to the exact same organization you were going to. These guys are not only beneficent, they’re psychic.

  3. I refuse to donate a nickel if this happens.

  4. HTML is not my friend today. I’ll try again [using preview you idiot he mutters to himself]

    Asked about that [reduced charitable donations], Office of Management and Budget Director Peter Orszag said Mr. Obama took care of that by giving charities government money to make up part of the difference.

    “Contained in the recovery act, there’s $100 million to support nonprofits and charities as we get through this period of economic difficulty,” he said.

    And they’re giving it to the exact same organization you were going to. These guys are not only beneficent, they’re psychic.

  5. The White House says it is unfair for high-income people to get a bigger tax break than middle-income people for claiming the same deductions or making the same charitable contributions.

    Good lord, they really do believe it is their money. To follow this argument to its logical conclusion, there should be no deduction at all, since people in the lowest brackets (not paying any taxes) don’t get a deduction for contributions.

    This will lead people to give less to charities if they behave the way they’ve behaved in the past,” [Roberton Williams, senior fellow at the Tax Policy Center,] said.

    Asked about that, Office of Management and Budget Director Peter Orszag said Mr. Obama took care of that by giving charities government money to make up part of the difference.

    After all, we know rich people would give money to wrong charities, like the Reason Foundation.

  6. Don’t be foolish, J sub D. The government will allocate the money to the correct charity, not to whatever two-bit outfit you were thinking of donating it to. Who are you to substitute your bourgeois preferences for the greater good of the state? Huh? This isn’t the Bush administration, fella, this is the Philosopher King come to roost.

  7. This is the end
    Beautiful friend
    This is the end
    My only friend, the end

    Of our elaborate plans, the end
    Of everything that stands, the end
    No safety or surprise, the end
    Ill never look into your eyes…again

    Can you picture what will be
    So limitless and free
    Desperately in need…of some…strangers hand
    In a…desperate land

    Lost in a roman…wilderness of pain
    And all the children are insane
    All the children are insane
    Waiting for the summer rain

  8. And allow a tax break for paying for somebody else’s health insurance. At least allow it for health insurance for one’s parents.

  9. So how’s this affirmative action president workin’ out for ya?

  10. I dont think Obama understand how deductions work (actually, I think he does, which is worse). The deduction isnt from the tax, it is from the Gross Income.

    After that, the tax is calculated. A 100k donation doesnt reduce your tax by 3.5k or 2.8k, it reduces your taxable income by 100k and then a tax number is calculated.

    Yeah, yeah, it is semantics, but damn important semantics.

  11. What this is saying, in effect, is that if you are in the 35% bracket only 80% of your donations are deductible. You have to pay taxes on the other 20%.

  12. “What this is saying, in effect, is that if you are in the 35% bracket only 80% of your donations are deductible. You have to pay taxes on the other 20%.”

    They did that to business some years back with regard to meals and entertainment. Used to be 100% deductible

  13. They did that to business some years back with regard to meals and entertainment. Used to be 100% deductible

    Im well aware. Well, since my businesss started its always been the way it is now.

  14. Jim, Jim, Jim, you left out the best parts. Here’s the whole song:

    This is the end, beautiful friend.
    This is the end, my only friend, the end.

    Of our elaborate plans, the end.
    Of everything that stands, the end.
    No safety or surprise, the end.
    I’ll never look into your eye(s) again.

    Can you picture what will be,
    So limitless an’ free?
    Desperately in need of some stranger’s hand,
    In a desperate land.

    [Instrumental break.]

    Lost in a Roman wilderness of pain.
    An’ all the children are insane.
    All the children are insane.
    Waiting for the summer rain, yeah.

    There’s danger on the edge of town.
    Ride the king’s highway, baby.
    Weird scenes inside the gold mine.
    Ride the highway west, baby.

    Ride the snake, ride the snake,
    To the lake, the ancient lake, baby.
    The snake is long, seven miles,
    Ride the snake,
    He’s old an’ his skin is cold.

    The west is the best.
    The west is the best.
    Get here, an’ we’ll do the rest.

    The blue bus is callin’ us.
    The blue bus is callin’ us.
    Driver, where you takin’ us?

    [Spoken:]
    The killer awoke before dawn,
    He put his boots on.
    He took a face from the ancient gallery.
    An’ he walked on down the hall.

    He went into the room where his sister lived, an’
    Then he, paid a visit to his brother,
    An’ then he, he walked on down the hall, an’
    An’ he came to a door, an’ he looked inside.
    “Father?” “Yes son?”
    “I want to kill you.
    Mother I want to fuck you.”
    C’mon, woah.

    C’mon baby, take a chance with us.
    C’mon baby, take a chance with us.
    C’mon baby, take a chance with us.
    An’ meet me at the back of the blue bus.
    Do’n’ a blue rock on a blue bus.
    Do’n’ a blue rock, c’mon, yeah.

    [Instrumental break.]

    Kill, kill, kill, kill, kill, kill.

    This is the end, beautiful friend.
    This is the end, my only friend, the end.

    It hurts to set you free but you’ll never follow me.
    The end of laughter an’ soft lies.
    The end of nights we tried to die.

    This is the end.

  15. I noticed this idiocy a couple of days ago, and I’m already developing a battle plan:
    -same contribution as last year, despite higher income.
    -all, rather than some, money going towards freedom-oriented organizations (the food bank can suck it in ’09 and if they ask why, I’m yodelling OBAMA)

  16. Today is February 27, 2009. The time is 4:30 pm EST and I am going on record with my prediction that in 2010, the Democrats will lose at least the Senate and likely the house. And in 2012 Obama will not win the presidential election. I stand by this prediction. Why, because you can’t screw all of the people all of the time and get away with it. This isn’t good governance, people; it’s a never ending gang rape.

  17. The killer awoke before dawn,
    He put his boots on.

    One of my nominees for the all time least inspired rock lyrics.

  18. …it’s a never ending gang rape.

    But it is okay, it is only the evil rich. They deserve it.

  19. The P Brooks Drinking Game:

    Every time a government employee utters the word “fair” (or some variant thereof)…

    DRINK!

    We’ll all be dead of alcohol poisoning before April Fools’ Day.

  20. “He put his boots on.”

    Jesus wept.

  21. “To finance health care reform, administration officials suggested to senior aides in Congress on Wednesday that revenues could be raised by ending the policy of excluding the value of employer-provided health insurance from income taxes. ”

    Well that would be violatoin # 3 (and counting) of Obama’s promise not to raise taxes on anybody making less than $250 K per year.

    #1 was the new tax on smokes.

    #2 is the new energy tax that will result from his eco-socialist wacko “greenhouse gasses” policy.

    The list will undoubtedly get much longer.

  22. “We’ll all be dead of alcohol poisoning before April Fools’ Day.”

    Ha! – it’s more like by the end of next week.

  23. Hey Jacob, could you tell us where this quote came from?

    “To finance health care reform, administration officials suggested to senior aides in Congress on Wednesday that revenues could be raised by ending the policy of excluding the value of employer-provided health insurance from income taxes.”

    I didn’t see it in the Wash. Times article.

  24. 15 Then went the Libertarians, and took counsel how they might entangle Him in his talk.
    16 And they sent out unto Him their disciples with the Reasonites, saying, Master, we know that thou art true, and teachest the way of God in truth, neither carest thou for any man: for thou regardest not the person of men.
    17 Tell us therefore, What thinkest thou? Is it lawful to give tribute unto Washington, or not?
    18 But Barack perceived their wickedness, and said, Why tempt ye me, ye hypocrites?
    19 Shew me the tribute money. And they brought unto Him a dollar bill.
    20 And He saith unto them, Whose is this image and superscription?
    21 They say unto him, Washington’s. Then saith He unto them, Render therefore unto Washington the things which are Washington; and unto God the things that are God’s.

    – Barack 20: 15-21

  25. Well that would be violatoin # 3 (and counting) of Obama’s promise not to raise taxes on anybody making less than $250 K per year.

    They’ll say its a tax on business and not on employees. We know who really pays it, but that will be their argument.

  26. Unfortunately, Jacob continues the myth that the wealthy pay a higher percentage of their income in tax than the rest of us. That may be true for income tax, but ignores the effect of other regressive taxes such sales and property taxes. When these are factored in, the total tax paid as a percentage of income is often lower for the wealthy.

  27. “They’ll say its a tax on business and not on employees. We know who really pays it, but that will be their argument.”

    If they start including the value of health insurance as taxable income on your W-2 form, that will be a direct tax increase on you.

  28. SON OF A BITCH! This makes me want to punch a nun. Seriously, WTF?! Even at my most cynical, I had a hidden, perverted hope for this guy to prove me wrong. Joke’s clearly on me.

    GodDAMNit! Happy effing Friday…

  29. PUNCH THIS NUN, FRBUNNY. YOU’LL FEEL MUCH, MUCH BETTER.

  30. If they start including the value of health insurance as taxable income on your W-2 form, that will be a direct tax increase on you.

    Which is why they will probably hide it on the employer side of things.

  31. Here is another nefarious consequence of Obama’s capping of the charitable contributions mentioned above:

    http://money.cnn.com/2009/02/27/magazines/fortune/obama_budget_tax.fortune/index.htm?postversion=2009022717

  32. revenues could be raised by ending the policy of excluding the value of employer-provided health insurance from income taxes.
    But the officials emphasized that the administration was not advocating that option, which not only is anathema to some in organized labor

    No kidding; you’d have to be a United States Senator to have significantly better health insurance than those fuckers in the UAW. How would that affect your Adjusted Gross Income?

  33. One approach, backed by George W. Bush, is to allow a standard deduction for medical expenses, whether they’re paid by individuals or by employers. During last year’s presidential campaign, John McCain suggested a variation on that theme, a tax credit for medical coverage that would go directly to the insurer chosen by the taxpayer.

    Both of which are reasonable compared to the current system, and allow at least a fair amount of choice. As opposed to taxing everyone to pay for the universal government care.

    And boy, did Obama run a ton of nasty ads about McCain threatening to “tax health insurance for the FIRST TIME EVER” around here.

  34. The government is better suited than individuals to determining which causes should be supported. Therefore, it is necessary to punish private donations in order to generate more tax revenue to make public donations (after skimming off administrative fees first).

  35. Much of what I’m saying is rehashed from a blog post I put up a couple days ago.
    There is something really perverse about the government involving itself as an intermediary in charitable giving. Obama is taking something that Americans have always done extraordinarily well on their own, and making it part of government. The concrete impact of changing the tax code might be fairly small (aside from triggering a decrease in charitable giving), but something about the mindset that this change suggests deeply disturbs me.
    Obama seems to anti-success. We know it from “share the wealth, Joe” and now we’re seeing it with his soak-the-rich tax policies. Apparently there’s an upper limit on how much you should be allowed to succeed. In the same health care proposal where I saw this change in the tax code, I also saw a proposal to “increase the availability of generic drugs” (or something to that affect), which I assume means weakening patents. Apparently a company should only be able to make a little bit of money off the lifesaving drugs that they spend billions of dollars to produce.

  36. Classwarrior

    That it isn’t perfectly progressive – so what? Besides, we’re talking about FEDERAL taxes here. Sales and property taxes are STATE or LOCAL taxes. Besides – how many bums actually pay property taxes? Yeah, thats right…..NONE. Also, at least here in Washington, a lot of necessities (food, for example) are exempt from sales taxes.

    CNN Money had an article on the HENRYS on 10/27/08 that I just happened to save the graphic from. The lowest paying – those making between 1 and 50k a year, pay, on average, 13.4% of their income (oh yeah, this is 66% of the taxpayers, paying all of 8% of the tax burden). Those making 500k to 1.5 mil pay, on average 36.0% of their income (0.5% of the tax payers picking up 14% of the burden). The percentage drops from there, but the richest – 5 million plus a year, still pay 21.1% of the income – an average of 3.2 million a year in taxes. In my book, that’s enough for any one person to pay.

    Also, those richest, who are the top 0.03% of taxpayers, pay 13% of the total income taxes paid. That’s a big enough share (says the person in the 50 to 100k group that not quite pays it’s own way being 22% of taxpayers paying only 18% of the total tax burden).

    Oh yeah – on the taxing health care: ‘Bout time, not that I agree with paying more in taxes. But if it gets my stupid union (SPEEA) to allow us young, healthy types to choose to pocket some cash in exchange for a high deductable plan, I’m all for it.

  37. Astroglide, I am predicting the opposite. The economy is going way deep into the crapper. Many here will argue that Obama’s strategies will exascerbate the problems. The repubs are going to fight these things. There are many millions of new voters and many of them will benefit from the gubmints generosity. These voters, many of them too stupid to recognize a decent home loan, will blame the repubs for the worsening economy. They will punish the repubs in 2010 for impeding the economic rebuild of Obama. The U.S.congress will be left with no more than 50 republicans and The Obamachine will march on long after he is done with his 8 years.
    That is my official prophesy.

  38. Holy crap… why did I get out of academia… I thought the tax code was already screwed up enough.

  39. Which is why they will probably hide it on the employer side of things.

    So every tax increase on the wealthy is an excuse for extortion. I just love the market! Does the market take into account a majority of participants who are fed up with never seeing an increase in wages despite rising productivity, despite vast increases for their employers? (until now, that is)

  40. What about the elephant in the room here? Health insurance is exempt compensation not just for income taxes, but also for FICA. If you make health insurance into regular compensation that’s a huge increase in payroll taxes going to the Treasury.

  41. Does the market take into account a majority of participants who are fed up with never seeing an increase in wages despite rising productivity, despite vast increases for their employers?

    No, since that’s not true.

  42. Tony,

    If that were true, what’s stopping a competitor from bidding a higher price and attracting those dissatisfied employees?

    If you said “government,” you’re right!

  43. “When these are factored in, the total tax paid as a percentage of income is often lower for the wealthy.”

    $25,000 is still more than $10,000 you stupid prick.

  44. “The equity argument here is questionable, since the reason high-income people get “a bigger tax break” is that they pay more in taxes to begin with, not just in absolute terms but proportionally.”

    This is the entire basis of of the Left’s argument against lowering tax rates as Bush did. The progressivity of the tax code should only work one way to the left: up. The Left argues that lowering taxes through cutting rates or deductions should be proportional or better, regressive, effectively saying that whomever they currently define as the “wealthy” should never get a tax cut.

    It does not make sense, but the progressives are not known for their keen grasp of logic.

  45. “Does the market take into account a majority of participants who are fed up with never seeing an increase in wages despite rising productivity, despite vast increases for their employers? (until now, that is)”

    Yes, the job market is amarket like any other. Employees are free to try and sell their services to other employers who will give them a better deal. The problem you are having is that you seem to think that the price of labor should have a direct connection to productivity. Unfortunately, supply and demand also factor in. This is also true of the products the employer sells in retail. If a company can all of a sudden make 10x more of their widget, they may have to lower their price per unit to sell all of their new production.

  46. If you wonder why we are in the crisis we are in, why your country is no longer recognizable, why individuality and success is now a crime, and why your freedom is under attack, you must watch this video from the 1980s by a KGB agent who explains why and how it all happened.

    http://atlas.victimofcapitalism.com/x/vq/24

    “Simply because the psychological shock when they will see in [the] future what the beautiful society of EQUALITY and social justice means in practice, obviously they will revolt. They will be very unhappy [and] frustrated people, and Marxist Leninist regime does not tolerate these people. Obviously they will join the [ranks] of dissenters; dissidents.”

  47. Doesn’t this break his promise not to increase taxes one thin dime on people who make less than $250K?

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