“. . . the wealthy in fact respond to tax incentives for donations. If the after-tax cost of charitable giving goes down, the wealthy give more; if it goes up, they give less.”
This lies at the heart of concerns about President Obama’s plan to cut charitable tax deductions for the wealthy; what if the deduction really is the only thing propping the donation rate up in this anemic economy? I really hope that this isn’t the case, for a few reasons:
- It would shake my faith in the free market economy. I wholeheartedly believe that all of our economic crises were at the very least exacerbated by inconsistent regulation. The only reason a free market economy doesn’t work is because nobody’s ever seen one. I’d like to think that, given no cattle prod or carrot whatsoever, people would give some of their money to charity.
- It would shake my faith in wealthy people. The amount that one is allowed to deduct comes from the amount of money one made for the year. Giving it away, even with a tax break, means you have less money than you did when you started. Unless the amount of giving would drop you into the next lower tax bracket, of course – but that’s more a problem of the graduated tax system, so in that case I’ll let it pass.
- It would shake my faith in a flat income tax, or at least any hope of getting one in my lifetime. Our graduated system creates a disincentive to become so wealthy as to be too highly taxed – at least on paper. The only reason powerful, wealthy people haven’t changed this system is because it isn’t really to their detriment at all – the deductions and legal tax dodges shift the tax burden back onto the rest of us. The gleeful tone taken in the Nonprofit Law Prof Blog post is popular, but it’s counterproductive. A flat tax, fairly written, would get everyone paying their fair share.