Richard Thaler—It’s Time to Rethink the Charity Deduction

Posted by Kendall Harmon

It would be reasonable to ask why the government should subsidize charitable contributions at all. But for now, let’s discuss this simpler and more politically relevant question: If we are going to continue subsidizing these donations, what is the best way to do it?

First, I should clarify a simplification I’ve made. In the current system, strictly speaking, your eligibility to deduct a charitable contribution doesn’t depend on whether you have a big mortgage. But it might as well. You can deduct charitable contributions only if you itemize rather than take the standard deduction, and the most common way a household collects enough deductions to make itemizing worthwhile is to have a big mortgage. (Living in a high-tax city like New York can also help a taxpayer cross that threshold, because state and local taxes are deductible, at least for now.)

But I challenge anyone to justify a system in which we essentially subsidize contributions made by people with big mortgages. For one thing, this set-up magnifies the already large distortion created by the mortgage interest subsidy, since having a mortgage qualifies taxpayers for other subsidies as well.

Read it all.

Filed under: * Culture-WatchCharities/Non-Profit OrganizationsLaw & Legal Issues* Economics, PoliticsEconomyTaxesThe U.S. Government

Posted December 19, 2010 at 12:21 pm

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1. kmh1 wrote:

“It would be reasonable to ask why the government should subsidize charitable contributions at all.”
And who, pray tell, subsidizes the government?

December 19, 4:15 pm | [comment link]
2. Br. Michael wrote:

What make the government think it is “entitled” to taxes in the first place?

December 19, 4:25 pm | [comment link]
3. Branford wrote:

If the government had to pay for all the social services that churches provide, they would be even more broke than they are now. Charitable deductions help churches get funds to offer desperately needed services for the hungry, homeless, and abused.

December 19, 8:01 pm | [comment link]
4. LumenChristie wrote:

The Gov’t is NOT “Subsidizing” anything at all.  If people decide to give money voluntarily out of their own disposable income, then the gov’t has nothing to say about it.  They can tax what’s left.

Whgen are we going to get it through our heads that a bunch of bureaucrats are NOT entitled by right to everyone’s money?

Throw the tea into Boston Harbor, boys.

December 19, 8:17 pm | [comment link]
5. AnglicanFirst wrote:

The ecumenical food bank in our area depends upon charitable donations, some government food that is made available, and upon the volunteer efforts coming from the church congrgations in our community.

This food is very important and often vitally necessary to those receiving it.

If this were a government program, it would require at least three to five employees, a piece of real estate, utilities and food provided by the government.

These resources would be paid for by taxpayers and would result from ‘an additional tax burden’  rather than from charitable gifts from members of the community.

Gifts from government represent ‘big government’ being emphasized as the solution of all social problems while charitable gifts represent a ‘local spiirit of concern’ for those ‘less fortunate’ within a community.

The first of the above stems from passionless and blind ideology and the second stems from local acts of love for one’s neighbor based upon Judeo-Chrisitian Faith and upon American tradition.

December 19, 8:41 pm | [comment link]
6. Fradgan wrote:

Rethink the deduction?  Instead, let’s rethink the taxation?  This is MY money they’re talking about.

December 20, 3:34 am | [comment link]
7. palagious wrote:

I would challenge the line of thought that the primary reason that people buy a home or donate to charities is a federal tax break that doesn’t actually.  So, if I am tithing and giving to charity $10K/Yr I am doing so that I can realize a whopping $1500-2500 tax benefit?  Another way, of every $1 I give I get back 15-25cents?  There are much better ways to make money than give charitable donations or buy a house than flushing 75-80 cents of every dollar down the toilet to get a tax benefit.

December 20, 11:43 am | [comment link]
8. Clueless wrote:

I will not change my tithe whatever happens to the law.  I do not tithe because of tax considerations.  I tithe because it is right to do so.

December 20, 9:52 pm | [comment link]

© 2014 Kendall S. Harmon. All rights reserved.

For original material from Titusonenine (such as articles and commentary by Dr. Harmon) permission to copy and distribute free of charge is granted, provided this notice, the logo, and the web site address are visible on all copies. For permission for use in for-profit publications, please email KSHarmon[at]mindspring[dot]com

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