Sunday, December 26, 2010

Finally someone agrees with me!

For years I have been proposing abolishing the charitable deduction in the income tax code, and I usually get stares that combine incredulity at my heartlessness with a pity for my foolishness. I mean, what kind of a human being is against charity? Well, economist Richard Thaler agrees with me. Fortunately for this post, The New York Times will actually publish his op-eds, so we can evaluate his argument See his column here. These two paragraphs explain it beautifully:

Consider this scenario: Having decided that charitable giving is a worthy cause, the government subsidizes charitable gifts from certain households, and for those chosen to be part of the plan, every dollar donated to a charity is increased by a specified percentage. To qualify, taxpayers must have a substantial home mortgage; the subsidy rate increases with taxable income. Low-income taxpayers receive no subsidy, but donations from qualified high-income taxpayers are subsidized by as much as 40 percent — or more.

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(emphasis added).

In other words, the public, including renters, are subsidizing contributions made by homeowners, who generally have a lot more money. This isn't fair. His solution is right on the money: make it a refundable credit that anyone can take (refundable meaning you can receive money from the government if your deduction is large enough).

I would make a further point, at the risk of being accused of being anti-religous--many "charitable" contributions to churches and other religious institutions are nothing of the sort. Many churches use money to fund political campaigns, such as the Mormon Church funding Prop 8 (there's a video on this available at Amazon.com). Please don't misunderstand, churches have the First Amendment right to support causes they deem worthy. But they do not have the right to a government subsidy for their financial support of these causes.

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