What happens to the charity industry if the Republican tax plan goes through?

Right now the U.S. has some of the world’s highest income tax rates, a tax deduction for charitable contributions, and, perhaps not coincidentally, the world’s fattest charities (e.g., college presidents making over $1 million per year, some heroes at other types of charities as well).

Today is “Giving Tuesday”. If you give $100 to charity, your fellow taxpayers will chip in maybe $40 of that. If the Republican tax rate cut goes through, on the other hand, though the charitable deduction is preserved, tax rates have been cut to the point that perhaps your fellow taxpayers will be on the hook only for $25. If part of the fun of giving to charity is giving away other people’s money, will donations be cut to the point that managers at non-profits have to sell their houses in the Hamptons?

One could argue that by leaving U.S. citizens with more of what they’ve earned, they’ll buy more of everything, including the bragging and feel-good rights that come with charitable donations. In that case, donations to charity should go up. I’m not sure that I buy this. Aristotle pointed out that one of the problems with Plato’s proposed elimination of private property was that it prevented people from enjoying the feeling of being charitable. The modern equivalent of that is the welfare state. Since the government is supposedly doing everything for everyone, what hope is there for a private individual to “make a difference”? This attitude is on display in a comment to What can we do to help Houstonians?: “We can let our elected representatives know we support appropriate aid for those affected and are willing to pay the taxes necessary to make that happen.”

Readers: What do you think? Giving Tuesday 2018 will be bigger or smaller than this year?

[You might ask about my personal plans. After about 40 years of giving cash to 501c3s I have decided to stop in favor of more personal stuff (possible exception: charities where I actually know the managers and that they aren’t diverting donations into their own pockets, e.g., End of year charity idea: Kids on Computers). From my aviation page I offer to run helicopter tours for charities to auction. And then I find it satisfying to help out individuals, such as the children of this friend who recently died, or the neighborhood K-12 students whom I tutor, or the Harvard and MIT students whom I teach as a volunteer. It strikes me as bizarre that we’ve all come to accept a system where if Amanda Citizen helps Joe Needy directly, she has to provide all of the cash herself whereas if Amanda Citizen gives money to Big Charity that in turn promises to help Joe Needy, the rest of us taxpayers will kick in 40 percent (and then Big Charity will skim at least that 40 percent off the top to pay employees). Plainly the 501c3s are good at lobbying, but why don’t citizens complain about politicians being owned by charities in the same way that they complain about politicians being owned by other special interest groups?]

8 Comments »

  1. lion

    November 28, 2017 @ 2:46 pm

    1

    Interesting story about the correlation between colleges as 501c3’s & the price of education. They are very much the gatekeepers today, even more than 1997. There has been a shift away from high school dropouts experimenting with free software in the 1990’s to the big name colleges.

  2. Anonymous

    November 28, 2017 @ 3:13 pm

    2

    If congress is serious about stimulating economy and reducing debt then it needs to limit amount of money that can be transfered to charities tax-free (what billionairs do by transfering billions to charities to have fun with their money and not pay federal government while lecturing those who leave paycheck to paycheck on importance to pay more taxes) and encourage young people to get productive education by keeping graduate tuition tax – free for STEM fields. If not converting to preferable flat tax congress should design tax to reward productive habits while limiting unintended consequences of financial engineering. Unfortunately congress gets much more money from billionairs than from graduate students and there is little probability that my suggestion is going to be done. I do believe that donatios to third party charities will increase. I never think about tax benefits when I donate for issue I care about. Also, not all non-profits are tax-deductible so they are bound to get more $$$. There is no reason to expire tax cuts in the future, it is just a bate for future elections and not good governing policies.

  3. Anonymous

    November 28, 2017 @ 3:19 pm

    3

    lion,
    Technology is too complex for HS dropouts drive economy. I hope you do not want HS dropout operate on you without skipping medical shcool and surgery on cadavers. Also we do not drive wireless any longer, EE MSs and PhDs in japan and China do. Simple but clever and creative apps and websites are great but they can not drive economy all the time. I do not care about formal degrees, I care about actual learing and complex projects that extend our ability. If HS dropout comes with successfull self-driving car algorithm I may change my mind on the subject.

  4. Steven

    November 28, 2017 @ 6:19 pm

    4

    Whatever the americans will save on taxes next year will be sucked up by insurance, utilities and such. My guess is they’ll give less.

    And be less happy, now where at it
    https://www.cnbc.com/2017/08/09/the-happiest-countries-in-the-world-also-pay-a-lot-in-taxes.html

    And not all proffessional charities are ineffective money drains
    https://www.givewell.org/

  5. Anonymous

    November 29, 2017 @ 5:04 am

    5

    Philg,

    What do you base “Right now the U.S. has some of the world’s highest income tax rates” on? I just checked here:

    https://www.investopedia.com/taxes/countries-highest-income-taxes/

    and

    https://tradingeconomics.com/country-list/personal-income-tax-rate

    It seems to tell a different story.

  6. philg

    November 29, 2017 @ 9:24 am

    6

    Anonymous: Thanks for those links, but they overstate European tax rates, I think. In the U.S. you are required by law to purchase health insurance, so it is effectively a tax and yet it is not included in the headline rate. The European rates, on the other hand, often include health care (see the UK, for example). Except for Switzerland, Europe also tends to be centralized. Only a single government entity pursues income tax from individuals and corporations. Compare to the U.S. where the federal government, a state, a county, and a city may all simultaneously collect income tax.

    That second link has the top U.S. rate at 39.6 percent. That is only the federal rate and it doesn’t include the extra Obamacare tax (3.8 percent). It also leaves out city income tax (for NYC residents, e.g., at nearly 4 percent) and state income tax (California top rate 13.3 percent). If you add up these state and local taxes, the marginal tax rate for successful Americans is about 50 percent, thus leading to all kinds of scams such as https://www.bloomberg.com/news/articles/2017-06-28/hot-tax-avoidance-plan-joins-millionaires-hedge-funds-insurers

    It is typical for U.S. to Europe comparisons to leave out the state and local taxes, which makes the U.S. look better.

  7. Anonymous

    November 29, 2017 @ 11:03 am

    7

    Steven,

    per the chart in your reference link, if at same or higher income my taxes fell by 20% as in Norway I would be happy too. No wander Norway is the happiest! Why Luxembourg did not make it to happinness list? Luxembourgians pay the largest tax. Probably because their taxes fell only by 15%. And in US – federal taxes rose and it does not reflect all other taxes. You found the way to improve your personal happiness – pay more taxes volunatrily, you can contribute more. Or are you happy only when other pay more taxes?

    How innumeracy trikcled down to this blog? I found it while using lycos to search lisp resources long while ago. Recently there was a post here that showed straight line graph at a small angle to X axis and claimed that process described by it was exponential. What is going on???

  8. the other Donald

    November 29, 2017 @ 12:37 pm

    8

    “What is going on???”

    from my facebook feed:

    “One-third of high school graduates never read another book for the rest of their lives. 42 percent of college graduates never read another book after college. 80 percent of U.S. families did not buy or read a book last year. 70 percent of U.S. adults have not been in a bookstore in the last five years. ”

    Is it true? Who knows, it’s facebook.

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