Thursday, March 26, 2009

Martin Feldstein on The Charitable Contribution Deduction Proposal

Here is what Harvard Economist Martin Feldstein had to say in the yesterday's Washington Post:

President Obama's proposal to limit the tax deductibility of charitable contributions would effectively transfer more than $7 billion a year from the nation's charitable institutions to the federal government. But the high-income taxpayers affected by the rule change are likely to cut their charitable giving by as much as the increase in their tax bills, which would, ironically, leave their remaining income and personal consumption unchanged.

The rest of the op-ed goes on to support Feldstein's view that the proposal to limit the charitable contribution deduction (along with all other itemized deductions) is a bad one.  I have pretty much been on the fence with regard to this issue, but having read this op-ed, and the Democratic Leadership Report, about which we blogged a few days ago, I now agree the idea is a bad one and I, of course, am a staunch Obama-ite.  According to the DLC report, authored by one democrat and one republican, the number of people employed in the nonprofit sector, the wages paid, and the gross domestic product generated by the nonprofit sector surpass the automobile and financial industry several times over. We have poured billions into those industries.  Indeed, if the American nonprofit sector were a country, it would have the seventh largest GDP in the world.  True, the wealthy and ultra wealthy "madoff "like fat cats under Bush tax cuts, but the charitable contribution deduction is the one provision that comes as close as possible to simultaneously acheiving both efficiency and equity in the tax code.  The wealthy can benefit only by giving back to the rest of us.  If they are able to benefit by pretending to give back, we should adjust the conditions under which the deduction is granted, but we should not do so in a manner that will reduce the frequency with which deductions are made.


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