Wednesday, August 21, 2013

Bruce Bartlett on the Charitable Deduction

In the August 20th New York Times Online, Bruce Bartlett weighed in on the future of the chartiable deduction.  For those of you not familiar with the name, Bruce Bartlett was a member of the administration for both Reagan and the elder Bush.  He was known at one time as a strong supply-sider but has broken ranks with Republicans more recently on this issue.   See his Wikipedia entry here.   

In summary, his point is that the charitable deduction needs to be re-thought as it is generally provides a disproportionate benefit to higher income taxpayers.  Higher income taxpayers have more disposable income to make signficant charitable gifts.  In addition, the majority of low income taxpayers cannot itemize, and therefore cannot benefit directly from the deduction.  Finally, the value of the deduction rises as the taxpayer's marginal tax rate goes toward the top of the scale.    He appears to favor a capped credit in lieu of a deduction as a way to continue to reward and encourage generosity while making the benefit more equitable among taxapayers.   He also posits that the cap on the credit could be "done in a way that raised net revenue to pay for rate reductions."

The credit idea has always been intriguing to me - it is what we have here in West Virginia on the state level, although it is somewhat unique in its structure.  A few thoughts:

  • A credit does nothing for those that do not have a tax liability to offset.  I wonder if he would support using the credit to offset the payroll tax liability, which is often more of a burden for lower income taxpayers than the income tax.
  • I am curious to know how the cap on the credit would be done in a way that raises revenue for rate deductions - and what rate deductions?  Wouldn't the high income taxpayer benefit from such a re-shuffling, as they have their overall rate lowered and there overall tax burden reduced, while not having to giving anything to charity? 
  • How would that compare to, for example, a $500 above-the-line deduction?  We know that would be expensive,  which is why it's been talked about but not enacted.  If we reduced the availability of the below-the-line charitable deduction to pay for it, would that promote the fairness that Bartlett professes to want without the back door benefit of financing low overall marginal rates?
  • Bartlett seems to be unimpressed by the charitable sector's argument regarding the effect of cuts in the deduction on funding for the sector.  If we think that part of the rationale for the deduction in the first place is to not just reward giving but to encourage it, we need to think seriously about that issue.  Otherwise, we are again reducing marginal rates on the backs of folks who may be able to least afford it - in this case, our charities.


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When asked by a legislator how to fund tax incentize the funding of b corporations I suggested the credit as something to consider in lieu of further complicating the tax-exempt world. This discussion reminds of the need to avoid the charitable sector's funding sources since those are currently at risk for a sector that is so vital

Posted by: Kim Lowe | Aug 28, 2013 7:03:06 AM

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