Audacity

I watched a good bit of President Obama’s news conference last Tuesday.  There were several answers on which I would take issue with him– but I’ll stick to just one, for now.  One thing at a time!

Question:  Are you reconsidering your plan to cut the interest rate deduction for mortgages and for charities? And do you regret having proposed that in the first place?

OBAMA:  No, I think it’s — I think it’s the right thing to do, where we’ve got to make some difficult choices…

Cutting the mortgage deduction might make sense, but would be very unpopular– so it isn’t likely to happen.  But what’s this about the charitable deduction?  I’d never heard of such a proposal.  The reporter followed up:

Q: It’s not the well-to-do people. It’s the charities. Given what you’ve just said, are you confident the charities are wrong when they contend that this would discourage giving?

OBAMA: Yes, I am. I mean, if you look at the evidence, there’s very little evidence that this has a significant impact on charitable giving.

Can he possibly believe this?  The math is very simple.  Suppose I’m a very charitable person in the 28% marginal tax bracket who is prepared to give $10,000 to a charity.  If  I actually give $13,900, 28% of this is $3,892 — so I’m only shelling out $10,008.  But for a richer giver in the 35%  bracket:  he can give $15,390 — 35% of which is $5,386,  so it only costs him $10,004!

The gov’t makes our giving tax-deductable because we’ve decided (as a country) that foregoing extra tax revenue is more than offset by the good done by what we give freely.  And will only allowing those 35%-ers to deduct 28% punish them– those awful people who gross more than $250,000?  Well, no– they will adjust their giving accordingly, downwards.

I was glad that in Wednesday’s Washington Post Martin Feldstein made the same point in more detail: A Donation From Charity But we shouldn’t need an economics professor to explain all this to us; anybody who has itemized tax deductions  should already knows it.

So  doesn’t the President know it?  And if he were so challenged by simple math, couldn’t the very smart people around him have explained it to him?  Or perhaps they are look forward to the additional $7 billion in revenue which this tax change (by Feldstein’s estimate) would provide?  All  at the expense of the charities.

Speaking of charity:  Mr. Feldstein says, in a very charitable way:   “I suspect that the administration officials who drafted this proposal did not understand that it would have this perverse effect”.

If he’s right on that, we are in trouble.  If he is wrong, our government is in the hands of some very cynical people.  Either way…

2 Responses to “Audacity”

  1. Mark Brooks Says:

    Great post! I would say that Obama’s record on charitable giving is dismal at best. Before he came to Washington they gave only 1.4% of their income to charity. After he got to Washington they increased to 6.1%. While they try and present the image that they were not high wage earners their combined incomes put them well into the very top tax brackets. They could easily have given more to charity. To be fair Sarah Palin’s charitable record was not that good either. My point is that I think Obama is out of his element on this argument and does need better counsel. My fear is that he along with all of his advisers are too inexperienced at this point. I do trust that wiser heads in Congress will kill this proposal.

  2. PJK Says:

    Thanks for your comment!

    I’m just amazed at the mindset of people like columnist E.J. Dionne in The Washington Post who wrote (March 26th): “Do we really believe it’s fair that when a married couple with a taxable income of $50,000 gives $1,000 to charity they get a tax benefit of $150, while a couple earning $1 million making exactly the same contribution get back $350?”

    But in each case they only “get back” money in the sense that the IRS says: here, we won’t tax that $1,000 since you gave it to charity. What “benefit” is there, beyond an encouragement to be charitable? And if the very rich who give a lot can bask in the glow of being philantropists, should we deprive them of that harmless satisfaction? Apparently so, as Dionne (and Obama) see it. I would agree, though, that the corresponding mortgage interest deduction is another matter– that has a different rationale, and is certainly debatable.

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