Gaah. In the face of criticism, the Obama administration is considering scrapping its plan to cap itemized deductions for charitable contributions from wealthy taxpayers. Since I have already declared my hatred for both wealthy taxpayers and charity, most of this will be self plagiarism. But let's try again:
1. The current plan for itemized reductions is really, really unfair. If you are in the highest tax bracket you can deduct $350 for a $1000 donation. If you are in the lowest tax bracket you can only deduct $150 on a $1000 donation.
2. The deductions are a costly subsidy. Every dollar a wealthy taxpayer deducts from his income tax liability is one less dollar the American government spends on something else. It is possible to imagine a world in which the social benefit created by the subsidized giving more than makes up for the lost tax revenue. I am skeptical that we live in such a world.
3. Why? Because there is little oversight on what counts as a charitable donation. You can get the deduction for giving to almost any 501c(3) organization. If you want to be a real aficionado about this, here's the relevant portion of the tax code: you can deduct for giving to a "corporation, trust, or community chest, fund, or foundation [...] organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals."
(Woe on the would-be philanthropist who gives to an amateur sports league that purchases athletic equipment!)
There is, furthermore, an irony here. If we really wanted to stimulate private charitable donations we could pass a giant progressive tax hike without any cap on deductions. Or we could vastly increase the estate tax. But I don't get the sense that this is what the administration's critics have in mind.
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