Marty Feldstein attacks on the president's proposal to reduce the rate at which high-income taxpayers can deduct charitable donations:
In effect, the change would be a tax on the charities, reducing their receipts by a dollar for every dollar of extra revenue the government collects. It is hard to imagine a rationale for taxing schools, hospitals, medical research budgets and arts organizations in this way.
Let me try to awaken his imagination.
Here is the rationale: The deduction is deeply regressive. 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. (This is all self-plagiarism.)
Of course, you might say, "We can live with a little tax regressivity if it creates an incentive to do something that we all think is good." And I take it that Marty Feldstein thinks charity is something we should all consider good.
I think charity is pretty good too, but there are still two problems. First, the tax code does not define charity narrowly. You can claim the same deduction on giving to an amateur sports league as you can for founding a hospital. I'm not in a position to say which of those is more beneficial to society as a whole. But neither is Warren Buffett or Eli Broad. Decisions about what will make our community better should be made communally -- by pooling revenue and making collective decisions about where and how it should be spent.
The second problem is deeper: It's a mistake to think about charity as an entirely selfless and personal sacrifice on the part of the donor. It is also charitable spending. High income individuals give to charity in part because they derive some benefit from the gift: They get their name on the building, or the continued benefit of an opera in their hometown, or the warm glow admiration from their peers. Why feel confident that this kind of spending should be subsidized?
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