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First off I want to apologize for talking about tax reforms right now, I swear if I hear the term "fiscal cliff" one more time on the radio I'm going to find an actual cliff to jump off of.

What got me thinking is that they're talking about eliminating more deductions and that makes me sad, because we just bought a house not-quite three years ago and we pay a LOT OF MONEY in mortgage interest, before the house we rarely itemized our returns. So I didn't used to care about deductions.

You could argue that the times in my life when I didn't care about deductions were the times when I was poor... a kid just starting out in the world, single, not a homeowner... I'm trying to keep that in mind. It's only in the last few years that I made enough money to buy a house and give a lot more to charity so that, combined, these factors got me past the standard deduction.

But I digress.

You all know I'm kinda on the left and all for raising taxes on the rich. I don't mean to oppress them, I just want to make it fair, I'm for raising capital gains back to Reagan's levels and definitely think we should raise the social security cap because WTF is with income over $110,000 being totally exempt from social security taxes? Seriously WTF? I have to pay way too much into this crappy system that I hate, all year, in every paycheck... everyone else should too!

But anyway they're talking about getting rid of the deduction for charitable contributions because rich people make huge contributions and get huge tax breaks for it.

Here's the argument: Let's say you make $50,000 a year and you make a $3000 donation to a charity (go you!). Since the top portion of your income is taxed at 15%, you will save $450 on your taxes.

Now let's say a 1%-er who makes $375,000 makes the same $3000 donation. Since the top portion of her income is taxed at 33%, she will save $990 on her taxes... over twice as much as you.

So is that unfair? Should we dump both deductions?

The problem for me is that $450 is kinda a lot of money to someone who only makes $50,000 a year... 0.9% of your income, but the $990 is only 0.2% of the $375,000 person's income. Yes, it's more money for the federal government if we tell both people to pay up, but the 99%-er is the one who I think will feel it, right?

I kinda think we should keep the deduction around. Maybe I'm biased because, statistically, I guess I'm kinda rich... not even close to being in the top 1% but I'm in the top half. Or maybe my math is off. Or maybe I just don't like change.


( 6 comments — Leave a comment )
Dec. 13th, 2012 04:09 am (UTC)
We fixed the rich-vs-poor thing, sort of, in Canada, by having a progressive tax credit on the donation: 15% on the first $200 and 29% on anything above that, which goes to reduce the balance owing (with a similar thing on provincial income tax). That $3000 in a year gets the same credit no matter what tax-paying person uses it (it works out to better than reducing the net income by the donation amount for low-income individuals, and not as good as chopping off the net income for higher-income individuals). Most of the rest of our tax credits amount to reducing net income by the relevant amount for a lowest-bracket taxpayer, and only a partial reduction of net income for those doing better (but being worth the same number of dollars for either).
Dec. 13th, 2012 05:43 am (UTC)
What is the "top portion" of someone's income? I haven't heard that term before.
Dec. 13th, 2012 12:05 pm (UTC)
Has to do with the tax tables... I don't know the exact percentages but if they say the tax is 15% up to 50,000 and 20% from 50-75,000, that means someone who makes $50,010 will not suddenly have to pay 20% tax on their entire income. They pay 15% of 50,000 and 20% on the $10 they made over that... $7,500 + $2. Not 20% of their whole income, that'd be like $10,000, they'd have incentive to want to get their income back down to $49,999!

It's actually kind of a huge deal of a concept because the news keeps talks about how we're increasing taxes on "people who make more than 250,000" and that's a bit misleading, we're increasing taxes on income *over* that. So if someone makes $10 over that amount their taxes are barely even going up, it's not really fair to say we're raising their taxes because they suddenly have to pay $3.50 instead of $3.25 or whatever on that $10.
Dec. 13th, 2012 03:54 pm (UTC)
I had no idea, thanks for explaining it.
(Deleted comment)
Dec. 13th, 2012 04:11 pm (UTC)
This would work out pretty similar to how things are in Canada now, and it has worked well up here.

I'm with you on at least cinching in what counts as a tax-deductible charitable organization, and leaving religious organizations to demonstrate that they're doing it rather than having a blanket religious category. At the very least, it would make the endless fighting over where religion ends and science fiction begins a lot lower-stakes.

With our current government in Canada, I don't feel too badly about diverting tax money to charities, because I figure civil rights and hospital foundations are a better use of my money than building jail cells, sole-sourcing fighter jets or throwing another tax cut to the Conservative base. So long as things are a little tight in our federal coffers, at least the regressive tax cuts have been promised not to happen. This is all predicated on the hope that it's easier to not start new projects than it is to slash current and necessary things, which may not be completely on, but could be close enough.
Dec. 13th, 2012 10:54 pm (UTC)
I am uber fiscally conservative and don't believe that the tax code should be used to try and steer people's behavior, so I don't have a problem with these sorts of social engineering deductions going away, even if it means I pay more in taxes. In fact I think they should all be abolished. The debate is not about what you consider to be "fair." Such arbitrary evaluations are completely subjective and thus are irrelevant to whether a law is "good" or "bad." In my opinion, everyone paying their "fair share" means that EVERYONE pays some tax so that everyone has skin in the game, none of this 47% not paying income taxes stuff. There should be no zero liability voters (people who vote to receive services but do not have any responsibility to pay for them). In fact, the Constitution says the federal government serves to protect the right of EVERY citizen to own personal property equally, regardless of their wealth relative to another citizen. Success should not be punished. The poor should not be dependents of the state. Likewise, our elected officials should not be swayed by "crony capitalism." And yet, here we are....because no one is held accountable for their overreaches.

"I have to pay way too much into this crappy system that I hate, all year, in every paycheck... everyone else should too!"
I think you've missed the crux of the argument. The question should be WHY you are paying so much into the crappy system that you hate, not why isn't someone else isn't paying as much as you in real terms or as a percentage of income. The answer is that we (and generations before us) have allowed the government to usurp far too much power and influence over our lives and our personal property, and the result is A LOT of large, bureaucratic, unmanageable, EXPENSIVE, and unaccountable government to complain about.

Fact: none of the tax increases that are a part of the "financial precipice" (can't have you committing suicide over semantics ;)), or even the extra tax hikes that Democrats and some Republicans are talking about making, are going to make one iota of difference in the deficit or debt. They are entirely inconsequential according to basic mathematics. They are merely symptoms of the problem, not the problem itself. So why debate petty differences?

Reduce the size and scope of government returning towards the limitations of the Constitution (AKA LESS SPENDING) and lower taxes will be a natural consequence for all. Our government is operating so far outside of its original founding limitations that they are now bickering over what you are paying in comparison to your neighbor to keep you from realizing that they're utterly out of control. The solution needs to be systemic, not an attack on particular classes of individuals.

However, very few of our elected officials are willing to take the political hit that will ensue when they state the facts...that the path we're on is unsustainable and that sacrifices must be made. As evidenced by Obama's reelection, voters are unwilling to relinquish the government benefits they see as "theirs" and will continue draining the treasury faster than money can be confiscated from other citizens, printed, or borrowed from other countries. They have no moral qualms about where the government gets "its" money from. Honestly, because government entitlement programs have so abstracted us from each other (unlike private charity), I doubt most recipients know or care to connect the dots to realize that every dollar they receive "from government" was taken from another individual at the threat of force (not willingly) or borrowed against future productivity and will have to be paid back on some amorphous future day of reckoning. Because no one is going to make the sacrifices willingly, the forced sacrifices will come all at once when a) inflation hits, b) the rest of the world stops lending us money, or c) the balance of takers to givers tips such that enough givers leave and there is no one left to take from.

Sorry for the rant, I got a little carried away. :-P
TL;DR: Get rid of all social engineering tax deductions -> simplify tax code -> lower rates. Also, smaller government -> less spending -> lower rates for all.

Edited at 2012-12-13 10:54 pm (UTC)
( 6 comments — Leave a comment )

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