Friday, December 14, 2012

When Tax Policy is Determined by Idiots You Get Idiotic Tax Policy

Even the Idiots Ought to be Able to Figure That One Out

One common characteristic, one that is shared by President Obama, the Democrats and the Republicans is that not only are they not tax experts, they have absolutely no knowledge of basic tax policy.  This would not be a problem or an issue except that these are the people who are deciding tax policy.

Case in point is the question of whether or not to limit the deduction for charitable contributions. 

But the White House is also looking to limit the charitable deduction for high-income earners, and that has prompted frustration and resistance, with leaders of major nonprofit organizations, such as the United Way, the American Red Cross and Lutheran Services in America, closing ranks in opposing any change to the deduction.

Yes, wealthy people use charitable deductions as a way to reduce their taxes.  But this is okay.  First of all they give away the money, they don’t have the use of it, so a tax deduction is warranted.  Equally important, the work done by these charities supplants and augments the work that is done by government, often but not always at a lower cost and a greater effectiveness.  Is the Red Cross less efficient than FEMA in providing disaster relief? 

So the policy ought to be to encourage rather than discourage charitable contributions.  Yes some reform is needed, Harvard University doesn’t need another dime for at least the rest of the century.  And yes, the large national charities need to rein in the exorbitant salaries and benefits they pay their top people.  But the tax code ought to be set up in a way to provide maximum donations, not minimal ones.

But stupid policy like limiting charitable deductions is what you get when you have stupid people making policy.  They tend to do stupid things.


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