Editore"s Note
Tilting at Windmills

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July 16, 2009

CAN WE PUT ITEMIZED DEDUCTIONS BACK ON THE TABLE?.... There are a variety of options when it comes to paying for health care reform, and since all of them lead to producing more government revenue, there are political problems associated with each.

The method that President Obama prefers happens to be one of the few options lawmakers are reluctant to even consider. It's interesting, then, that the president continues to talk about it. In an interview aired this morning on NBC's "Today," Obama responded to a question about financing reform.

"I think the best way to do it is, lower the itemized deductions for people who make a lot of money, like me. And if we do that, we can pay for it, and ultimately, this will pay for itself."

Sounds right to me.

Obama first started sketching out his plan on itemized deductions in February. There are already limits on charitable deductions for the wealthy, but the administration expressed support for tinkering with those limits a bit. As Noam Scheiber recently explained, '[C]apping the charitable deduction at 28 percent for affluent people (who would otherwise be able to save 35 cents on each dollar they give to charity, because that's the marginal tax rate they face) strikes me as a pretty reasonable/equitable way to finance healthcare."

According to administration estimates, the change would generate about $318 billion over the next 10 years.

Congress quickly balked, arguing that it would seriously undermine America's charities, but it's worth noting that Warren Buffett, one of the nation's most generous philanthropists, announced his support for the idea as recently as last week.

What about the questions about adverse charitable implications? The invaluable Center on Budget and Policy Priorities did a helpful report on this in March.

President Obama's proposal to limit the tax deduction for charitable contributions would affect only the top 1.2 percent of affluent U.S. households and, despite claims to the contrary, would reduce total charitable contributions by only 1.3 percent. [...]

This proposal has been attacked on the grounds that it would lead to substantial reductions in charitable contributions and hit charities at a time when they face increased need and decreased contributions due to the recession. Careful examination indicates that these criticisms are greatly exaggerated or wrong.

A "surtax" seems controversial. Taxing benefits is probably even more controversial. Maybe lawmakers can give the itemized-deductions plan another look?

Steve Benen 10:45 AM Permalink | Trackbacks | Comments (17)

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Charities wouldn't need as much money if health care was available to everyone. There's got to be a huge percentage of charity funding medical care now.

Health care for everyone would also reduce Workers Comp and other business insurance, too, cause a lot of liability suits have to do with assigning someone to pay for injuries and medical care is a huge part of that.

Posted by: Jan in Stone Mtn on July 16, 2009 at 10:54 AM | PERMALINK

it is interesting how arguments against this, that, and the other method of financing public programs and reform programs that benefit more people always seem to be about how they'll hurt this, that, or the other social program (like charities).

it reminds me of a whack-the-mole game.

It's cheesy, dishonest, some sort of zero-base definition of what government is and does. And -- surprise -- it keeps the Murkin peeps in an infantile state of confusion.

deep down, it really is a con -- and a clown show.

Posted by: neill on July 16, 2009 at 10:55 AM | PERMALINK

as a trauma surgeon, I get chest pain when I keep hearing all these incredible numbers. $1 trillion. $300 billion over 10 years. Then we have these complicated super complex formulas. Why? The whole thing is just to appease the pharmaceutical companies and insurance companies.

If we do single-payer -- universal health care, we, Americans, they'll need to pay an extra cent. Roll Medicare and Medicaid along with all the other state health care programs into universal healthcare. This gives us $700 billion left over. Put another way, by excluding the health insurance companies from the equation we have $700 billion left over. This is more than enough to pay for the 46 million Americans who are currently uninsured. We remove the middleman (health insurance companies) from the healthcare equation and we cover all of the uninsured. Why isn't this a starting point for discussions?

Posted by: ecthompson on July 16, 2009 at 11:07 AM | PERMALINK

Also, most charitable donations are made by people who cannot itemize. Big ones are made by rich people, and they do give about 45% of total dollars, but when you consider that they have 95% of the wealth, it pales by comparison to the rest of the people who, with 5% of the wealth, donate 55%. In fact, I think that there should be no itemized deduction for charitable giving, because it should be charity, not a tax calculation. It should be from caring and empathy, not a desire to see your name on a plaque somewhere.

Posted by: Carol on July 16, 2009 at 11:08 AM | PERMALINK

The tax question to me is why not raise the capital gains tax ? Warren Buffet (who repeatedly points out that his tax rate is lower than his secreatary's) gets paid one dollar a year. Sur tax that and get nothing. All of his money is capital gains and the interesting point about his taxes is how he ended up with a 17% rate since if he half tried it would have been the capital gains flat tax of 15%. The religion that capital is critical and that individual effort is not is a central problem.

Posted by: Bryan C. Kennedy on July 16, 2009 at 11:13 AM | PERMALINK

"[C]apping the charitable deduction at 28 percent for affluent people (who would otherwise be able to save 35 cents on each dollar they give to charity, because that's the marginal tax rate they face) strikes me as a pretty reasonable/equitable way to finance healthcare."

Trust me. It is a stupid move to make the individual tax return even more complicated.

If you cap charitable contributions at 28% while other deductions are still at 35% then you have to defend the idea that is it better for me to buy a more expensive house and get a 35% deduction than to donate to the Red Cross. I suppose you could defend that idea but I wouldn't want to.

However, it does seem that a stealth tax like reducing the value of exemptions and deductions are easier politically than doing the right thing and raising rates. You get the same amount of money but you complicate the tax return; make work for accountants; and make the flat tax movement stronger.

Posted by: neil wilson on July 16, 2009 at 11:14 AM | PERMALINK

They should cap all personal deductions at 28% or even 15%. What the marginal tax on deductions does is to effectively lower the cost of mortgage rates, health care, state income taxes, etc more for high income earners than to low earners. Don't these people already have enough advantage? Do we really want people to have incentive to call all their restaurant meals "business meetings" for tax purposes?

Posted by: Danp on July 16, 2009 at 11:21 AM | PERMALINK

Tax the churches. Start with the C-Street Nazi Crew.

These churches are getting involved in politics. Yet, they are hiding their assets through the church non-tax status. The churches are not helping people the way they used to.

I'll use the Mormon church as an example, people give tithes to the church, people donate properties to the church, properties are 'willed' to the church - missionaries have to pay their on way, rent, food, electricity......the properties are owned by the church or someone in the church. *for the life of me, I can't understand why they would have to pay to go out to recruit/represent the church. **it reminds me of a "Pyramid Scheme."

Posted by: annjell on July 16, 2009 at 11:22 AM | PERMALINK

The fact is that most among the top income brackets pay a lower effective tax rate (i.e. total taxes paid/total income) than most of us in the middle class since only a portion of their income has a payroll tax and large portions for their income come from investments and/or inheritances where the capital gains/estate tax rates are either lower or nonexistent. In addition, the items available for deduction are designed to disproportionately help the wealthy .

In short, despite are progressive earned income tax brackets, we don't really have a progressive tax system and the result is that the middle class pays more to make up for the free riders among the wealthy.

Posted by: Chris on July 16, 2009 at 11:38 AM | PERMALINK

Oop, I should have said 'tax-exempt status.'

This pay to play scheme needs to be looked into.

If the churches, especially the Mega-churches were so concerned about people. Why aren't they hiring? Why are they praying bad things happen to Pres. Obama?
Shouldn't they be praying for a better economy? Shouldn't they be praying the wars stop? Shouldn't they be praying for the end of hunger & the billions of refugees displaced by these wars to find their way back home?

Posted by: annjell on July 16, 2009 at 11:46 AM | PERMALINK

"A 'surtax' seems controversial."

What's controversial about having those that are woefully undertaxed pay their fair share of the tax burden ?

Over the past decade, the top one percent of American taxpayers had their share of the nation's income DOUBLE, from 11.3% to 22.1%, but their tax burden shrank by about one-third.

"Maybe lawmakers can give the itemized-deductions plan another look?"

Actually, ALL deductions, exemptions, and credits should progressively phase-out as income rises above certain thresholds. Those folks are no longer in need of help from the government.


Posted by: Joe Friday on July 16, 2009 at 12:36 PM | PERMALINK

There is another way that very rich people are being very disingenuous about this. Not only do many filthy rich people give money to "Charity" to lower their taxes, they actually give the money to charitable trusts, created by them and staffed by their extended family members and attending to their own pet causes. So they pay lower taxes, still get to control the money, and their extended family lives off the trust. Not much of it, relative to their fantastic wealth, actually gets into the economy to the betterment of society.

Posted by: coltergeist on July 16, 2009 at 12:51 PM | PERMALINK

health care should be paid for by taxing benefits. with the imposition of mandates and the way the public option is not set up to properly compete those that dont have health care through their employer are going to have to pay quite a bit of money. unless that payment is 100% tax deductible for them then it's only fair that everyone else has to pay tax on it as well. it is income and frankly it's status as tax exempt is a contributing factor to the spiraling of health care costs. the principle of health care reform should be equality. if mandates are part of the shared responsibility then those that get them for free should have just as much of a shared responsibility.

Posted by: Beauregard Janglez on July 16, 2009 at 1:18 PM | PERMALINK

Big Corporations that were off-shore in the Cayman Islands are now shifting to Ireland.

Yes, Ireland & Switzerland have tax-treaties with the U.S., but, they have a more favorable tax treatment.

These corporations include, to name a few, coca-cola, intel, Del Monte, that have skipped out on billions of tax revenues owed to the U.S., some payed just 5% of the taxes owed.

Posted by: annjell on July 16, 2009 at 1:46 PM | PERMALINK

coltergeist has it. We see "charitable and educational" and think about real charities. But the wingnut-welfare think tanks that generate quotes for Fox News and WorldNet Daily: generally tax-exempt. Heck, even Jack Abramoff got into the "charitable" institution racket. His marks would pay the charity and take a deduction, the charity would pay "expenses" to other organizations he and his pals controlled: instant government-subsidized money laundering.

Posted by: paul on July 16, 2009 at 2:23 PM | PERMALINK

I see three problems with caps on itemized deductaions. First it makes everything more complicated just so you do not have to say that you are raising rates. Second, it hits people in high tax states - states that have a tradition of providing services at the state level. Third - it will certainly affect my charitable giving. I am amazed by all the comments that suggest that calculating the real cost of a charitable contribution is tacky or that people should be more willing to sacrifice. I would sacrifice precisely the same amount - the post-tax cost to me. The charity would sacrifice the difference.

Posted by: bostonian in Brooklyn on July 17, 2009 at 3:54 PM | PERMALINK

Sorry. My theology, briefly, is that the universe was dictated but not signed. Help me! It has to find sites on the: How stock market prices are determined. I found only this - stock market prices for today. This is a broker of the same version, in which indicators get savings through magic burst, stock market prices. Once, they seek on a new using average, stock market prices. Thanks for the help :-), Fruma from Vatican.

Posted by: Fruma on March 17, 2010 at 5:36 PM | PERMALINK



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