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“Lifestyle Investments For The Rich And Famous”: When Charity Begins At Home, Particularly The Homes Of The Wealthy

It’s charity time, and not just because the holiday season reminds us to be charitable. As the tax year draws to a close, the charitable tax deduction beckons.

America’s wealthy are its largest beneficiaries. According to the Congressional Budget Office, $33 billion of last year’s $39 billion in total charitable deductions went to the richest 20 percent of Americans, of whom the richest 1 percent reaped the lion’s share.

The generosity of the super-rich is sometimes proffered as evidence they’re contributing as much to the nation’s well-being as they did decades ago when they paid a much larger share of their earnings in taxes. Think again.

Undoubtedly, super-rich family foundations, such as the Bill and Melinda Gates Foundation, are doing a lot of good. Wealthy philanthropic giving is on the rise, paralleling the rise in super-rich giving that characterized the late nineteenth century, when magnates (some called them “robber barons”) like Andrew Carnegie and John D. Rockefeller established philanthropic institutions that survive today.

But a large portion of the charitable deductions now claimed by America’s wealthy are for donations to culture palaces – operas, art museums, symphonies, and theaters – where they spend their leisure time hobnobbing with other wealthy benefactors.

Another portion is for contributions to the elite prep schools and universities they once attended or want their children to attend. (Such institutions typically give preference in admissions, a kind of affirmative action, to applicants and “legacies” whose parents have been notably generous.)

Harvard, Yale, Princeton, and the rest of the Ivy League are worthy institutions, to be sure, but they’re not known for educating large numbers of poor young people. (The University of California at Berkeley, where I teach, has more poor students eligible for Pell Grants than the entire Ivy League put together.) And they’re less likely to graduate aspiring social workers and legal defense attorneys than aspiring investment bankers and corporate lawyers.

I’m all in favor of supporting fancy museums and elite schools, but face it: These aren’t really charities as most people understand the term. They’re often investments in the life-styles the wealthy already enjoy and want their children to have as well. Increasingly, being rich in America means not having to come across anyone who’s not.

They’re also investments in prestige – especially if they result in the family name engraved on a new wing of an art museum, symphony hall, or ivied dorm.

It’s their business how they donate their money, of course. But not entirely. As with all tax deductions, the government has to match the charitable deduction with additional tax revenues or spending cuts; otherwise, the budget deficit widens.

In economic terms, a tax deduction is exactly the same as government spending. Which means the government will, in effect, hand out $40 billion this year for “charity” that’s going largely to wealthy people who use much of it to enhance their lifestyles.

To put this in perspective, $40 billion is more than the federal government will spend this year on Temporary Assistance for Needy Families (what’s left of welfare), school lunches for poor kids, and Head Start, put together.

Which raises the question of what the adjective “charitable” should mean. I can see why a taxpayer’s contribution to, say, the Salvation Army should be eligible for a charitable tax deduction. But why, exactly, should a contribution to the Guggenheim Museum or to Harvard Business School?

A while ago, New York’s Lincoln Center held a fund-raising gala supported by the charitable contributions of hedge fund industry leaders, some of whom take home $1 billion a year. I may be missing something but this doesn’t strike me as charity, either. Poor New Yorkers rarely attend concerts at Lincoln Center.

What portion of charitable giving actually goes to the poor? The Washington Post’s Dylan Matthews looked into this, and the best he could come up with was a 2005 analysis by Google and Indiana University’s Center for Philanthropy showing that even under the most generous assumptions only about a third of “charitable” donations were targeted to helping the poor.

At a time in our nation’s history when the number of poor Americans continues to rise, when government doesn’t have the money to do what’s needed, and when America’s very rich are richer than ever, this doesn’t seem right.

If Congress ever gets around to revising the tax code, it might consider limiting the charitable deduction to real charities.

 

By: Robert Reich, The Robert Reich Blog, December 12, 2013

December 14, 2013 Posted by | Wealthy | , , , , , , , , | Leave a comment

“A Luxury Reserved For The Wealthy”: Taxes Are Not A Charitable Donation

Almost all federal taxpayers who itemize their charitable deductions on their returns deduct the full amount, in order to keep their tax burden as low as possible. Mitt Romney didn’t do that in 2011, according to tax returns released today, leaving $1.8 million un-deducted so he could tell voters he paid a federal tax rate of at least 13 percent. That’s a luxury reserved only for wealthy politicians who can afford to pay an extra few hundred thousand for image purposes.

But one unfortunate line on a memo from Mr. Romney’s lawyer, accompanying the tax returns, suggests that Mr. Romney really doesn’t see much difference between giving to charity and giving to the government.

“Over the entire 20-year period, the total federal and state taxes owed plus the total charitable donations deducted represented 38.49% of total AGI,” the memo said, referring to Mr. Romney’s adjusted gross income. In his mind, apparently, you can just add up the two figures into a new hybrid column, perhaps called, Total Obligation to Society, and make yourself look even more generous.

It doesn’t work that way, however; charity and taxes cannot be conflated to make it sound like you are “giving away” a larger portion of your income than you are. Conservatives can hate paying taxes, and Mr. Romney in particular appears to hate having tax money spent on the “dependent class,” but that doesn’t make the government a charity.

Taxes represent the obligations citizens have to each other and to society, fostering physical safety with defense and law enforcement spending, economic safety with public works, and personal welfare for the needy. Charity is entirely voluntary, even for those who, like Mr. Romney, are asked by their religious authorities to tithe a fixed portion of their income. Those donations play a vital role in every American community, but they can never take the place of a firm government safety net, as much as they are preferred by the right to taxes.

One would think that someone running to be the government’s chief executive would be proud to make tax payments, and would not try to reduce them through exotic foreign tax shelters and an outsized IRA, as Mr. Romney has done for years. But the announcement today that he had deliberately “overpaid” his taxes was grudging and entirely for show. He overpaid them only so that he couldn’t be accused of paying far less before the election.

Despite his accountant’s statement today that he had never paid less than 13.66 percent of his income in taxes over the last 20 years (a level that would make many middle-class taxpayers jealous), it is still an assertion that has not been backed up by the release of actual tax returns for that period. For all the highly trumpeted discretionary donations he has made, Mr. Romney apparently still doesn’t want the public to see how assiduously he has worked to lower his most important social obligation.

 

By: David Firestone, The New York Times, September 21, 2012

September 23, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment

“Days Late, Dollars Short”: Mitt Romney’s Tax Returns Still Incomplete

After months of withering attacks, Mitt Romney has finally (sort of) lifted the veil of secrecy around his personal finances. At 3 pm, his campaign released his full 2011 tax return and a summary from PriceWaterhouseCooper of his tax filings over twenty years, from 1990–2009.

The bottom line: as everyone suspected, Romney pays a lower tax rate than the typical middle-class family—and he seems to have purposely engineered a higher rate for himself for optical reasons. Moreover, by only summarizing the past twenty years of returns, there’s a lot we don’t know.

Here’s a look at what we learned so far—check back for updates.

2011 returns

The top-line takeaway from the returns isn’t particularly good—his 2011 tax rate was 14.1 percent, below the effective tax rate for most Americans despite Romney’s vast wealth. (The middle 20 percent of households paid a 16 percent federal income tax rate in 2010). Most of Romney’s income is from capital gains, which is taxed at a lower rate than income—and Obama wants to change that and raise the rate, while Romney does not.

The returns are sure to underscore the absurdity of someone who made $13,696,951 last year, as Romney did, paying a lower tax rate than, say, a plumber in Memphis.

Additionally, by the campaign’s own admission, Romney purposely did not deduct all of his charitable giving—claiming only $2.25 million out of about $4 million—to make his rate “conform to the Governor’s statement in August…that he paid at least 13% in income taxes in each of the last 10 years.” If he did the deductions in full, he would have paid around 9 percent. (By Romney’s own standard, this disqualifies him: he said on the trail that “frankly if I had paid more than are legally due I don’t think I’d be qualified to become president. I’d think people would want me to follow the law and pay only what the tax code requires).

So here’s a guy who made over $13 million last year, paying a lower tax rate than most Americans, and purposely paying more to the IRS so as not to seem too rich. If this is what Romney’s campaign wanted to change the conversation to, they must have been really unhappy with what it was.

The 1990–2009 Summary

Romney’s trustee, Brad Malt, has a summary of the summary on the campaign website. (Note that Malt oversees Romney’s supposedly blind trust, which makes it interesting he’s also serving a campaign function here). It says:

  • In each year during the entire 20-year period period, the Romneys owed both state and federal income taxes.
  • Over the entire 20-year period period, the average annual effective federal tax rate was 20.20%.
  • Over the entire 20-year period period, the lowest annual effective federal personal tax rate was 13.66%.
  • Over the entire 20-year period period, the Romneys gave to charity an average of 13.45% of their adjusted gross income.

This is a really sneaky maneuver. The tax rate averages out to a semi-respectable 20.20 percent, but what does that really tell us? It’s still possible that in really high-earning years, Romney paid an absurdly low tax rate. If he paid a normal rate in lower-earning years, it could still produce that average.

And if Romney did pay really low rates during high-income years, what mechanisms did he use? What sort of tax shelters might he have employed? We don’t know that either, and aren’t likely to find out unless Romney releases the actual returns—something he required of all his potential vice-presidental nominees.

 

By: George Zornick, The Nation, September 21, 2012

September 22, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment

   

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