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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

Republican Paradox: The Party That Can’t Say Yes

For days, the White House has infuriated its Democratic allies in Congress by offering House Republicans more and more in exchange for a deal to raise the debt ceiling and prevent default. But it was never enough, and, on Friday evening, it became clear that it may never be enough. Speaker John Boehner again walked away from the “grand bargain” he had been negotiating with President Obama, leaving the country teetering on the brink of another economic collapse.

At the White House podium a few minutes later, the president radiated a righteous fury he rarely displays in public, finally placing the blame for this wholly unnecessary crisis squarely where it belongs: on Republicans who will do anything to upend his presidency and dismantle every social program they can find. “Can they say yes to anything?” he asked, noting the paradox of Republicans, who claim that financial responsibility and debt reduction are their biggest priorities, rejecting yet another deal that would have cut that debt by at least $3 trillion.

Mr. Obama, in fact, had already gone much too far in trying to make his deal palatable to House Republicans, offering to cut spending even further than the deficit plan proposed this week by the bipartisan “Gang of Six,” which includes some of the Senate’s most conservative members. The White House was willing to cut $1 trillion in domestic and defense spending and another $650 billion from Medicare, Medicaid and even Social Security.

Much of that savings would have come from raising the eligibility age for Medicare benefits and reducing the cost-of-living increases that elderly people depend on when receiving their health and pension benefits. It could have caused significant damage to some of the nation’s most vulnerable people.

The “bargain” would require that alongside these cuts, tax revenues would go up by $1.2 trillion, largely through a rewrite of the tax code to eliminate many deductions and loopholes. That’s substantially less in revenue than the $2 trillion in the “Gang of Six” plan. The problem is that while much of the cutting would start right away, most of the revenue increases would be put off, in part because a tax-code revision would take months, and in part to allow House Republicans to say they did not agree to any specific tax revenue increases.

Democratic lawmakers were rightly furious when they heard about these details this week, calling the plan wholly unbalanced. But, in the end, it was Mr. Boehner who torpedoed the talks. He said Friday evening that he and the president had come close to agreeing on $800 billion of the revenue increases (the equivalent of letting the upper-income Bush tax cuts expire as scheduled next year — not much of a heavy lift) but could not stomach another $400 billion the White House wanted to raise through ending tax loopholes and deductions.

So, on the eve of economic calamity, the Republicans killed an overly generous deal largely over a paltry $400 billion in deductions. Mr. Obama was willing to take considerable heat from his liberal critics over the deal, and the Republicans were not willing to do a thing to anger their Tea Party base. As the president forcefully said, there is no evidence that House Republicans are capable of making those tough decisions. If last-ditch talks beginning Saturday fail, they will have to take responsibility if the unimaginable — a government default — happens in 10 days and the checks stop going out.

By: The New York Times, Editorial, July 22, 2011

July 24, 2011 Posted by | Congress, Conservatives, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democracy, Democrats, Economic Recovery, Economy, Federal Budget, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Medicare, Middle Class, Politics, President Obama, Public, Public Opinion, Republicans, Right Wing, Tax Credits, Tax Increases, Tax Loopholes, Taxes, Teaparty | , , , , , , , , , , , , , , , | Leave a comment

Yes, Paul Ryan Does Cut Taxes For The Rich

A number of conservatives have asserted that, contrary to what I’ve written, the House Republican budget written by Paul Ryan does not cut taxes for high earners. (See John McCormack, Ramesh Ponnuru, Charles Krauthammer, and McCormack again quoting Ryan.) Here’s the argument. Ryan keeps overall tax levels the same as they are right now by making the tax cuts permanent. He would then reduce the corporate tax rate and the top income tax rate by ten percentage points, from 35% to 25%. But he would make up for that additional revenue loss by closing “loopholes and deductions,” many of which benefit the rich. Therefore, his plan doesn’t really cut taxes on the rich.

There are four problems with this claim, each of them fatal.

First, the argument simply reflects a legitimate difference in baselines. Under current law, the Bush tax cuts are in full effect, but expire at the end of 2012. Keep Bush-era tax levels in place is not a tax cut compared with the tax code now, but it is a tax cut compared with the tax code in 2013. Which is the true baseline? I think both sides have a point, and Congressional scorekeepers have taken to using both baselines.

When President Obama accuses Ryan of cutting taxes for the rich, he’s using the post-2012 baseline. I consider that the best point of reference because the most important force in our political system is inertia. Given our multiple veto points, it takes great effort to enact a policy change that the parties disagree upon. Ryan proposes to make that change. Therefore, I think it’s fair to describe him as “cutting taxes,” even if revenues did remain at present levels (which I dispute, but more on that later.) I do think there’s merit in both baselines. The argument that Obama is lying about Ryan — that calling him a tax-cutter is, in Krauthammer’s characteristically understated phrasing, “scurrilous” — rests upon the assumption that the current-policy baseline is not only more preferable but the only remotely honest point of reference. That seems like a huge stretch.

Second, even if we accept Ryan’s preferred baseline, his description of his plan is hard to accept at face value. Tax reform is a trade where you take away deductions (that’s hard) and use the money to reduce rates (that’s easy.) The rate reductions are specified. The reduced deductions aren’t. Another way to put this is that Ryan has proposed a specific tax cut that would benefit the affluent, accompanied by utterly vague promises to find offsets. At the very least, the rate-lowering portion ought to carry more weight than the deduction-closing portion.

Third, even if we accept both Ryan’s baseline and assume he will match every dollar in lost revenue from the rate cuts with another dollar in reduced deductions, he will almost certainly wind up cutting taxes for the rich relative even to the post-Bush tax code. Ryan implies that his plan would leave the rich paying the same effective tax rates as they do now because he’s “getting rid of loopholes and deductions, which by the way are enjoyed by the top [tax] rate filers, the people in the top two brackets.” But he hasn’t put out any details. In 1995, House Republicans loudly promised to promote shared sacrifice by rooting out corporate welfare in the tax code. The actual savings they produced turned out to consist of proposals that hurt the poor (by cutting the Earned Income Tax Credit), benefited business (by letting them swipe funds from employee pensions, keeping the money as profit and thus increasing corporate tax revenue), or other reverse-Robin Hood measures.

Now, Ryan was not around then. But we can get a measure of his intentions from the more specific tax plan laid out in his “Roadmap” from 2010. That plan constituted a massive tax cut for the rich, combined with a tax hike on the middle class.

The Tax Policy Center examined various proposals to reduce tax deductions while using the revenue to lower rates across the board. All the plans decreased the tax burden for the top-earning 1%. The problem is that tax deductions are just not worth as much to very rich people as low tax rates.

It’s true that the Bowles-Simpson deficit reduction plan includes proposals that would lower rates to around 25% while increasing the effective tax rate paid by the very rich. To do that, you have to do things like raise the estate tax rate and completely eliminate the preferential treatment of capital gains. But Ryan’s budget promises instead — and this is the only specific policy commitment in its tax section, other than lowering rates — to expand the preferential treatment of income from wealth:

Raising taxes on capital is another idea that purports to affect the wealthy but actually hurts all participants in the economy. Mainstream economics, not to mention common sense, teaches that raising taxes on any activity generally results in less of it. Economics and common sense also teach that the size of a nation’s capital stock – the pool of saved money available for investment and job creation – has an effect on employment, productivity, and wages. Tax reform should promote savings and investment because more savings and more investment mean a larger stock of capital available for job creation. That means more jobs, more productivity, and higher wages for all American workers.

Fourth — almost there! — even if you reject everything I’ve written to this point, Ryan’s plan includes the repeal of all the taxes in the Affordable Care Act, including the taxes on the affluent. Here’s the Path to Prosperity’s description of health care taxes he proposes to undo:

The new law imposes a 0.9 percent surtax on wages and a 3.8 percent surtax on interest, dividends, and capital gains. Both taxes only apply to filers in the top two income brackets, but as discussed elsewhere in this section, those filers include small businesses employing millions of Americans, and the new taxes on capital will reduce the pool of capital available for investment and job creation.

There. Per Paul Ryan, these are upper-bracket taxes he proposes to lower. He could keep those taxes in effect, and cover a few of the uninsured people he throws off their coverage, or make the progressively-more-inadequate health care vouchers he uses to replace Medicare slightly less inadequate. But he chooses not to do that, because he believes it’s more important to tax capital at lower rates. It’s fine for him to believe that. But he and his defenders have to stop insisting that he doesn’t propose tax cuts for the rich. He indisputably does so.

By: Jonathan Chait, The New Republic, April 20, 2011

April 23, 2011 Posted by | Affordable Care Act, Budget, Businesses, Congress, Conservatives, Corporations, Deficits, Democrats, Economic Recovery, Economy, GOP, Government, Health Care, Health Reform, Jobs, Politics, President Obama, Rep Paul Ryan, Republicans, Right Wing, Tax Loopholes, Taxes, Uninsured, Wealthy | , , , , , , , , , , , , | Leave a comment

   

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