A Charitable Proposal

Filed Under (Uncategorized) by Jeffrey Brown on Mar 9, 2010

I just ran across an idea by one of my favorite policy economists, Gene Steuerle of the Urban Institute, in a piece he wrote entitled A New April 15: Make It a Day of Giving (Efficiently).  In a nutshell, he calls for treating charitable contributions in the same manner that we treat IRA contributions – by allowing tax deductibility to extend through the April 15 tax filing deadline.  This is one of those incredibly simple ideas that ought to be implemented tomorrow. 

As background, charitable contributions typically have to be made by December 31 to qualify for deductibility from that year’s taxes.  However, December 31 comes at a time of year in which a lot of people are focused on major holidays rather than taxes.  We allow people to make deductible 2009 IRA contributions as late as April 15, 2010, thus allowing people to make their IRA contribution decision simultaneously with figuring out their 2009 taxes.  This timing is much more salient and allows people to optimize more effectively.  Why not do the same for charitable contributions?  After all, we have done so after major disasters, including the 2005 Tsunami and the 2010 Haiti disaster.  Why not allow it for all contributions every year?

Clearly, this would be a better approach than favoring certain types of deductions over others by extending deductibility on a case-by-base basis, a point made by Howard Gleckman in January recent blog post.  The basic point he makes is that, yes, Haiti needs relief.  But so do hundreds of other incredibly good causes, be it starving children in Somalia or the American Red Cross response to a localized disaster.

Government Policy Favors One Kind of Football over Another?

Filed Under (U.S. Fiscal Policy) by Don Fullerton on Aug 28, 2009

Okay, I admit, I like to watch professional sports.  I grew up in Virginia, so I watch the Washington Redskins.  I also like to watch movies.  Best are the quirky independent films, but I also watch some Hollywood thrillers.

So why does my government discriminate against me???

Other people get their entertainment in other forms, and that’s fine.  Many here at the University of Illinois watch Illini college football (actually, I do too, but what about those not in a college town who prefer professional sports?).  I’m happy for college football fans in Champaign-Urbana, but, why does our government favor this form of football over others?  Some people like to go to church, and I don’t blame them.  They listen, they learn, and they feel better.  For them, it is a form of entertainment as well.  I’m happy for them, but why does our government favor their form of entertainment over mine?

The answer is: no good reason.

But that’s exactly what happens.  To get some really good seats at a professional football game, you can pay a lot, let’s say $10,640 for a pair of season tickets.  The same is true for college football.  But the way you buy the good seats at a college football game is that you first make a $10,000 “donation” (of which 80% is tax deductible).  Then you buy two tickets for $320 each, and that $10,640 will get you two comfortable chairs in the main stands near the 50-yard line.  But it doesn’t cost $10,640.  Getting to deduct 80% of $10,000 is worth $8,000 off your taxable income, and if you are a 30% tax bracket, then it saves you $2,400 of actual Federal income tax.   The real net cost of the tickets is $10,640 minus $2,400, which is only $8,240.  That is a 22.6% discount, provided by the Federal government.

Why should government care whether any particular sports fan watches college sport or professional sport?  They are nearly identical, so I believe that subsidy is not justified.

The supposed justification for the tax deduction is to encourage charitable donations.  But where is the charity?  This “donation” is not going to help the poor; it’s not even going to any educational purpose!  It is going to pay for a fancy new stadium improvement, expensive new practice equipment, salaries of coaches, and all the costs of running a major football program – the same as it does for the Washington Redskins.  The professional team also uses ticket sales to pay for a fancy new stadium improvement, expensive new equipment, salaries of coaches, and all the costs of running a major football program.  There’s virtually no difference.

The point is that the ability to use tax deductions is too widespread, and it makes all the rest of us pay more tax to make up for the discounts given to other people for their own normal expenditures.  Not only that, but it gives a bigger discount to the rich!  Low-income households are in a low tax bracket, or do not even pay tax, so they get no subsidies for their donations.  Only rich folks in high tax brackets get the government to pay for their Illini football tickets.

The same point can be extended to many other “charities”, even religious organizations.  Some people like the whole experience of going to church: the stained glass, the carved wood, the singing choir, the thoughtful sermon, and the whole spiritual experience.  I don’t begrudge their tastes, but they shouldn’t begrudge mine either.  Personally, I’d rather go to a Hollywood movie.  But my ticket is not deductible, whereas their cost of church is deductible.   I would better see the justification for tax deductions of gifts to charities that help other individuals less fortunate than themselves, and some donations to religious organizations are indeed used for humanitarian purposes.  But I just don’t see why my own tax dollars ought to be used to support some rich person’s cost of getting access to stained glass, carved wood, singing choirs, and that whole entertainment experience.