Comments on: “I’m no mathematician, but these numbers don’t seem right to me.”

By: ProfSwitzer

ProfSwitzer — Fri, 27 Mar 2009 00:34:51 +0000

I’m not sure about your numbers, Brian. If rich people are donating $90B to charity, it reduces their tax liability (using the 39% marginal tax rate) by $35.1B currently. Under Obama’s plan, it would only reduce their tax liability by $25.2B, meaning that Obama would collect the difference, an extra $9.9B. That’s a whole lot less than $18B, and that’s not even factoring in the possibility that they might decrease their donations because it won’t have the same tax benefit. I don’t see how you can have Obama collecting $18B in taxes on $61B in charitable donations…

I think you were right the first time when you said he was off by about half (9.9/18). Perhaps I’m not understanding your argument. Care to clarify for me?

By: Brian

Brian — Fri, 27 Mar 2009 00:09:42 +0000

Aha! I figured out how Obama plans on making the $18B. He is assuming that by not getting as good of a tax break the drop off in donations will be greater that the expected 15% drop that I calculated below (probably due to people getting thinking charities are no longer good tax breaks). So just to be generous to Obama, lets assume that he beleives the ecomony would grow over the 10 years to the point that if not for his tax plan high earning individuals would have given $90B/year vs. the current $82B. Again doing the taxable obligation vs. tax break calucations: $90B in earnings for a taxable income of $35.1B: $61B in charitable donation (instead of the $90 expected) resulting in $17.1 tax break: net to government $18B. $61B is 68% of $90B or a 32% drop in donations to charities expected by Obama.

By: Brian

Brian — Thu, 26 Mar 2009 23:54:23 +0000

One thing you are missing in your calculation is that the tax rate will increas to 39% when Obama lets the highest tax bracket raise. So assuming that 28% of all donation come from individuals making over $250K (per Fox News article on the subject). The max difference per year would be about $9B (still off by 50%).

The assumption that it will not affect donations is lunacy! Assume you are a high wage earner and you get a bonus of $10,000. You decide you will donate your bonus to charity (say you work for AIG and you have a guilty conscience). Under current tax law your taxable income will be completely offset by your tax break and therefore you can donate all $10,000 with $0 additional owed to the governement for you $10,000. However under the Obama plan in 2009 tax dollars, if you want to net $0 on the whole deal the math works out as follows: You earn $10,000 which results in a $3,500 tax obligation; you donate $9,028 to the charity resulting in a $2,528 tax break; you pay $972 to the government in taxes right to never see money you earned. Therefore, charities can expect to get about 10% less in donations from the rich with the Obama plan in 2009. In 2010 when the tax rate increases to 39%, doing the same math charities will see a 15% decline in donations from the rich.

By: ProfSwitzer

ProfSwitzer — Sat, 28 Feb 2009 19:38:10 +0000

jafam- Perhaps you’re right and Obama doesn’t care — I would like to think that he wouldn’t be happy with declining charitable contributions, but if he really did then he probably wouldn’t propose something like this. There is of course always the argument that we are in a recession and everybody has to sacrifice — I just didn’t think that would include even organizations helping the people who need help the most. His argument for increasing unemployment benefits is that we need to help the people that need it the most — so why the opposite philosophy when it comes to charities? In regards to the statement about churches, if you actually look at the statistics, only about 40% of charitable giving is to churches. (source: http://www.nptrust.org/philanthropy_top_five). If people are tithing based on their income and income is falling (down the last two quarters), that giving is definitely going to drop as well. And there is still the remaining 60% that most definitely will be affected.

I don’t doubt that Obama’s philosophy is that government is the solution to any problem. That’s exactly what worries me.

By: jafam

jafam — Sat, 28 Feb 2009 06:51:39 +0000

Not sure if I’m being completely nuts here, but what if Obama doesn’t particularly care if charitable giving declines. Most charitable giving goes to churches; they probably figure that will go on anyway, and it’s no big loss if it doesn’t. As to the rest of the charities, a shortfall would probably mean they’d turn to the government for help, which would result in help for those that are favored, nothing for those that aren’t, and a greater amount of government involvement in the non-profit world. If government is the solution, why subsidize something else?

By: Nik Drescher

Nik Drescher — Fri, 27 Feb 2009 21:39:58 +0000

Well its not the first piece of legislation that does not make sense when you boil it down to the facts (this applies to BOTH sides of the political process). But, if anyone finds they whole “Conservatives give more” train of thought interesting you should read the book “Who Really Cares”

http://www.amazon.com/Who-Really-Cares-Compasionate-Conservatism/dp/0465008216

I’m sure some of you can find a Torrent link of it, but it is not nice to link those.