“Tax Simplification”—Grave Threat to the Charitable Contribution Deduction: The Problem and a Proposed Solution

The present National Administration has continued to support proposed legislative changes aimed at substantially reducing the number of income tax returns in which deductions are itemized. The author contends that these tax simplification proposals are incompatible with the preservation of the charitable contribution deduction and would undermine the position of voluntary charitable organizations by reducing the incentives for giving. He proposes a solution to this dilemma by promoting the charitable contribution deduction, with certain limitations, to the position of a deduction from gross income, rather than a deduction from adjusted gross income

The Geographic Distribution of the Mortgage Interest Deduction

The mortgage interest deduction is one of the largest tax expenditures in the U.S. tax code but the rate at which it is claimed and the average amount deducted vary widely across and within states. With changes to tax expenditures under consideration, data showing the current distribution of the mortgage interest deduction are key to understanding how federal tax decisions would affect the states

“Tax Simplification”—Grave Threat to the Charitable Contribution Deduction: The Problem and a Proposed Solution

The present National Administration has continued to support proposed legislative changes aimed at substantially reducing the number of income tax returns in which deductions are itemized. The author contends that these tax simplification proposals are incompatible with the preservation of the charitable contribution deduction and would undermine the position of voluntary charitable organizations by reducing the incentives for giving. He proposes a solution to this dilemma by promoting the charitable contribution deduction, with certain limitations, to the position of a deduction from gross income, rather than a deduction from adjusted gross income

The Hidden Limits of the Charitable Deduction: An Introduction to Hypersalience

Behavioral economics introduced the concept of salience to law and economics. In the area of tax policy, salience refers to the prominence of taxes in the minds of taxpayers. This article complicates the literature on salience and taxation by introducing the concept of “hypersalience,” which is in many ways the mirror image of hidden taxation. While a revenue-raising tax provision must be hidden for taxpayers to underestimate their tax bill, a revenue-reducing tax provision – such as a deduction, exclusion, or credit – must be more than fully salient for taxpayers to underestimate their tax bill. In other words, the provision itself must be salient, but the limits of that provision must be hidden, or low-salience. This article uses the charitable deduction to illustrate the concept of hypersalience. While the charitable deduction is extremely salient to many taxpayers, not all taxpayers who believe that they will benefit from the deduction are correct. In fact, even though many Americans are aware that donations are tax-deductible, fewer than 50% of taxpayers can take advantage of the charitable deduction. The concept of hypersalience is important for several reasons. First, it highlights the role of non-governmental actors in fostering taxpayer ignorance about the tax system. This article suggests that the hypersalience of the charitable deduction is at least partly due to marketing efforts by private third-party beneficiaries. Second, it complicates economic models, such as those of price elasticity of giving, and suggests that certain tax provisions may be more treasury efficient than previously thought. Third, it may lead to increased consumption of certain goods. This article concludes that, although hypersalience may mean that the government is able to induce greater behavioral distortions without losing revenue, the costs of this phenomenon outweigh its benefits. Because hypersalience is due to taxpayer misunderstanding and the actions of third-party beneficiaries acting in their own interest, this article proposes several possible avenues for curtailing this phenomenon

Incentives for Conservation Easements: The Charitable Deduction or a Better Way

Halperin talks about tax-policy concerns relating to the charitable deduction for conservation easement donations. The conflict of interest between charity and other owners raises a concern that the charitable deduction would not reflect the ultimate charitable benefit. The deduction for conservation easements is the principal exception to this rule despite the significant potential for abuse and the distinct possibility that the public benefit may be less than anticipated

Encouraging Corporate Charity

The tax law governing corporate philanthropy is stuck in an archaic notion of corporate charity that does not necessarily benefit either charities or corporate stakeholders. Four developments in the last few years provoked this reexamination of the Internal Revenue Code and its awkward dichotomy between business expenses and charitable contributions. They offer new reasons for replacing the charitable contribution deduction for corporations with a business expense deduction: (1) a statutory reduction in the rate of tax on dividends received by individual shareholders, (2) empirical evidence showing very low effective tax rates paid by corporations, (3) death of the preeminent model of corporate philanthropy - Berkshire Hathaway\u27s shareholder-designation program, and (4) adoption of final capitalization regulations that significantly weaken the capitalization requirement and no longer pose much of an obstacle to immediate deduction of corporate payments to charities. This seemingly small legal change offers many benefits in today\u27s climate: it would increase the coherence of a corporation\u27s tax treatment, help to minimize the agency costs in corporate philanthropy, and change the way that corporations define their charitable endeavors, encouraging greater overall corporate commitment to charitable and community needs, both within and outside their business operations

Tax Preferences for Higher Education and Adult College Enrollment

The federal government delivers substantial college aid through the tax code, after introducing education tax credits in 1998 and a tuition deduction in 2002. The design of the Lifetime Learning tax credit and the tuition deduction may make them particularly useful to older students. This paper investigates how these provisions have affected college attendance of individuals in their 30s and 40s. For most adults, there is no effect on college attendance. Among men whose 1998 educational attainment falls short of earlylife educational expectations, eligibility for an education tax preference is associated with a 2.5 to 3.4 percentage point increase in the probability of college attendance.college finance, education tax credits, and college enrollment

Marital Deduction Formulae—A Planner’s Guide

The marital deduction formula bequest exists principally as a means of minimizing federal estate taxes. Considerations apart from the estate tax, however, have had a substantial effect upon the form of such clauses, and a 1964 pronouncement by the Internal Revenue Service has circumscribed their continued utility. The author examines the basic formula clauses, setting out the characteristics of each, the respects in which they differ, the objectives each is designed to secure, and the factors to be weighed by the draftsman who wishes to utilize a formula bequest to achieve a maximum federal estate tax marital deduction

Why the Buffett-Gates Giving Pledge Requires Limitation of the Estate Tax Charitable Deduction

The Buffett-Gates Giving Pledge, under which wealthy individuals promise to leave a majority of their assets to charity, is an admirable effort to encourage philanthropy. However, the Pledge requires us to confront the paradox that the federal estate tax charitable deduction is unlimited while the federal income tax charitable deduction is capped. If a Giving Pledger leaves his wealth to charity, the federal fisc loses significant revenue since the Pledger thereby avoids federal estate taxation as charitable bequests are deductible without limit for federal estate tax purposes. Despite its laudable qualities, the Giving Pledge is a systematic (albeit inadvertent) threat to the estate tax base. The Giving Pledge requires the amendment of the federal estate tax to restrict an estate’s charitable deduction to a percentage of the estate, just as the income tax charitable deduction is limited to a percentage of the taxpayer’s income. In this fashion, the sensible compromise embedded in the income tax charitable deduction would be carried over to the federal estate tax to simultaneously encourage charitable giving while ensuring that all large estates pay some federal estate tax. The Giving Pledge need not be the death knell of the estate tax. It should instead be the catalyst to reform the tax by limiting the estate tax charitable deduction

Income tax deduction of commuting expenses and tax funding in an urban CGE study: the case of German cities

Germany like many other European countries subsidize commuting by granting the right to deduct commuting expenses from the income tax base. This regulation has often been changed and has regularly been under debate during the last decades. The pros (e.g. causing efficiency gains with respect to the spatial allocation of labor) and cons (e.g. causing urban sprawl) are well documented. Nonetheless, there is need for further research. For reasons of tractability the few models applied in the tax deduction related literature are based on restrictive assumptions particularly concerning the design of the income taxation scheme and the structure of households (neglecting household heterogeneity) and, most importantly, they do not integrate labor supply and location decision problems simultaneously. Here, for the first time, those and more features are taken into account in a full spatial general equilibrium simulation approach calibrated to an average German city. This model is applied to calculate the impacts of tax deductions on an urban economy thereby considering different funding schemes. Our results suggest that the tax deduction level currently chosen is below the optimal level in the case of income tax funding. If a change in the tax base occurs, e.g. toward consumption tax or energy tax funding, the optimal size of the subsidy should be even higher. Furthermore, the different policy packages cause a very differentiated pattern regarding welfare distribution, environmental (CO2 emissions) and congestion effects. We also find surprisingly small effects on urban sprawl characterized by suburbanization of residences and jobs, increasing commuting distances and spatial city growth. --urban general equilibrium model,commuting subsidies,income tax deduction