Thursday, March 5, 2009

Government Soul: Taxing Generosity - 3

The last two days, I've been discussing some of the tax hikes the Obama administration is planning, particularly those aimed at donations to non-profits (and I run a non-profit). What has concerned me most, however is the rhetoric that is geared to gain support from people unfamiliar with the real issues. This not only hurts the soul of our culture but the souls of those playing word games.

Apparently Washington has been reading my blog.... :) ... because this article was found on page 3 of the Wall Street Journal, "White House Rethinks Tax Hikes."

Even congressional members of the Democratic Party are giving resistence, including the top tax writer who is chairman of the Finance Committee. You can read the article for the questions being raised.

Two comments stood out to me. One was by Treasury Secretary, Timothy Geithner when he said the tax proposals "affects only about 1.2% of taxpayers." Yet, that's not the point at all. This is still stuck in political spin. It's not about how many taxpayers are affected, it's about how many non-profits are affected. That 1.2% represent a large part of giving, which Indiana University's Center on Philanthropy, said would have been hit over the last two years with nearly $4B in losses to non-profits. You have to compare apples to apples to see real impacts.

Geithner also said that the tax proposal would only have a "modest negative impact." How does he know? Nobody knows until the taxes are enacted, when government grows and charities shrink.

The other thing that stood out to me represented the real kind of change America has been wanting. It came from Democratic Senator, Maria Cantwell. "Why not look at a broader approach to tax policy, [rather] than coming in with this proposed change to marginal rates?"

Tell it like it is, sister!

THAT is the CHANGE America needs right now. Creativity and real reform, cleaning up the 66,000 pages of tax law we currently have! We do not need some easy slap on tax rate hike that doesn't clean up Washington nor help anyone else. That'll help a lot of souls, including Washington's.

Wednesday, March 4, 2009

Government Soul: Taxing Generosity - 2

Yesterday, I mentioned the new tax proposals of the Obama administration, targeting particularly those who make over $200k. I want to reflect today on a comment made by Peter Orszag, director of the White House Office of Management and Budget that appears to be as intentionally deceptive in this article. Excerpt:
Thursday, the White House defended Mr. Obama's proposal, saying that the wealthy people it would affect would still have significant deductions from charitable contributions.

On a $10,000 donation, a family in the 15% tax bracket would save $1,500 in taxes, but wealthier taxpayers would save more. If philanthropist Bill Gates makes that same contribution -- without the proposed limits -- he would save $3,500 in his taxes, said Peter Orszag, director of the White House's Office of Management and Budget.

"All we're saying is we think Bill Gates should get a $2,800 tax break -- still a lot larger than a middle-income family -- rather than the $3,500 one," Mr. Orszag said.

This is intetionally deceptive for two main reasons. 1) The average reader will see these numbers and get the impression that the "wealthy" already get an unfair larger tax break over the "middle-income family." 2) What Orszag calls a "tax break," isn't a "tax break."

The idea behind tax-deductions through generosity is so that if you decide to forgoe income in order to help an IRS approved non-profit organization, then you are not taxed for that income. It makes sense: why be taxed for monies you don't keep or use for yourself? Why tax money you voluntarily do not claim as your own?

Because you are not taxed on money you give away, this is not a "tax break" at all. You don't get any special tax advantage for giving away money. It's as if you didn't have the money to begin with, it doesn't go into your savings. You get no personal benefit from it whatsoever. When you donate money, the money is gone, period. You simply are not taxed for money you hand out to IRS approved organizations.

Let's suppose two people made $100k each. Using the illustration of Orszag, one is in the 15% tax bracket and another in the 35% tax bracket. If neither of them gave money away, the first would be left with $85k after taxes. The second with $65k after taxes. You can clearly see who is left with the most money. The middle-income earner, dollar for dollar, takes more money home.

Orszag said that the 35% tax bracket gets a bigger "tax break" than the 15% tax bracket. But that's he's basing his "tax break" language on a higher tax bracket which pays more taxes already. Then he shows two people donating the same amount of money (which is unfair comparson, because people who make more, donate a higher percentage of their income). Then, he converts the percentages into real numbers (which is a misleading apples/orange comparison). These numbers are all corelated to the tax bracket, not to real number tax breaks. Any one would rather be in the 15% tax bracket than the 35% tax bracket and take the lesser "tax break." Calling it a "tax break" is intentionally deceiving to get people to ignorantly favor his point of view.

If the "wealthy" automatically got a $3500 tax break and the middle-income family a $1,500 tax break, that would be an unjust oucry. Everyone should get the same real number tax breaks. But the system isn't based on real numbers, but on percentages. The percentages are always higher on the "wealthy." When converted to real numbers, the "wealthy" always have higher numbers when it comes to paying taxes as well as their "tax breaks" because that's what percentages do!

I hope you're still tracking with me. Many people don't see the deception in the rhetoric because many people get confused with number-talk. But I believe you can get this... just review it (or ask a question) if it seems unclear or difficult.

But let's move to the next level. Obama's admin wants to reduce the amount of tax deduction a "wealthy" person can make from 35% to 28%. Currently, if someone is generous, he doesn't have to pay taxes for being generous. But on Obama's new plan, he does have to pay taxes for being generous.

Let's look at our scenario again. Two people have $100k each. One in the 15% tax bracket, the other in the 35% tax bracket. For the sake of discussion, let's say they both contributed all their money to a charity in 2009. On this scenario, both would walk away not paying any taxes. Why should they? They voluntarily gave up their income and have nothing for themelves.

But let's fastforward to Obama's plan. Both give all their income away. The person in the 15% tax bracket would walk away paying no taxes because he made no income. The person in the 35% tax bracket DOES pay taxes, even though he made no income! Why? Because Obama's new plan is even taxing the income that is given away to an IRS approved non-profit. This person in the 35% tax bracket, on Obama's plan, has to pay $7,000 in taxes on this $100k, even though he shows making no income (because he gave it all away). So now this person can only donate, roughly, $93,500 because he has to save the balance to pay the tax.

On this scenario, non-profits are shortchanged 7% and the generous person in the 35% tax bracket is required to pay taxes on money he doesn't show as income and does not keep for himself. Local non-profits who do not receive federal aid are hit hardest... theoretically, the federal government is removing resources from these non-profits (which is why many non-profits say this is the wrong tax-deduction to remove, especially in a hard economy... there are plenty of other loopholes that the mega-rich have setup to avoid high taxes that the $200k income earner cannot get.... but I digress).

But wait! When Obama raises the 35% tax bracket to 39.6% (as I understand the propsal), then non-profits are not shortchanged 7%, but nearly 12%! That they are comparing the 'tax break' to today's tax brackets and not to the tax brackets that are tied up with this 'tax break,' is also misleading.

Now go back and read Orszag's comments in light of this and how he confuses the reader with his numbers about a so-called "tax break." Does this sound odd to you? Why not just say it like it is? It's not reducing a tax break, as you don't get any benefit from the money you generously give. It's rather a program that says generous money must come from taxed money. Plain as that. It is a taxing on generosity.

The government is free to do this. And I must admit that over this past year, we probably donated more taxed money than non-taxed money (because many local needs are not related to an IRS-approved tax-deductible organization... like the hungry neighbor down the street or the teenager that needs counseling.)... we do our best to donate to needs, not based on whether we can write it off.

But while the government is free to do this, at least call it what it is. It is not reducing a huge "tax-break" for the wealthy. It isn't a tax-break at all. It is taxing donated money. Calling it a "tax-break" is, from my perspective, about as laughable as reducing the sentence on an innocent man and calling it "compassion."

For the sake of clarity, it isn't the taxing of generosity that bugs me most (though I run a non-profit and am not thrilled by the news). What bugs me is the deception and injustice and preying on people who don't understand the system, creating a happy populist or happy majority who march to the beat of the drum without understanding what is going on. If this is the best way forward, then be clear and plain. When deceptive words come into play (think Wormtongue), we should be suspicious that something more is going on.

As I do work for Soulation, I am aware that damaging the soul and being inappropriately human can happen at any level of life: rich or poor, healthy or sick, ivy-league or high-school dropout. We have a choices to be transparent and truthful; and choices to cloak our langauge to persuade people less informed (called, "lying").

When any public official misleads the public, this damages his own soul. And we should be concerned, at the end of the day, not only with the economy and poverty, with national security and public museums, with creation-care and energy independence, but also that those who lead and those who follow are not become people of the lie. Our politicians (and those who work for them) have souls too. And when they twist their souls to aid their money-goals, it is not creating the "change" for a better life for any of us.

Tuesday, March 3, 2009

Government Soul: Taxing Generosity

I'm concerned for non-profits as we go into the Obama era. I understand the economic fix the USA is in right now: we all feel it. And I understand the need to remedy it. HOW we remedy it is up to the particular hired "experts" who have the power to push buttons.

While government is concerned about the needs of the poor (education, health), I've seen an unprecedented rise in justice work from religious groups, especially evangelicals. The poor are receiving aid and attention from every direction, including from the generous "wealthy" person. I'm very encouraged to see so much work by private citizens on the local level. This, to me, is the heartbeat of repairing many social evils in our world.

What does not receive attention so much from the government is soul-care and an answer to appropriate humanness from a religious (Christian) perspective. One one level we might say that a secular government may not find enough "experts" on their side to justify that a soul even why care for it? On another level if they did do this kind of work, they'd likely do it poorly. One reason I'm not in favor of public prayer in public schools is that it is likely children will learn horrible ideas about legitimate prayer. Better off letting students "feel" the secular vacuum than allow them to be misled that civil prayer fills it.

Obama's adminstration has some new tax strategies to help repair the deficit and "economy," all directed at people who make a little over $200k a year. It doesn't matter if $200k earners have a large or small family, living in high or low cost-of-living areas, or are already generous with their income to help people on the local level. It doesn't matter if they were responsible during this economic crisis and had practiced saving money rather than consumerism. Either way, the new tax strategy is to move money into the federal level to help with federal needs with the tools the feds have to decipher who needs help and who doesn't (after FEMA and Iraq, you can just for yourself how good these services will be), shouldered by hard working Americans who found success with their hands.

Regardless of how the government wants to tax, that isn't as much of the moral issue that concerns this post. What concerns this post is the rhetoric I'm reading, including disingenuous (intentionally misleading) comments. Yesterday's Wall Street Journal, page 4, has this article, "Charities Say Tax Changes Add to Pain."

Tomorrow, I will explain... but for now, share your own opinion...