End the Sophistry in Charitable-Gift Rules
By all means, the U.S. should preserve the federal incentive for charitable giving, but we should make one small change. We should take the incentive out of the tax code and, instead, send a check to those who make gifts to eligible institutions.
We should follow the existing procedure: If you make a gift of $100,000 and you are in the 35 percent tax bracket, your tax deduction is $35,000. In the future, you wouldn’t get any deduction; instead, we the people would send you a check for $35,000.
Under the current system, the lower your tax bracket, the lower your deduction. If you make a gift of $100,000 and you are in the 15 percent tax bracket, you get a $15,000 deduction. Under the new system, you would get a check for $15,000.
You might ask, “Where will we get the money to write these checks?” The answer is from the same place we get the money to pay for the deductions, the American taxpayers.
By the way, if we made this small change, the transactions would be transparent. Congress would have to appropriate the money to pay for the checks. It would be part of the budget, not an under-the-table transaction with no accountability for Congress and the presidential administration.
Some might observe that the current system seems somewhat perverse, increasing the incentive for charitable gifts as your tax bracket increases. Well, that appears to be the way we like it. Many voices have argued to protect the charitable-giving provision in the tax code. As far as I can tell, no minds have been stirred to ask, “What are we doing?”
(Paul H. O’Neill Sr. was U.S. Treasury secretary from January 2001 until December 2002. He was the chairman and chief executive officer of Alcoa Inc. (AA) from 1987 to 1999. The opinions expressed are his own.)
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