It would be much better if there was just a lower tax rate and no deductions at all. Then everyone would stop complaining about people giving their own money to whomever they choose.
It does, but not consistently. Different principles and objectives are at work. Just because we have a progressive income tax system, there is no demand to apply wealth-based distinctions consistently to every behavior and benefit. Taxing everyone’s income equally at 15% would directly harm poor people. Incentivizing charity does not.
“I think money is better spent at Harvard than at Podunk U.”
Why – don’t kids at Podunk U deserve pleasant dorms, new science labs, better library facilities, scholarships? Or are they not worthy of anything since they aren’t Harvard-smart? It’s a big world out there.
I have a friend who donated substantial sums to Yale and Columbia, where he attended. The donations were politely received, but they were just another day at the office for the development officers.
One year, he decided to divert his money to Cooper Union. Cooper Union had enabled his father, a waiter at the time, to attend free, which gave him the opportunity for an office job, which resulted in his kids being able to attend selective schools (two kids: one a doctor, the other a lawyer). He says that the same sum that Yale and Columbia accepted, as a matter of course, were enthusiastically received at Cooper Union
I know Cooper Union is not Podunk U, but still . . .
Why not create a tax but give the school an option to avoid the tax.
Schools with endowments over say a billion should be responsible for self funding:
- all their “federal” money due students
And:
- guarantee minimum levels of economic diversity in student body
- fund First Gen programs with proper support
- fund scholarship programs for students who serve 1-2 years for their country (such as teaching)
- fund retraining programs for the local workforce at community colleges to stimulate economy
- etc
The cost of the programs they participate in would equal the tax they otherwise would owe
Here’s an alternative:
Leave everything alone as it is right now, because the current system works just fine.
No. The current tax system doesn’t work fine. The current system is not economical. The current system is full of bribes.
Wow. Other than maybe some hedge fund managers who like “carried interest,” I can’t think of anyone, on either side of the aisle or within 100 miles of an aisle, who thinks the current system works just fine. Just wow.
Not sure if the everything is fine comment was talking about the entire US tax code or just the subject of the OP which is whether tax deductions should be available when making donations to schools with large endowments.
I was talking only about funding of endowments. The current system is fine IMO.
My point w.r.t. to Harvard vs. Podunk U is that my contribution can be used by top notch scholars and super smart kids, especially those from under privileged background. I am not sure it is a good idea to push unqualified or unprepared kids to Podunk U, especially if they have to take on a large loan. They’d be better off by being an auto mechanic.
^^^ Now it’s my turn to say “wow… just. wow…”
A large percentage of the gifts at places like Harvard are (somehow, my grammatical sense tells me that the “are” should be “is” but “os” sounds wrong) directed to specific pursuits/schools. I gave a modest sum to my father’s alma mater. My father was a very poor, brilliant Jewish student growing up in the Depression who got a full scholarship at a school that was widely known to discriminate against Jews. He was a physics and math major and was planning to teach HS math because he knew the math teachers retained their jobs in the Depression. His professor told him that he wasn’t going to do that because he was just too good a student and my father went on to get a PhD at one of the best schools in the country and to have a distinguished career as a theoretical physicist. My father felt very grateful to his alma mater for enabling him to get started and guiding him. So, I directed that the gift was to provide a scholarship each year for a financially needy but promising senior studying physics. My gift would be counted in the school’s endowment but would not be available for any other purpose.
@katliamom, I think @hzhao2004 clearly overstated the point, but if you want your money to have impact by, say, funding advances in genomics and turning genomics into medicine, it is probably a much better investment to provide $600 MM to the Broad Institute (of MIT/Harvard) as I believe Eli Broad and his wife have done than to give it to many other schools or spread it around to many schools. The Broad has hired some of the best scholars, which attracts some of the best post-docs and grad students, which collectively produces great research, which collectively draws lots of grant money and cycles through to attract more of the best scholars who want to work with the best scholars, and so on. It would be a lot harder to have the same effect by giving the $600 MM to Fairleigh Dickinson University or Wake Forest University.
If your objective is to fund college tuition for many kids, you might do it very differently.
On the political side, I think we should have a simple progressive tax and no individual deductions. This would take the social engineering and social steering and favoritism out of the tax code. One would still have to deal with how to tax corporations – if you were taxing them, then there is a question as to which expenses are deductible or not. This would shift some of the debate back into the corporate rules. If, as the Wall Street Journal and cronies suggest, we had no corporate tax, we could have higher individual rates and no one would benefit from tax deductions.
On the flip side, I suppose one could argue that private funding has made a great contribution to the US having the best universities in the world. A lot of our national wealth at this point is being created by firms in the tech world largely emanating from Silicon Valley. Silicon Valley exists because Stanford is there. Hewlett and Packard got degrees there and at least one taught there. Think: Google, Yahoo, Sun, Cisco, NVidia, Electronic Arts, Dolby, Cypress, LinkedIn, Silicon Graphics, etc. A study commissioned by Sequoia Capital estimates that companies formed by Stanford entrepreneurs generate world revenues of $2.7 trillion annually and have created 5.4 million jobs since the 1930s. See http://news.stanford.edu/news/2012/october/innovation-economic-impact-102412.html. It is not unlikely that switching to government funding for universities would have led to a lot less economic value creation than enabling universities like Stanford to both foster an entrepreneurial culture and benefit from attracting the best faculty and students.
So, if we were omnipotent rule-makers, we’d have to choose between a system with no charitable tax deductions and likely political direction of funding (which would probably be less meritocratic and have its own brand of cronyism) and a system that has generated lots of jobs and wealth overtime (but has a heavy dose of perpetuating the 1%).
@shawbridge, The individual income tax raised and tax expenditures are almost the same amount. This means individual tax breaks are about the same amount as income taxes. The number is somewhere around $1.4 trillion each.
Have you seen this?
http://taxfoundation.org/article/summary-latest-federal-income-tax-data-0
This is a list of adjusted gross income and average taxes paid for different income groups.
There has been an income tax increase since 2012 for higher income taxpayers so the average income tax rate paid has increased on the top end.
We can get rid of tax deductions and credits. We can set tax rates to mimic that chart so each income class pays the same amount of taxes as they did before we got rid of tax deductions and tax credits.
Taxable income would rise, rates would go down, after tax income would remain the same for each income group.
Those who rely heavily on tax deductions and tax credits would probably lose. Those that don’t would probably win.
People would still give to charities.
The tax credits and tax defuctions that exist were created by poitical direction.
No way we get rid of progressive tax rates with them engrained in the fabric of society. But if you were starting from scratch, why are they fair? If you make 10 times what I make, why isn’t it fair that you pay 10 times the taxes that I pay. One answer given is you can afford to pay more. But that is true of everything. Should you be forced to subsidize my food, housing, utilities, transportation, clothing, etc? There would be logistical issues with that (benefit of the government force with taxes is significant but doesn’t exist at the grocery store). But assuming those logistics can be addressed, is it fair to make those with more pay more for everything thereby subsidizing those with less? If not, why is it fair for taxes?
There is an element of progressive taxation in college funding as well.
“. I am not sure it is a good idea to push unqualified or unprepared kids to Podunk U, especially if they have to take on a large loan. They’d be better off by being an auto mechanic.”
Who said the kids at Podunk U are “unqualified or unprepared”? They just aren’t Harvard material, that’s all.
I have to say, @hzhao2004, the totality of your posts paints a picture of someone excessively prestige-focused.
@sailakeerie, don’t worry. There are regressive taxes too. 
@dstark But how many of those are taxes on income? Virtually any consumption tax will be regressive if you compare it to income because the more income you have, the less of your income you consume and thus the smaller percentage of your income you pay in consumption based taxes. Payroll taxes are on income but are capped with benefits of the applicable program being capped as well.
@sailakieerie, you complain about the progressive nature of our income tax but that is just one of our taxes. You should look at all the taxes. Overall, we have a progressive tax system but it isn’t that progressive.
A flat tax will lower taxes for the higher income group and raise raxes for the lower and many middle class people.
Is that what you want? It might be. A lot of people want that but they don’t have the guts to say that is what they want. Instead they cloud their arguments in bs.
As if in this country, the higher income people don’t have enough and the lower income people have too much. Yeah.