Working on my taxes recently reminded me of a fun discussion I had with the late Stephen Williams, a judge on the United States Court of Appeals for the District of Columbia. (He’s pictured above.) I never met him and we mainly corresponded by email. After I told him that in December 2017 I had doubled my usual charitable contribution to the Institute for Justice so that I could get the tax deduction one last time (due to the 2017 tax cut law), we went back and forth.
Here’s the email thread with Steven in box quotes:
Last chance for taking deduction because of increase in the standard
deduction/exemption?Steve
Yes on both. My state and local tax deduction is limited to $10K, our mortgage balance is so low that our annual mortgage interest is less than $3K, and my normal charitable deductions are around $2K. So I don’t come close to $24K.
Best,
D.
So here’s the big question on the tax-elasticity of donations: Will you maintain your historic level? (Of course one swallow doesn’t make a summer, or one donor a supply curve.)
Steve
Dear Steve,
Hey, I thought I was talking to a judge, not a literate economist. 🙂
That IS the question, isn’t it. I’m not sure of the answer. 2019 will tell. One little difference I’ve noted already: In 2018 I’ve given small amounts (I think $50 in each case) to 2 go fund me sites (one a woman who is a friend of a friend of a friend facing cancer with few financial resources and one a state employee in Montana who quit his job rather than cooperate with ICE in turning in workers). I probably would have given to neither of those causes but instead would have looked around for a tax-deductible charity that mimicked, as close as possible, the same ends. Not worrying about the tax consequences felt strangely liberating.
Best,
David
I especially like your last sentence!
Steve
As it turns out, I was back a little higher in 2019 than in my normal pre-2017 charitable contributions.
I said time would tell. Well, 2020 shouted. Going through our charitable that can be deducted, I found a little over $3,000. But my wife and I each gave between $3,000 and $4,000 to various people who suffered hardship because of the lockdowns. And yes, it was strangely liberating to do it with no thought of tax consequences.
READER COMMENTS
James Oliver
Mar 17 2021 at 5:10pm
I do all my charitable giving in alternating years because of our silly tax code.
Alan Goldhammer
Mar 17 2021 at 7:36pm
If you are retired and have a sizable distribution from an IRA you can make qualified donations to 501(c)(3) charities and get the full extent of the donation up to $100K. You deduct the amount donated from your IRA pay out which decreases your tax liability. We did this two years ago but do not need to this tax year as IRA distributions were not required. You get this deduction ‘in spite’ of the higher standard deduction and for those of us who have IRA payouts it’s very useful in reducing tax liabilities and getting credit for giving to charity. There is some paperwork that you need to do with your IRA custodian.
David Henderson
Mar 17 2021 at 9:09pm
That’s hugely valuable. Thanks so much, Alan.
Philo
Mar 17 2021 at 11:17pm
Yes, thanks for the tip. But what a ridiculously complicated tax system, and how many creative ways there are to game it!
Alan Goldhammer
Mar 18 2021 at 9:04am
It is disgusting and real estate developers are the worst. They create multiple LLCs to shield losses from their personal wealth. Don’t even get me started on the loophole for private equity. Corporate income tax is a total waste as it is often gamed and is a decreasing amount of total government revenue. My wish is for a simplified system with maybe one or two brackets, elimination of the corporate income tax and implementation of a VAT in its place. Eliminate all tax preferences. the bizarre plans from Senator Sanders and Warren are just stupid.
Thomas Hutcheson
Mar 18 2021 at 8:08am
Not favoring charitable contribution consumption at all would be equally “liberating,” but I favor a different policy, favoring everyone’s contributions equally with a partial tax credit rather than a deduction.
David Seltzer
Mar 18 2021 at 5:10pm
I suspect donations would increase at a decreasing rate as a function decreasing tax rates. Would that be offset by individuals increasing charitable donations as a matter of choice.
robc
Mar 19 2021 at 6:48am
While I can’t see it would be the same, as it has been more than a century, I think looking at the charitable giving rates before the income tax would be a good starting point for a guess.
Comments are closed.