HOW TO LEARN THE ART OF DEDUCTION CODE

HOW TO LEARN THE ART OF DEDUCTION CODE

Collecting a little less in tax revenue, the paper argues, was perceived as a small price to pay for keeping those obligations off the governmentвЂ™s balance sheet.ДЄround the time of World War II and in the high-marginal-tax-rate years that followed it, changes to the tax code meant that the tax incentives got a lot bigger. The deduction, they reasoned, saved the government money: If philanthropists stopped funding research, museums, libraries, and programs for children, then the government would have to do it. Up through World War II, thatвЂ™s how people thought about the charitable deduction. So the 1917 War Revenue Act was amended to protect donations to вЂњcorporations or associations organized and operated exclusively for religious, charitable, scientific, or educational purposes, or to societies for the prevention of cruelty to children or animals.вЂќ Lawmakers were worried that would kill private foundations, forcing the government to take over for them when it could ill afford to.

But then America entered World War I and the income tax was expanded dramatically - and the top tax rate was quickly raised all the way to 67 percent.

In the first year, fewer than 1 percent of households were subject to it. The income tax itself started out as a very small tax. Thus, the deduction for charitable donations, designed specifically to make sure rich people would keep donating to their foundations even after the enactment of the income tax. (The Rockefeller Foundation funds Future Perfect, this section of Vox.) When it did, lawmakers вЂњsaw philanthropists as a source of social capital that should be protected from the new tax on high incomes,вЂќ the report writes, вЂњlest the government find itself having to pay for programs philanthropy had previously funded voluntarily, out of the donorsвЂ™ own pockets.вЂќ Andrew Carnegie and John Rockefeller both founded their famous philanthropic organizations before the 16th Amendment - which made it legal for the federal government to assess an income tax - came into law. When philanthropy got started in America, there was no federal income tax. A short history of the charitable deduction ItвЂ™s important to think about whether our laws are still shaped by attitudes about philanthropy that, on the whole, we have grown to reject. Very few people today think itвЂ™s morally better for hospitals and libraries to be provided through largesse from billionaires than through public funding. Our attitudes about charity have changed, too. The world of nonprofits and philanthropy has changed dramatically since the early 20th century, when charities really were funded near-exclusively by the ultrarich. But how we enact the charitable deduction matters, and so does how we think about it. It might seem like thereвЂ™s not much to learn from tax code history thatвЂ™s a century old. Thinkers of the time believed it was better for services - like libraries, universities, and aid to widows and orphans - to be provided by the rich out of generosity than by the state out of necessity, so they set up the tax code to enable that. Its conclusion? вЂњThe contribution deduction was created to protect voluntary giving to public goods by rich industrialists who had made their fortunes in business,вЂќ the paper argues. Charitable-Contribution DeductionвЂќ by Nicolas Duquette of the University of Southern California takes a comprehensive look at the policy history of the charitable deduction since it was introduced in 1917. The paper, вЂњFoundersвЂ™ Fortunes and Philanthropy: A History of the U.S. Critics responded that theyвЂ™d made the tax deduction a deduction just for the rich.Д«ut a new paper published this week in Business History Review argues that throughout its 100-year history, the charitable deduction was always aimed primarily at benefiting the rich.

The 2017 Republican tax bill made even fewer Americans eligible for the charitable deduction by hiking the standard deduction. Unless you earn a lot of money, it makes no financial sense to do your taxes in a way that lets you claim the charitable deduction. The way the charitable tax deduction is set up, lower-income Americans canвЂ™t really take advantage of it. In the United States, if you donate money to charity, you can вЂњdeductвЂќ it on your taxes - that is, you donвЂ™t have to pay taxes on the share of your income that you donated.

How to learn the art of deduction