Let's go with the 90% on the estate tax
Submitted by ben (United States), May 17, 2010 22:43
To be in the top 1% of wealth in 1998 you needed 10m in assets. To be in the top 1% income you needed to make a little over 1 million. i am rounding here, but that is ok. Let's take an extreme tax rate, say 99%. Under the estate tax, Barack could give 10 million away to his charity of his choice, or leave 100k to his child and give the other 9.9m to Uncle Sam. Hmmm. I would imagine it would all go to his charity - he would retain control over all his dollars. Could he give 50k to his son and 5m to charity, sure, but the charitable tax break on inheritance clearly pushes him towards giving more to charity at the expense of his son.
What about the income example. He can give all his money to charity and starve to death (perhaps if he gave to a soup kitchen they might let him in!), or he could give nothing to charity and have 10k to buy food and perhaps a pair of jeans. To have the bare essentials for life, a rational person would forgo all of his charitable giving to stay alive.
Once again, inheritance taxes increase charity, but income taxes decrease it.
But don't take it from me. The CBO wrote a report in 2004 analyzing how decreasing the estate tax would lead to LESS charitable giving (the flip side of course is that by increasing the tax, there would be more giving). The head of the CBO at the time of the report? Douglas Holtz Eakin. I think he worked for McCain.
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The Future of Capitalism replies:
I'm not sure I agree with your argument that higher inheritance taxes increase charity but higher income taxes decrease it. But suppose I did -- would it be an argument for lower income taxes?
I don't know what I'd do in the 99% inheritance tax situation but I think I'd be tempted to give my kid the $100,000, partly just as a protest. The "control" with a charitable gift is often just an illusion. Once the charity has the money or goods it often does whatever it wants with it, especially if the donor is dead -- deaccession the art given by the donor, turn itself into a left-wing group (Ford Foundation), you name it.
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