It would be to a pointReader comment on: David Koch on Taxes and Ballet Submitted by ben (United States), May 17, 2010 20:54 But people still need money to live on. They need to buy a car, a house or save for retirement. If a person feels that he needs X dollars to sustain his desired quality of life, then he will cut back on charitable giving and pay more in income taxes to insure that he has X dollars available. There is no similar need for a dead person. The only competition for the dollars in a will are between charitable gifts and inheritance. Take a hypothetical. A person dies with one billion dollars (that would be nice. .. ). If the estate tax were 99.999999%, with unlimited deductions for charitable purposes, this person would give every dollar to charity, rather than giving 10 dollars to his son and 999,999,990 to the government, right? What if there were no estate tax at all? I would guess that this individual would not give all billion dollars to his heir, perhaps he would split it, or divide it up in some way that is not all or nothing. Now, let's look at the income example. For the sake of clarity, suppose the tax rate is going to jump to 90% instead of 39.6% (the same effect would apply in either case, but obviously less pronounced). A person - call him Barack - with an income of 1m dollars will pay 350k in taxes at 35%, or 900k in taxes at 90%. Previously, Barack had been giving away 500k a year to charity, meaning that his spending money at the end of the day was (1m - 500k)*.65 = 325k. This can support his mortgage, saving for a house on the Vineyard, a nice car and being able to order off the menu at the wine bar. Imagine now that when the tax rate jumps, his charitable giving remains the same. Now he has (1m-500k)*.1 = 50k to spend. He no longer can support his lifestyle. What should he do, probably cut back on his charitable giving. Even though he is relinquishing power over his money, he needs a certain amount to keep his house and take a vacation. By eliminating his charity, he now takes home 100k, twice what he did. Perhaps a selfless person would still decide to give the same amount and move in with his parents, or better yet, give all his income and live on the street, thereby retaining control of his money and which museum gets it. But most wouldn't I would think. In both examples, the person is making a rational choice based on increased tax rates for estate and income taxes respectively. The effect however is different. With the estate tax, the result is the person giving every dollar to charity. In the income tax case, the result is the person eliminating all charitable giving. Note: Comments are moderated by the editor and are subject to editing. The Future of Capitalism replies: Illuminating, but try it using the same rate, and same income or wealth equivalent, in each example. How does that change the scenario? Is the variance in behavior based on whether the tax is on income or estate or on the other two variables? Submit a comment on this article Other reader comments on this item
Comment on this item |
Follow Us On:
ADVERTISEMENT |
