The Moral Taxpayer
It’s the end of the year, so I hope that if you haven’t done so already, you’re considering giving money to charity. Two years ago I wrote a comprehensive post on why charitable donations are excellent Christmas gifts, and I stand by much of what I said in that article. But beyond charitable giving bringing you closer with your family and giving you that warm, fuzzy feeling, it can serve you come tax time.
Most people know that your charitable giving is partially tax deductible. For every $100 you give to charities (specifically 501(c)3 organizations), you’ll get about $50 back on your taxes. Not bad! I always took this rule as granted, but recently, I’ve started to wonder why it exists. The incentive behind a tax deduction for charitable giving is not unique to America, but there aren’t very many countries that do it. So why do we?
Ideally, the government would have both the willpower and the resources to help the country’s poor. Actually in an ideal world, all governments would band together to help the world’s poor, not just the citizens of one’s own nation. It shouldn’t surprise anyone that we don’t live in that world. In the real world, we rely on the generosity of those who have to provide for those who have not.
In 2017, if all things go according to plan, taxes will be lower for many Americans. Bizarrely, both the President-elect and the majority of Congress wish to slightly raise taxes on the poorest Americans. While I’m not debating the merits of the plan (there are many others out there to do that), I’m grappling with my own role in this new America. If President-elect Trump gets his way, my taxes will certainly decrease.
His plan calls for business owners to be taxed at the capital gains rate. The majority of my income comes from businesses, so I can expect my tax rate to decrease from about 30% to 15%, a 50% drop! My husband will still be taxed the same since he works for others, so all-in-all our combined tax rate won’t decrease quite so dramatically. But none-the-less, we’ll be ostensibly better off (all else equal).
As a concerned citizen, and one who generally disagrees with lowering taxes on wealthy Americans, what am I to do? I cannot legally pay more taxes than I owe (rumor has it that Warren Buffett has tried, considering he is a large proponent of the super rich paying higher taxes). So as the coffers of the federal government run dry, who will be there to make up the difference?
Non-profit organizations that deal with issues in health & human services, education, and wildlife protection will have a larger burden to take some of the responsibilities from government agencies that may be bled out. I see it as my responsibility to (at a minimum) use the money I would have paid in taxes to prop up many of these organizations.
Should you do the same? I can’t say. Beyond the realm of personal finance, taxes and charitable giving are moral issues. There isn’t a one-size fits all solution. Those who believe in small government tend to think their taxes are too high, and they should get to keep every dollar they take away from the feds. But what if you think your taxes are low? Move to California. You won’t feel that way for long.
In all seriousness, I’ve written about taxes before. That post was designed as a way to help you save money on your taxes (which I still believe you should do). Using every loophole you can to your advantage is not immoral as many people believe. Rather, it helps expose massive flaws in the tax code, like the loophole that got closed regarding carrying massive losses forward that Trump used in 1995.
To be perfectly honest, there are many things the free market cannot do, and a robust and well-oiled government is absolutely necessary to preserve civilized society. Recent experiments with for-profit colleges and prisons are clear proof. But could the government be leaner and equally (if not more) effective? Yes. Unequivocally yes. If you think the government spends every dime as well as it possibly could, clearly you haven’t heard about the General Services Administration’s $800,000 party fiasco.
So I tend to think it’s a balance. I use every loophole I’m eligible for to my advantage, but I also don’t greedily hoard that money for myself. Even if you don’t want to calculate exactly how much money you’re saving on taxes in 2017, do the world a favor and spend a little more on helping others. And you want to know the weirdest part about using your tax savings to give to charity? It’ll even further decrease your taxes for the following year. Now that’s a loophole I can get behind.
Nathan is the Chief Financial Advisor at Monte Largo Financial