Charity and Government

Charity – people with means donating money and/or time to help others – is a lot more complicated than simply writing a check at the end of the year to your favorite organization. The ethics behind why people give is a question that has been debated by great thinkers for thousands of years. This is a huge topic that we could spend the next year discussing and debating. But for today, I want to focus on the role of charities in relation to the role of government. A separate post is needed to delve into international assistance issues, so this post will focus on domestic charities only. Government is here to help people. Government helps people by providing safety through police, firefighters, a military, roads and a system of law and order. Governments also help people who fall on hard times through temporary programs such as food stamps, WIC and TANF. And collectively, we as a society through our government, help those who cannot help themselves through programs such as free lunch for school children and disability assistance for those who cannot work. However, in such a large society stretching from sea to sea, there are some people who fall through the cracks. Regulations sometimes prevent certain people from qualifying for some assistance programs despite a real need for food or housing assistance. Despite the best efforts of local, state and national governments, some families are unable to feed their children or are forced to choose between medicine and paying for heat in the winter. In these situations, charities step in and help those in need. Charities step in to support people who slip through the holes in government safety nets. Sometimes charities step up before the slow wheels of governments are able to begin programs. Soup kitchens and food pantries were set up during the Great Depression, and then FDR started the New Deal to help people find employment. The food stamp program was set up in the 1930s and then again in the 1960s to help those who could not afford to feed their families. And despite this and other programs, hunger still lingered in America. Which is where charity comes in. Charities help those who are still in need of assistance or do not qualify for government assistance. Our ultimate goal, shared by both authors of this blog, is for charities and government assistance programs to become obsolete because everyone has all that they need for a fulfilling life. But until that day, government is responsible for its citizens well-being. There is an implicit social contract signed when citizens pay their taxes and follow the laws of the land. And where imperfect governments are inadequate, charities will continue the good work of filling in the gaps while like-minded citizens work for a better government for all people. As this holiday season is upon us, I urge you to find a charity that you believe in, that you believe makes this country and this world a better place. And I encourage you to give your time, money and support to them, so that we can all work together for the betterment of everyone.

Our government is the most powerful charitable organization in the world on two counts. First, it has the unique power to tax and give. No other charity can coerce giving into its coffers; additionally, the government has absolute control over how and where the distributions occur. Second, the government motivates the majority of voluntary giving by offering tax deductions as a reward for contributions to non-profit causes. In a nation of “choice,” we are forced to give money to the tax man who donates our hard earned dollars to whatever causes are approved by bureaucratic subcommittees that are staffed by Beltway highbrows, Ivy League intellectuals, trust fund babies and other do-gooders who are totally disconnected from the real world. I thoroughly support the way that tax deductions motivate giving to non-governmental charities. Choice in giving creates a competitive environment, wherein charities must demonstrate practical value, socially constructive output, or, at a minimum, valuable ideas. The government’s form of giving is cumbersome, complicated, can not be influenced in explicit ways, and is protected by layers of incumbency and bureaucracy. I suggest that we maximize the motivation and the output of private, competitive giving and minimize the taxation that translates into charity. As individuals, I believe we are more than physical particles, and that our formless souls are created to experience positive consequences when we engage in selfless action. That is why we appreciate heroes, why we value sacrifice, why we feel good about saving the kitten from the tree. It is why we love and trust firefighters and soldiers and sometimes police officers. I am quite certain it is also why we enjoy giving. John Stossel’s latest report indicates that there is some psychic and even physical reward for giving, and I am persuaded to believe it. If it is the thought that counts, then oftentimes, giving in December should not count, because we may be after a quick tax deduction, but try telling that to the directors and presidents of those charities that depend on the gifts to continue their work! Besides, people truly do like giving, even if it as simple as non-deductible pocket change for the bell ringers outside the grocery store. We appreciate that in our season of family and religion, there are others that are not enjoying the season as much as we are. I hate the phrase “giving back,” because what I have was earned either by myself or my family before me, but I love the word “giving,” because in that word exists all the power and reward associated with sacrificing our time and money for someone else’s enjoyment. And that is what makes this such a Wonderful Life whether your Christmas Story is a Christmas Vacation, a White Christmas, or just a Miracle on 34th Street.

The Alternative Minumum Tax

AMT is Fine with Me The alternative minimum tax, created in the 1970’s, is a good idea at heart. With a bit of tweaking, it’s a fair way to make sure that those who make the most money pay their fair share of taxes. The AMT was created because there were loopholes in the tax code you could shove a whale through. The intent was to make sure that the top one percent or so of Americans could not hide their earnings and avoid their civic duty of paying taxes. It sets up a minimum amount, around 27 percent, that the richest of the rich had to pay even if they do their best to get out of it. Since the AMT was created, however, it has not been adjusted for inflation meaning that it is beginning to hit households that make around $100,000. And in the next few years, more and more households, some only making $75,000 per year will be hit with the ATM. Now, I firmly believe that taxes are a necessary part of any government. We, as citizens, expect a certain level of protection and services from the government – whether it is a military to protect from foreign invaders or a system of roads and highways to connect 3,000 miles of land from sea to shining sea. And those services cost money. And everyone has to pay their share. And in a progressive society, the poor pay very little, if any taxes and the rich have to pay a slightly higher percentage than the middle class. Some might say that to whom much is given, much is expected. I take a bit more practical approach. If our armed forces are protecting six of your houses and the navy is protecting 3 of your boats, it is reasonable that you have to bear a little bit more of the cost. The AMT was created because some of the uber-rich were trying to get out of paying their share. And while $100,000 is a good chunk of change, the AMT was not designed to affect the upper-middle class. So let’s get back to the point of the AMT. Let’s tweak the law so that the top percent or half a percent has an alternative minimum tax. And let the rest of Americans pay our fair share as well.

Get Rid of the AMT The Alternative Minimum Tax was designed to keep super rich folks from skipping out on their tax burden. It creates a whole new tax regime that must be calculated separately from the typical income tax. Thanks to Congressional forgetfulness the income brackets that are affected by this tax have not been raised appropriately over time, and by 2010 projections suggest that over 30 million households will be affected. Unless America is more prosperous than even I think it is, we do not have 30 million super rich households in the US. In fact, the income bracket hurt most by this tax is between $100.000 and $500,000. Granted, these are substantial incomes, but remember, this tax was designed to hit the rich folks from sneaking deductions in and not paying taxes. Instead, the tax is hammering households that have either two working parents who have good jobs or upper middle class families. Simply put, the AMT must be calculated separately from the income tax, if the AMT is higher, than you have to pay that number. The highest income tax bracket in the US is 35 percent, while the highest AMT bracket is 28 percent. Thus, people with extremely high incomes will end up paying more in regular income tax because most of their income falls into the 35 percent category. This means they miss out on the joy of paying the AMT. The AMT is also notoriously complex, it disallows many deductions and income exemptions that the income tax allows. For instance, interest on nongovernmental purpose bonds issued after August 7th, 1986 that is excludible from gross income for regular tax purposes must be included for the AMT, companies must disallow deductions from amortizations of pollution control facilities, and individuals impacted by the AMT lose their deduction for having a hybrid automobile, Everyone agrees that the AMT must be reformed, but the question is how. My question is why. Why bother? Get rid of the thing. It is cumbersome, expensive to administer, and does not even affect its target tax market. The nation spends billions to properly file their income tax returns, and there is no reason to add another burden to our citizens. If you disagree with me, then try a simple experiment…get married, have 2.3 kids, work hard, make a lot of money (this is key – broke people do not have to worry much with taxes), love your spouse, try to spend time with your kids so they turn out okay, and then try to do your taxes (AMT or otherwise) yourself. This is what the bulk of productive households in the US face every year and then bureaucrats and think-tank do-gooders who can not relate tell them that taxes are not really burdensome to file. Get real, and get rid of the AMT!