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Chairman's Report - November 2, 2018

CHARITIES WORRY AND WAIT

This is the title of a section in the Politico.com Morning Tax Report email.  According to the report,

  • Many charities are worried that some of the provisions of the new Tax Plan will reduce charitable giving;
  • Since the only way to take a charitable deduction on your income tax return is to itemize, they are concerned that the near doubling of the standard deduction and the cap on the state and local tax deduction will lead to fewer people itemizing;
  • Fewer people itemizing means that they believe charitable giving will decrease;
  • A U.S. Trust survey found that 88% of high-income donors are expected to maintain or increase their contributions this year.
  • The American Red Cross is advocating a universal charitable deduction available to all taxpayers, whether they itemize or not;
  • This universal deduction would potentially create another $100 billion in lost revenue to the Treasury. 

What the spokespeople for these charities are saying is that Americans will only give to charity if they are given a cash incentive from the income tax code, and everyone should be forced to subsidize the charitable donations whether they like it or not. 
 
Do Tax Rates Affect Charitable Giving?

Many representatives of charities tell everyone that will listen that charities will actually close if the charitable deduction is eliminated.   This is despite the fact that until this year, the deduction was only available to the 30% of taxpayers who itemize their deductions and in 2018 it will only be available to less than 10% of the taxpayers who are expected to itemize their deductions.
 
The position taken by these representatives of charities isn’t supported by history. Giving USA compiled the following chart showing charitable giving as a percentage of Gross Domestic Product:



The Philanthrophy Roundtable stated, “There seems to be something stubborn about that 2 percent rate.”

A report posted by the Committee For A Responsible Federal Budget, said that in 2011, of the $300 billion donated to charity, $125 billion was donated by people who did not itemize.  This relationship probably stayed close to the same in the years since 2011 and, if the 2% average continues, even more of the charitable donations will come from Americans who donate not because of a “tax deduction” but because they want to help.

WHAT IS THE REAL VALUE OF THE CHARITABLE DEDUCTION
 
According to the Tax Foundation, there will be an estimated 137,905,563 personal income tax returns filed in 2015.  The Tax Foundation estimates that 106,455,000 of those returns will pay taxes at a 15% rate or less.  The Motley Fool did an analysis of the 2016 tax returns and determined that the average percentage rate of federal income tax was 14.9%.

While these tax rate percentages will go down some in 2018, the fact remains that for all but the most affluent Americans, the charitable deduction provided only a small benefit.  For example, if a couple in the 15% income tax bracket donated $1,000 and deducted it from their federal income tax return, the couple would have received $150 dollars back for taxes already paid or owing and $850 of the donation would be from the couple’s income.  If they did not donate to charity, the couple would have had $850 to use for things like a family vacation. 

For many Americans the cost of paying an accountant to help prepare the more complicated itemized deduction schedule for their income tax return is more than the benefit they got from donating to charity.

CONCLUSION

It seems obvious that, based on the history of charitable donations, the thing that will help charities most is to more rapidly grow the gross domestic product of the U.S.
 
There is almost universal agreement that the U.S. GDP will grow more rapidly under a tax based on consumption, like the FAIRtax.  If the historical 2% average continues, the larger the GDP, the more that will be given to charity.
 
The Beacon Hill Institute did a study on the effect of the FAIRtax on charitable giving.  The report concluded, In the final analysis, the adoption of the FairTax would not decrease total individual charitable contributions. To the contrary, due to the price and income effects, among its other benefits, the FairTax would induce an increase in charitable contributions, subsequently strengthening the vitality of the charitable organizations that are so instrumental in their role in the U.S. society.
 
As humorist P.J. O’Rourke said, “There is no virtue in compulsory government charity, and there is no virtue in advocating it. A politician who portrays himself as 'caring' and 'sensitive' because he wants to expand the government's charitable programs is merely saying that he's willing to try to do good with other people's money.”
 
The FAIRtax provides the 90% who are not itemizing deductions on their income tax return the ability to donate to charity without paying any tax. 

It is time to PASS THE FAIRTAX!  

The truth is the truth.  Remember, if we don't continue to tell the truth and demand a change, then this quote from George Orwell's 1984 may foretell our children's future:

“If you want a picture of the future, imagine a boot stamping on a human face—forever.”


WHAT CAN EACH OF US DO


Call up the local or D.C. offices of your House Member and two Senators and you can use the following script:

  • I am sure that Representative ____ or Senator ____ is in favor of everyone obeying the income tax laws.
  • After they assure you that their boss is not in favor of anyone breaking the law, ask if they are aware of the Cebula study showing $9 trillion of evaded income/payroll taxes over the next ten years.
  • Since most will say they don’t believe their boss has seen the study, either drop off a copy or get an email address and send a copy to them for their boss.
  • Say you are going to call back in a week and ask what the Representative or Senator is going to do to stop this evasion.
  • In a week, call back and ask specifically what the Representative or Senator is going to do to enforce the law.
  • They probably will say their boss believes that simplifying the income tax will handle the problem.
  • Explain that when people evade income taxes, they are also evading the 15.3% payroll/Medicare tax and state income tax.  So it is unlikely that they are going to pay 30% or 40% when they were paying 0% because they have already decided it is okay to cheat.
  • Say that the only way to reduce evasion is to increase by tens or hundreds of thousands the number of comprehensive IRS audits done each year.
  • Point out that Evaders do not self-identify by putting an “E” on their income tax return.
  • 80% of the people likely to be audited are trying to comply, but they will be forced to endure these IRS audits as well.
  • Ask if the Member is in favor of this?
  • If they say no, then ask again how the Member proposes to stop people breaking the income tax laws.
  • Then explain that the way to handle evasion without unleashing the IRS audits is the FAIRtax.


If you can see your Member or attend a town hall and ask these questions, you can be even more effective. 
 

FAIRtax POWER RADIO


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AMERICA’S BIG SOLUTION - IN AN EASY TO CONSUME VOLUME

America’s Big Solution is a basic introduction to the FAIRtax and is meant for people of any age.  And you can download it to your tablet or smartphone right now.  It’s also available in print form.  See below.
 
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LINKS TO MORE INFORMATION

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