Thinking of charities?

The tradition of  buying Christmas gifts–involving the decisions to loosen purse strings and use available credit–makes us especially receptive to appeals from those who seek help for needy people. If we feel we must buy gifts for relatives, we can surely put a little something in the red bucket.

And if we want to deduct a contribution on our 2010 tax return, we have to make the gift before the end of December.

What do you think of the following:

Having decided that charitable giving is a worthy cause, the government subsidizes charitable gifts from certain households, and for those chosen to be part of the plan, every dollar donated to a charity is increased by a specified percentage. To qualify, taxpayers must have a substantial home mortgage; the subsidy rate increases with taxable income. Low-income taxpayers receive no subsidy, but donations from qualified high-income taxpayers are subsidized by as much as 40 percent — or more.

This sounds ridiculous. The government gives more back for the same contribution depending on how much income the donor has, shifting the burden of the expense of government from richer to poorer.

But it’s what the federal income tax code already provides, as pointed out in today’s New York Times by Richard Thaler, a University of Chicago economics professor, who explains it pretty well. If you’re in the top tax bracket, a contribution of $1,000 to a charity will lower your income tax by $360. But if you’re in the lowest bracket, the same $1,000 donation will reduce your taxes by $150. Perhaps this bothers only economists. 

Simplifying our income tax system is incredibly difficult, a situation made more complicated because so many of our institutions (such as churches, hospitals, universities and social service organizations) depend on the charitable tax deduction.  As much as we all want tax reform, restriction or elimination of the deduction for charitable contributions–which is a part of every tax reform proposal–will dramatically change the way many institutions and organizations operate, affecting those who benefit from their activities.

Give now. People need help. And if you’re in the top bracket, I don’t mind if you give a lot.