Don't End the Charitable Deduction!

Tea Party Economist

Recently by Gary North: Are the Billionaire Koch Brothers Economic Imbeciles? The Cato Institute Proposes a Test

This article was written by one of my subscribers. It nails the issue, and it nails the Cato Institute’s Dr. Mitchell, who systematically ignores the obvious.

In the past 15 years, I have made a lot of charitable contributions, with the total recently crossing the line to eight figures. When I retired six years ago, I decided I would give half of my future annual income to charity, and so far I have done that. So I can speak with authority about one man’s charitable motivation.

Let’s say that I still own some highly appreciated long-term-capital-gains stock, where my tax basis is close to zero. Under current tax law, if I sell that stock, I pay federal and state taxes totaling approximately 35% of the current value of the stock. So I get to keep 65% of the value of the stock.

If I donate the stock, I get federal and state income-tax deductions against my ordinary income (mostly interest and dividends) worth approximately 45% of the current value of the stock.

So, at the margin, it costs me only 20% of the stock’s value to put 100% of the stock’s value in the charity’s hands. Do I think that the charity can do more good with $100 than I could do with $20? Unless my charitable choices are really bone-headed, the answer is obviously “yes.” Can a charity do more good with $100 than government can do with $35? Here the answer is a resounding YES! Actually, the charity will do more good than government could do with ten times that amount, if you believe that government spending’s net effect on society is negative.

If I give cash, my marginal cost is currently 55% — much higher than 20%, but it’s still enough of a discount to motivate my giving. For various reasons, about half of my giving is in cash.

In the past few months, I’ve actually been thinking about how I would change my plans next year if the charitable deduction were to be limited. There’s no question that I would reduce my giving, stopping at the tax-deductible limit. That is in fact what I already do, since the 50% I now give is the maximum percentage of my gross income for which I can currently take a federal charitable deduction.

If the charitable deduction is capped or eliminated, will I scream bloody murder? No, the charities will do that for me. I can afford to wait for a new Congress and a new administration, and a better deal.

Dr. Mitchell is an imbecile, at least insofar as this topic is concerned. “The Rich” are not some amorphous class; they are individuals with real motivations and preferences.

December 21, 2012

Gary North [send him mail] is the author of Mises on Money. Visit He is also the author of a free 31-volume series, An Economic Commentary on the Bible.

Copyright © 2012 Gary North