The war to increase taxes on the rich keeps moving forward. The current battle is over charitable donations because they "relatively benefit high income earners."
Fredd Hiatt makes the case. I would like to dispute this notion.
Hiatt argues that when a high income earner makes a $10K donation to charity, it reduces his tax by $3.5K while if someone in a lower tax bracket makes the same donation, he would only reduce his tax by 2.8K (or whatever bracket he's in).
Here's what he neglects to mention. For the high income earner, yes, his tax liability has gone down by $3.5K, but is he really better off? It depends on what you consider the baseline. Hiatt considers the baseline to be paying the same tax rate on all income regardless of source and destination. This is really confusing, so let me offer an example.
Let's say Tom makes $500K per year. Let's assume he pays $150K in taxes. If he donates $10K, then his tax bill falls by $3.5K. So, in one respect, he's saving $3.5K, but don't forget, he's also just donated $10K. Let's look at how much money he has left over to spend on his big screen TVs and sports cars, though. Without a charitable donation, he has $350K to spend on himself while with the donation, he has $343.5K (500-10-146.5). Is he better off?