For some time now I’ve been seeing some folks gnashing their teeth and tearing hair over this tax reform bill that just passed. All manner of apocalyptic scenarios are being painted. There are three issues that I see lamented most often.
One is charitable giving. Some (even some news outlets) are saying that charitable giving is no longer income tax deductible, so people will stop giving. First off I think that concept is just silly: people don’t give to charities solely to avoid paying taxes on that money. But, getting that deduction is a nice perk for being generous. Curious about what the real deal is, I started searching for credible reports on what the new tax bill says about charitable giving.
I found many reports. Those from CNN, The Washington Post, The New York Times, the LA Times, etcetera only added to the teeth gnashing by claiming this new tax bill was pure tyranny. Forbes, InBuisiness, and Armstrong Economics posted accounts that were less inflammatory, and all said basically the same things. One of those things was that the charitable giving deduction was not being axed. But they disagreed on (or avoided) details. I wanted details.
To know what the bill actually says, it is best to just read the bill. I found it at https://www.congress.gov/bill/115th-congress/house-bill/1 it is available in several formats. The bill (in PDF form) is 185 pages long and lists changes to be made to the current tax code.
Wait a sec — these teeth gnashers are all calling this the Horrendous 495 page tax monster (forgetting that their pride and joy Affordable Care Act was over 33,000 pages long). I can only surmise that the 495 pages they are referring to is the tax code with the changes applied to it since the bill itself is not that lengthy. Or perhaps that’s the large print edition.
The key section concerning charitable giving is section 1306 which states that the income based percentage limitation is to be increased from 50% to 60%. Ummm … what?
To get an explanation of that I went to Committee Report: H. Rept. 115-409 which says:
`(G) Increased limitation for cash contributions.–
“(i) In general.–In the case of
any contribution of cash to an
organization described in subparagraph
(A), the total amount of such
contributions which may be taken into
account under subsection (a) for any
taxable year beginning after December
31, 2017, and before January 1, 2026,
shall not exceed 60 percent of the
taxpayer’s contribution base for such
(Note the column width: the tax bill is the same way. If it were formatted as a regular page or in two columns with normal margins, the bill would be around 75 pages long, not 185. Washington DC likes LOTS of white space — presumably because legislators don’t carry note paper with them).
What this is saying is that no tax payer may claim charitable contributions in excess of 60% of their A.G.I. (Adjusted Gross Income) – which does not seem unreasonable to me at all. Anyone who is giving away (and expecting to deduct) more than 60% of what they make is probably running a tax shelter.
And, there used to be a minimum percentage of A.G.I. that you had to meet to be able to itemize charitable giving at all. That seems to be gone.
So these rants about Trump strangling charitable organizations to death are pure bunk. Not only can you still deduct charitable giving, but it’s easier because there’s no threshold.
Another rant I see all too often concerns home mortgage interest. Many say that deduction is gone. It is not: Section 1302 limits the home mortgage interest deduction to $500,000.00 of indebtedness. If your mortgage is over $500,000 dollars you can afford to pay your own interest, you don’t need to expect American taxpayers to do it for you.
The third point often decried is property taxes. Again this deduction is not eliminated but capped at $10,000.00. And again, if your property taxes are higher than $10,000.00 a year you are wealthy enough to pay your own taxes (above the deductible $10 grand) instead of expecting me and all other working Americans to pay them for you.
What IS Gone
There are some deductions that have been eliminated: gambling losses (that exceed your winnings), alimony payments, moving expenses, personal casualty, unreimbursed employment expenses, and medical expenses are no longer individually deductible. These are all rolled into an increased standard deduction.
Section 1002 increases the standard deduction from $12,700 to $24,400 for married individuals filing a joint return, from$9,350 to $18,300 for head-of-household filers, and from $6,350 to $12,200 for all other taxpayers. So they’ve about doubled.
This reform is intended to be a first step toward a much simplified tax code. One such move is to reduce the number of tax brackets, which expands the range of the remaining brackets. The result is that many Americans will now find themselves in a lower tax bracket — meaning that less will be withheld from their paychecks so they get more take-home pay.
Another goal is to reduce the number of complex tax returns being filed. The chart below shows how the changes are expected to effect the number if itemized tax returns.
Only the Rich?
I find it interesting that detractors claim the tax reform bill helps only the rich and will crush middle-class America under the boot-heel of tyranny. From what I’ve seen by actually READING the bill, the truth is just the opposite.
- And then there’s this: http://www.latimes.com/opinion/op-ed/la-oe-mcqueeney-charitable-giving-under-new-tax-law-20171227-story.html