Friday, October 5, 2012

Deductions, charity and shredding the safety net

At a time that GOP dogma requires massive cuts to social programs like Medicaid and food stamps, Romney is advocating essentially eliminating the tax deduction for charitable donations.  A limit on deductions of $17,000 would squeeze lots of people who itemize, as the average total deduction for itemizers is $26,000.  If someone who currently deducts $26,000, including charity along with mortgage interest, health care costs and state/local taxes, no longer has an incentive to engage in tax-advantaged behaviors after they hit $17,000, it stands to reason that some number of people will do less of those behaviors.  As health care costs, mortgage interest and state/local taxes are somewhat difficult to change, it stands to reason that charitable contributions might be in line for a big hit.  Charity organizations would be less able to handle the increased demand for their services that would arise from the proposed cuts to the safety net.

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