This page represents only my own views, and not those of any university or other body.
Posted Wednesday 11th April 2012 at 7.42pm
Charity
There are several more good points in this article by Mary Dejevsky. One such is about there being a limit on counting charitable donations against income tax. It's good, of course, to encourage giving to charity - but income tax is a kind of charity in itself and, I would say, a better cause than many of the "charities" that get large donations from people who are only donating to avoid paying income tax.
In fact forget the limit, I'm not sure charitable donations should count against income tax at all. Can anyone give me a good reason why they should?
(Charities would and will complain, of course, but in general I think a good test for whether a law should exist is to imagine we have never had it before and ask whether anyone sensible would suggest it now.)
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Comments
Posted Thursday 12nd April 2012 at 6.39pm
Rich says:
"There are not many ways of extracting more tax from the rich, but there are two. The first is the once-modish "flat tax" – which, contrary to common belief, threatens the rich more than the poor, as it removes opportunities for playing off one tax category against another."
I understand that she had limited space, but this seems like the sort of thing you can't just blindly assert. I'm not even sure what she means by "threaten" in this context.
Anyway, I'm not able to provide an answer to your question after only a few minutes thought, but is it really ever sensible to "only donat[e] to avoid paying income tax"? I've always assumed that the tax relief was for donations you were already going to make.
So if I was going to donate £100,000 to charity, and income tax was 40%, I'd be able to pay £40,000 less tax. But if I didn't actually want to make a donation in the first place, that's a damned expensive way of avoiding paying forty grand in tax!
But maybe I've got this arse about face. Since I'm both selfish and poor, this rarely comes up in my life!
Of course, assuming I am right, then I could see that there could potentially be problems with loopholes involving those "charities" you mention. But if they really deserve those inverted commas then changing tax laws seems a very roundabout way of fixing it.
Posted Thursday 12nd April 2012 at 8.26pm
Matt Roberts says:
I agree re the flat tax. That was not one of the "good points" I was referring to!
On charity, of course the original idea is exactly what you said: it's stupid to donate to avoid paying tax, because you have to donate more to save less. (But if you were going to donate it anyway, why are we giving you a tax break?) I think the problem is that people are paying for their kid's school to be done up, or their local polo club (stereotypes?) or whatever, so they get the benefit and don't have to pay tax. It's expensive but they get to feel the effects, rather than paying for some guy's welfare payments at the other end of the country.
As with many of these things I'm not sure cutting this law would make a huge difference to the national budget. It's more the principle... once someone brings it up, I think "what the hell is the point of this?"
Posted Thursday 12nd April 2012 at 11.15pm
Matt Roberts says:
Another option is to split the definition of charities, making schools, museums, sports clubs and so on into "causes" rather than charities. Donations to charities (the new, stricter class) are tax-deductible, whereas donations to causes are not.
Causes could still have whatever other perks charities get.
Posted Friday 13rd April 2012 at 12.02pm
Matt Roberts says:
There's an article here:
http://www.guardian.co.uk/commentisfree/2012/apr/12/tax-avoidance-defence-super-rich
expounding the opposite view from mine, but which doesn't change my mind at all. (It makes a point about Tory hypocrisy that I agree with but that doesn't affect whether it's a good idea to change this law.)
Posted Tuesday 17th April 2012 at 1.29pm
Matt Roberts says:
And another article on my side:
http://www.guardian.co.uk/commentisfree/2012/apr/16/charitable-giving-tax
"If a basic-rate tax payer – ie 87% of the population – gives £1, the state adds another 25p in gift aid to the charity, but the donor gets no tax relief. Only 40% or 50% tax rate donors can claim a personal benefit and get their tax bills cut. Since those in the bottom 10% give a higher proportion of their income than those in the top 10%, that seems unfair."
I didn't realise this! I knew gift aid existed, but I assumed it was just a quick way of saying "well, I *could* reclaim this from my income tax but I'll just let the charity do it for me" - I didn't realise basic rate taxpayers didn't even have the option to reclaim their tax! That makes it even more ridiculous that higher rate payers do!
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