We all know that Congress uses our tax laws to effect policy.  It’s why we can deduct our mortgage interest (up to $ 1KK in mortgage principal), because Congress believes that it’s good for America when folks own their houses.  (Or, maybe Congress thinks it’s great that bankers can own our houses and make us pay at least 2X what we think we bought them to finally call that house our own.)

Or, that we could deduct money (now up to 60% of our taxable income) for charitable purposes.   Which is exactly what we are going to discuss today.

At least monthly, we hear about some donor provided a sh..load of bucks to a specific charity that makes us sit back and go wow.  The most recent one was Michael Bloomberg’s $ 1.8 billion (yes, it’s a B) to Johns Hopkins University, so that students won’t have to borrow money to go to college.

But, that gift is actually the big problem.  You see, you and me- we little folks, the one’s not in the top 5%, give charity to our churches, our synagogues, to NPR, to Mazon, and a bunch of causes that tickle our hearts.

That’s not where the top 5% (and certainly not the top 1%) spread their cash.  (Their money is directed towards higher education, hospitals, museums and other cultural organizations.)

It’s more than that.  Since the advent of the 21^st Century, we aren’t giving to charity.  In 2000, the US was comprised of about 105.5 million households; last year [2017], slightly more than 126 million households obtained.  Yet, the percentage of households that donate to charity dropped from 66% to 55%.   Which means the number of households that donate to charity has been essentially flat at 69 million or so.

At the same time, the private foundations have grown dramatically- by more than 20%- and the funds they control have grown by more than 62%.  Couple that fact with donor-advised funds (which have doubled in size just in the last 5 years), and where those funds don’t always end up in what you and I call charities, you can see the problem clearly.

At the turn of the century, those folks whose adjusted incomes were $ 200K or higher provided some 30% of all charity given.  Last year, that percentage had grown to 52%.  Moreover, those households that topped the scales at $ 1KK actually provided 30 cents of every dollar given (up from about a dime) to the various charities.

Remember when folks like Paul Ryan (among many other such mistaken politicians) said the government didn’t have to help the poor, because that’s what philanthropy does best?  Well, you and me- we give more than 35% of our charitable donations to such causes.  (And, 35% of our money is nowhere near what that percentage would be for the larger donors.)  Only 20% of our millionaires direct any of their funds to charities that aim to improve the condition of our poorer citizenry.

This situation is only going to get worse.  Prior to 2018, if I gave $ 1000 to charity, the after tax cost would have been about $ 800.  Those making $300K or more would have an after tax cost of less than $ 700.

But, now, we must recognize the effect of the Tax Cut & Jobs Act.  The law that will apply to individuals through 2026.  Not only have the tax brackets been cut, but our ability to deduct charitable donations is almost impossible, unless we are part of the top 5%.  (Or, if you follow my tax advice….)

Why?  Because the GOP attacked those states that vote Democratic.  Where the citizenry believes that education, help for the poor, and health care needs are important.  So, the state and local taxes are higher than in GOP strongholds.  (As are students’ educational achievements, I might add.)  Now, state-local-property tax deductions are limited to $ 10K a year.  In Alexandria, my old house (I’ve downsized) has higher property taxes than that.  So, any local or state income taxes would not be deductible.

But, it’s more than that.  Under the old rules, a family of four was entitled to personal exemptions of more than $ 16,000.  And, the standard deduction was $ 12K.  So, if one’s mortgage interest was $ 8K, property taxes were $ 8K, and state income taxes were $4K, the threshold was easily passed.  And, there would be an incentive to donate to charity (which increases the itemized deductions.)

Now, there are NO personal exemptions, and the deduction for both items is $ 24K.  Given the same situation, we can only deduct a total of $ 10K for property and state taxes (not the $ 12K we just paid).  And, adding in the mortgage interest doesn’t add up to the threshold of $ 24K.  So, unless we were donating $7000 or more to charity (yes, I’m kidding), we can’t itemize this year.  Which will diminish the charitable giving of the average American even more.

Unless the government changes the rules- adding in a charitable donation separate from itemization rules- our poor and our religious institutions are going to be left in a state that will match the way the federal government takes care of our infrastructure.

Leaving it to rot