Since I last wrote about New York State’s possible slashing of charitable tax deductions, several developments have occurred. First, the number of charitable groups opposing the measure – which is supported by New York’s Democratic governor and Democratic state legislature – has risen to 24. Second, Hawaii’s governor has vetoed a similar bill, as Jeff Cain reported yesterday. Third, the New York Daily News has angrily editorialized against the proposal, which is part of a set of money grabs the newspaper argues will harm the state:
Worst of all – they're slapping a tax on charitable donations by well-to-do philanthropists, whose only offense is giving money to worthy causes. Carving out a special tax hike just for the most generous New Yorkers is perverse, even by Albany standards…. Especially pernicious is the charity tax, which would apply to the tiny group with incomes north of $10 million a year. We're talking about just 3,500 New Yorkers – one-twentieth of 1% of taxpayers. They already carry 20% of the state's income tax burden. They also happen to be the most prolific givers in New York, donating an impressive $7 billion a year – money that's crucial to groups serving the poor and disabled, not to mention arts organizations, libraries, hospitals, universities, etc. Those groups are particularly desperate for every dollar of charity they can get now, with demand for services up sharply and other donations down dramatically. No matter: State lawmakers want to punish the generosity of wealthy New Yorkers by halving the charitable deduction they can claim against income taxes…. It's irresponsible. It's politically expedient. It's morally offensive. This is how low [Governor] Paterson, Assembly Speaker Sheldon Silver, and Senate Democratic chief John Sampson have sunk to feed their destructive addiction to spending.
As the News insists, this is not just economically foolish, it's a moral issue: Does government exist to serve civil society, or is civil society a servant of government, a luxury to be cut back when the government decides it can’t afford it anymore? Unfortunately, no one seems to have polled Americans on the question of cutting charitable deductions. (Such a poll would be a worthy investment for a donor.) I’d bet the mortgage that any pollster would find overwhelming opposition. The closest analogue that has been polled is the estate tax, when the government swoops down on the dead to tax their lifetime’s accumulated productivity. Americans consistently oppose the estate tax as unfair. Even when pollsters ask the question in a loaded way, even when they stress repeatedly that this tax only affects the wealthiest, Americans disapprove. (For the details, see polling expert Karlyn Bowman’s “What Do Americans Think About Taxes?”) Of course, it’s hard to find reporters who will acknowledge this fact. One reporter I spoke with refused to believe the average person would object to the estate tax or to capping the charitable deduction if you “took an hour” to browbeat said person about how these tax issues only affect rich people. Most reporters seem to be a bit Marxist at heart and to imagine that all Americans think like Marxists, that is, that they have only the crudest material concerns and resent the successful. A powerful example was the CNN reporter a few months ago who argued with a Tea Party protester. The protester was trying to quote Lincoln’s belief that all of us deserve to enjoy the fruits of our labor, while the annoyed reporter was trying to get it through his skull that the government was about to write him a check for $400. Imagine, preferring the principles of liberty more than 400 of your own tax dollars. Of course, Americans may have pragmatic as well as moral reasons to resist tax ploys like the charitable deduction cap. First, even if the average citizen is so venal he can be tempted by a $400 bribe, he may still take a longer view than a daily reporter. Perhaps he imagines one day he will be successful enough to be in the politicians’ cross-hairs, or even more likely, that his children – God forbid – will find themselves among the most successful. Or perhaps he’s just cynical enough to suspect that a tax hike on the wealthiest today threatens all of us tomorrow. One wouldn’t expect a reporter to know any history, but the scenario of wildly expanding taxes has been known to occur. The most obvious example is the federal income tax. When the 16th Amendment to the Constitution was ratified in 1913, Congress immediately passed an income tax with rates from 1 percent to 7 percent. The highest rate hit only those with incomes over $500,000. All told, less than 1 percent of the country was taxed. But Congress’s hunger was not sated. In 1916, it doubled the bottom rate and more than doubled the top rate. In 1917, exemptions were shrunk and rates vastly increased: “In 1916, a taxpayer needed $1.5 million in taxable income to face a 15 percent rate. By 1917 a taxpayer with only $40,000 faced a 16 percent rate and the individual with $1.5 million faced a tax rate of 67 percent.” And still Congress wasn’t satisfied. The very next year Congress raised the bottom rate to 6 percent (a 500 percent increase from five years earlier) and hiked the top rate to 77 percent. The same five years saw the percentage of Americans being taxed rise more than five-fold. Since then, rates and the proportion of the country who are taxed have bounced up and down, yet the fact remains: The original claim for the federal income tax was that only the tiniest sliver of wealthy need fear, and even they would face only a minor hit. If any New Yorkers believe the same thing about the charitable deduction cap, I’ve got a bridge in Brooklyn to sell them.