I want to revisit a topic I wrote about in February of last year: charitable donations. Last night, along with half of the population, I watched X-Factor and was moved by the song that the finalists have recorded for Great Ormond Street Children's Hospital. I was privileged to benefit from the doctors' expertise at Great Ormond Street nearly 25 years ago but it is only as an adult that I came to learn that the hospital relies as heavily on charity as it does - and that, surely, is a disgrace.Simon Cowell understands that great wealth brings with it great responsibility. I suspect that that is something impressed upon him by his A-list friends in the United States. The US has a far stronger philanthropic tradition than Britain and while elite sportsmen, musicians and celebrities will, of course, waste money on vulgar trinkets, multiple cars and gaudy homes, they also understand the need to do good with their positions in society and their eye-watering wealth.
If I am to donate to Great Ormond Street, however, what benefit is there to me as a taxpayer? I have to make that donation from my taxed income and then it is the Treasury that boosts the charity's coffers under gift aid. In the US, the situation is different. Whatever sums I donate to charity are offset against my taxable income, reducing the amount of my earnings that are then denuded by income tax. There is therefore a direct incentive for me to give money to charity because my charitable donations of tax deductible.
Why do we not have such a system here in Britain? In one fell swoop we will help to change the culture of giving away from relying on the state to dispense charitable largesse through gift aid. Instead we will create a culture of philanthropy among the wealthy, the aspirant and the most needy that benefits both the donor and donee.
If the Tories want to be seen as a truly compassionate party, why not embrace tax deductibility of charitable donations? It would nail the lie once and for all that the Tories are selfish and don't care because it would show that Conservatives - in Iain Duncan Smith's memorable phrase - really do want what's best for their families and for their neighbours.
13 comments:
Since far too many "charities" are in the government's pocket anyway, they can get to fuck if they think I'm giving them a penny while they take tax money directly anyway.
Couldn't agree more!
One important factor, did GOSH win their fight with Disney over the rights to JM Barrie's Peter Pan? THe Disney Corporation turned nasty and greedy over something that was in essence British and also bequeathed to GOSH.
Now, I'm getting on in years, and am not as on the ball over such matters as your good self o so I could have it all wrong. If so I apologise.
Regards
josephine
You obviously don't earn very much old chap. Higher-rate taxpayers get 20% relief on Gift Aid donations, and the charity is still able to claim its 28%.
Would there be a net loss to the treasury under those proposals?
That wouldn't necessarily discredit them but it might form the basis of a coherent argument against them if publicaly funded care services elsewhere felt the pinch.
Full tax deductibility is what I am calling for, Anon.
And Liam, my expectation and belief is that shifting this emphasis will mean a more active charitable sector and less need for taxpayer subsidies for activities that ought to be undertaken in the voluntary sector as well as supplementing those that are best dealt with under the state sector for now.
But you can already do this if you are a higher rate tax payer in the UK. Higher rate taxpayers can claim a rebate based on the difference between the higher rate and the basic rate when filling in self-assessment forms. You can then choose whether or not to also give this rebate to charity.
I like this Donal, but I've got another one for you, which you may not like as much.
I still have some nostalgic belief in things being deserved - that the market distributes, but that moral desert can be different to what the market decides. I don't think moral desert should win out, but I think it should maybe be consulted in the process of redistribution.
To that end, I classify income based on how much it is deserved - did I earn it breaking my back for 80 hours a week, or was it a lucky windfall I did nothing to earn (lottery win, unknown rich uncle dies).
For that reason, I think income tax is the worst tax of all - a tax on money earned through labour. I like any proposal that reduces that tax to its lowest possible ebb.
But for that reason, I think inheritance tax is one of the best taxes going. Allowing for a threshold for family hierlooms or things of sentimental value to be passed down (and to separate house prices from the threshold, let's say one property plus £50k in liquid assets) I'd have 100% inheritance tax - not because I want government to collect it, but because it would encourage huge third-age philanthropy.
Now when I've had this conversation before, there is always someone who responds with nonsense about 'the money having been taxed already': as we both know, all money is taxed a thousand times or more. Tax is applied by the transaction, and passing it from the dead to the living is a transaction, so what makes it different to any other transaction tax (like a sales tax).
Unlike a sales tax, inheritance tax doesn't adversely affect the number of transactions. Nobody chooses not to die because of this tax, whereas the prohibitive additional tax does sometimes deter sales.
Inheritance is the archetypal unearned income, and so I'd have no problem getting rid of all loopholes (to increase collection, so it is actually profitable to enforce) and saying "one property and £50k in liquid assets exempted, the rest you need to give away or we'll take it for a ringfenced fund".
The only argument against this, to my mind, is not from virtue ethics or from practicality, but from a hardline rights-language perspective. That's fair and valid, but it could equally be used to attack all taxes of all forms. Allowing that that perspective is neither realistic or useful, I think we should be looking at where taxes are applied to do the least damage and where they discord least with moral notions of desert.
Your thoughts, sir?
Agreed, Donal.
My own approach, attempting to mimic US-style personal tax deductibility, is to donate 78% of the amount I want a charity to receive, knowing that 20% will be made up by the basic rate income tax claimed by the charity through gift aid and 2% is made up by the gift aid supplement (another tax fudge introduced by G. Brown when the basic rate was reduced from 22% to 20%). So when I want to donate £10 to a charity, I donate £7.80 and make sure I tick the 'gift aid' box. I don't know anyone else who takes this approach though!
A good idea, BUT perhaps it should be introduced in tandem with a tightening up of the charitable status rules. Otherwise could be little more than a tax dodge.
I don't know the fine details of the US tax code, but I'm fairly sure the relief available for charitable deductions in the US works out to be exactly the same as that available in the UK under Gift Aid. The only difference is that the UK system requires charities to reclaim tax that has already been paid, whereas in the US you don't pay the tax in the first place...in order for the net amount received by the charity to be the same, you would have to donate less under the UK system. For example:
In the US you earn 1000, and give 100 to charity. Assuming a 20% tax rate, the charity gets 100 and you keep 900 , which is then taxed leaving you with 720.
In the UK you earn 1000, and are taxed at 20%, leaving you with 800. Give 80 to charity, leaving you with 720 as before. The charity gets 80, and can reclaim tax paid at 20%, which is another 20, leaving them with a total 100, as in the US case.
The higher rate situation is a little more complicated in the UK, but in effect is the same.
Surely "gift aid" is a recent invention to reinforce in the minds of all that Income Tax is a Government right and that it has first call upon the fruits of our labour.
The Treasury can then appear to "give" when all it is doing is "not taking quite so much".
Before, one could offset charitable donations, so this idea is just restoring an old arrangement.
What would be better is to end Income Tax altogether and reduce spending and focus on taxing consumption so that the State need not get in the way of charitable giving, which, btw, could then include any person or organisation without their needing government "certification". Such as ones Mum.
To my understanding, the US system is:
a) simpler - note the ~200% increase in UK tax regulations since '97
b) quicker - the charity gets the money now, not when the Treasury lets them have it
c) able to make a statement - make donations equal to 100% of your tax liability and the IRS gets nothing
There are lots of things the US does wrong on tax, but they got this one right.
@Bezhan:
No, to my understanding, in the US if you earn $1000 and give $100 to charity, your hypothetical 20%/$200 tax bill is reduced by $100 so you keep $800.
Which is quite a good incentive to donate!
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