Tossing and Tortured 'Till Dawn

I come back to you now, at the turn of the tide.

Sunday, February 20, 2011

News Flash: The Largest Economy in the world is broke. Really, really broke.

Additional News: Americans have a lot of Stuff. Junk, even. We have a lot of Stuff that we do not especially want, much less need.

If I told you that you had a guaranteed buyer for every old Sammy Hagar t-shirt and Mister Wizard’s Genuine Flux Capacitor -- 2 of a series of 9, collect them all – in your garage, attic, or basement, what would you say?

You do. It’s Uncle Sam. Ladies and gents, we’ve got to quit this Spacely Regulator addition. They were never any good anyhow; good thing he stuck with sprockets.

Yes indeed, tax refunds are expected soon, for those filers who itemized their tax deductions for 2010.

While many reforms are needed to the tax policy, here is a simple one:

In-kind charitable donations, for items valued at less than $500, should be strictly capped.

I had a look at the President’s budget for 2011 – the deficit numbers we are looking at, realistically, are staggering, moreso because they are persistent. If you believe the White House, while there may not be a projected surplus, deficits will be in the manageable 3% range by 2016.

Yours Truly, in brief, does not believe the White House.

Looking at numbers from a few think tanks, accounting for things like continued AMT relief – which the White House and CBO seem to regard as some kind of choice, when clearly it is not. They do this every year.

Editor’s note: If this were a better blog than it is, I would cite a source here. The numbers I have here are from the Heritage Foundation, which, while they seem to be solid, aren’t exactly the most middle-of-the-road analysts.

In any case, this was my first year itemizing my deductions on my tax return, instead of simply taking the standard deduction.

Donations to charities are encouraged by making these donations tax-deductible, and, while the legitimacy of some charities may concern me, overall I think this is a laudable rule.

However, there’s a glaring loophole that one can drive a truckload of ancient concert t-shirts and mismatched flatware through: the donations of household goods to places like the ARC and Goodwill.

When I moved into the new house, as you might expect, I took a whole mess of things to Goodwill. I hate waste, and try to hang onto things as long as they are useful, but, let’s face it, the tote bag from the conference two years ago, the trade show t-shirt, the VHS tapes, these have got to go.

I used Intuit’s excellent Turbotax software to assist me with my taxes this year – though I’ve outgrown the 1040-EZ, I am not in the realm of complexity where a CPA’s services would make any sense.

To assist me in totting up my deductions to charity, Turbotax has a built in feature that they call “it’s deductible!” Simply fill in what you gave, and it will populate the rest into the appropriate IRS form. Great.

I was amazed at how far this got me – almost scandalized. I wrote off about five hundred bucks of donations, based on the “conservative” side of Turbotax’s guidelines. This is all perfectly legal, kosher, permitted, says the IRS.

While I am not such a white hat as to make an unsolicited donation to the federal budget – as simply ignoring my donation would be – I think this needs to be reined in.

The amount of a donation that can be written down ought to be connected with the value of the donor’s loss of use of the item.

In my case, Goodwill was a good turn – it saved the clothing, the coffee pot, the mixer, from the garbage, and perhaps someone else will put them to good use.

But, six bucks for a t-shirt? Give me a break.

Feeling a little badly about my $500 write-down (about $100 in my pocket, at current marginal tax rates,) I looked on the IRS’s website, and on Turbotax’s, to se how most people behaved.

The average deduction in my income bracket is over $2,000.

While donations of cash can be written off as well as donations of goods, I am curious how this $2,000 breaks down. I’d be willing to suspect that at least three-fourths of it was in-kind.

If middle-class folk truly were donating 5% of their income to charity, I’d wager the nation’s nonprofits would be partying in the streets – partying, you know, charitably, and all.

They are not.

This pretending needs to stop.

There are many complex ways I can think to rein in this silliness, but I’ll propose a simple one: The amount of charitable in-kind donations for miscellaneous used items which can be deducted from one’s income should be capped at a modest amount. I will propose $300.

Cash donations will have no cap, so long as they can be documented and the recipient organization is a legitimate charity, and specific, high-value donations will be permitted at the amount that the charity sells the item for.

This is currently the case for donations of motor vehicles, which were subject to similar nonsense when they were subject to much less scrutiny: Sure, that broken-down Ares K is worth $2,000!

Everybody happy?

Oh, yes, of course, fix entitlements, reform medicare and social security, and solve global hunger – I know, I know there are other things to which we can direct our attention.

But, this is simple and it is fair – it will eliminate a strange distortion in the tax code which, once again, mostly favors higher-income folk with no specific purpose.

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