Thursday, December 6, 2012

Fascinating White House Analysis of the Republican Fiscal Cliff Proposal

Here's a link to an Official White House analysis of the Republican proposal on the Fiscal Cliff.  The Republicans propose to cap tax deductions at $25K.  The White House analysis concludes that this would raise revenues by $1 Trillion, but only if the deduction limit applies to all taxpayers, not just the rich.  Excluding those making less than $250K from the cap lowers the revenue to $800 Billion.  Exactly what I'm hearing the Republicans claim.  (Note: These numbers are over 10 years)

The analysis argues that this cap should be phased in over a few years to lessen disruptions.  Sounds fine, and I agree.  Though I don't think the Democrat's proposal to revert to pre-Bush tax rates will be "phased in".  Hypocrites.  Anyway, assuming a gradual phase in to make the changes more "fair" limits revenue to $650 Billion.  Sounds very reasonable.

I find section 3 of the article most fascinating.  They argue, quite correctly, that capping deductions will reduce charitable giving.  They estimate $10 Billion a year less to charities.  Since I believe that the revenue numbers are over 10 years, to compare apples to apples this number then becomes a $100 Billion decrease in charitable giving.  The analysis assumes that we don't really want this, and that therefore charitable gifts will not be capped.  With this assumption, revenues decrease to $450 Billion.

See something wrong here?  In order to support $100 Billion in charitable giving, the analysis proposes to give up $200 Billion in revenue.  This makes no sense.  I suspect that the numbers and assumptions are flawed, but, if true, this is no reason to "uncap" charitable giving.

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