Don't Stop Giving

But if anyone has the world's goods and sees his brother in need, yet closes his heart against him, how does God's love abide in him? Little children, let us not love in word or talk but in deed and in truth. 
I John 3:17-18

"We who have much should be willing to share. It is not for the poor, but for ourselves that we might become less narrow, less frightened, less lonely, less self-centered." David Foster Wallace

The earth is warming. That is a fact. You can argue why, but average temperature data is indisputable.  At the same time, we are becoming a colder nation, but not in the temperature sense. The recently passed tax reform bill is a case in point. I don't care for April 15th any more than the next guy. But a tax cut which primarily benefits the richest of us and results in a predicted increase of $1.5 trillion to the deficit smacks of payoff and contempt for fiscal integrity. Where is the fiscal conservative concern for our children and grandchildren? 

Tax policy affects individual behavior. Consider the long December lines at courthouses with people pre-paying their 2018 property tax to avoid forfeiting the deduction which is capped as of 2018.  But for me, the most unsettling aspect of this bill is the projected impact on charitable giving. Yes, we should be giving out of the goodness of our hearts and not to get a tax deduction. But the fact of the matter is, 13% of all charitable giving occurs in the last 3 days of the year.  Most folks are not all that altruistic - the poor have more empathy (see the widow's mite Luke 21: 1-4).  A wise man I once knew said - ".. them's what's gots, keeps". 

Your church, food shelf, college, United Way, Red Cross, Feed My Starving Children, LSS, DAV, [fill in the blank]... all anticipate a fall-off in giving. I realize that the charitable deduction was not eliminated in the 2018 bill, but the increase in the standard deduction means many more people will not itemize deductions and along with that goes an incentive for charitable giving, affecting, I suspect,  these 13% last minute donations.

So, I beseech you. Don't reduce giving to your favorite charities. If you can, increase it a little. They need you now more than ever.

And you, dear individual filer, come a pittance.  " ...according to a new analysis by the Tax Policy Center, middle-income taxpayers would pay about $900 less than under current law, about 1.6 percent of after-tax income, while the lowest income households would get an even more modest tax cut compared to current law.  By contrast, the highest-income one percent of households , who will make about $733,000 and up, would get an average  tax cut of roughly $50,000 or 3.4 percent of their after-tax income. Those in the top 0.1 percent, who will make $3.4 million or more next year, would get an average tax cut of about $190,000, or 2.7 percent of their after-tax income." Don't you love percentages? They always yield a nicer result if the base is big.  

A mortgage against my grandchildren for $75/mo return,  I find unacceptable. But then if you live in a high tax state - you know who you are - or if you have a not-really-all-that-large family ($4K personal exemptions gone; if you you pay state tax; if you own a home; ($10,000 cap on deductions of state, local, real estate tax payments) you may not like the look of your 2018 1040.  

Furthermore, the tax reform bill gives corporations a huge windfall (35% rate down to 21%) with the rationale that the benefits will "trickle down". Warren Buffet's Berkshire Hathaway netted a $29 billion windfall. US stock exchange listed corporations care first and foremost about their stock price, so windfalls are commonly used to buy back their own stock and thus boost the share price - which benefits ... stockholders and those employees who receive stock grants. (And of course Wall Street itself. If you have an IRA, you'll probably do pretty well for awhile.) I've worked for large corporations and while many do token philanthropy, it is mainly for the PR "image" or "marketing" reasons. I guess we should be thankful for any corporate largesse, but corporations really are not people, and their interests are self-serving. Individuals are the principle source of charitable giving (72%) with corporations (5%). (If you want a deep dive into the impact of the tax bill on corporate America, see the Wharton School's analyses, industry by industry - short story $1.2 trillion in tax savings.)

Windfall corporate profits may indeed be used to expand the enterprise - but in this day and age, not usually in the way you might think. For large corporations, expansion is more often through "M&A", mergers and acquisitions. These mergers do not usually result in increased employment but often result in reductions due to eliminating duplicated functions. So I am skeptical that "trickle down economics" will provide much benefit to workers - rather the trickle will get about as far down as the boardroom. It's been tried before. It would be a nice outcome if this would drive a wage increase for the worker-bees, but this has not been the trend even as the unemployment rate is nearing 4% and corporations are awash in cash ($1.8 trillion according to Moody's). They could easily have improved workers lot without this windfall if they had wanted to. Some companies quickly tried to gain good will by announcing pay raises or bonuses. Walmart raised minimum wages to $11/hour which means if you work full-time, you can gross upwards of $20,000/year. Dozens of companies offered $1000 bonuses - a one time expense - pardon my cynicism.

The bill does provide tax benefits targeted for small-business in the form of pass through income rules that treat business income as if it were wages and allowing a 20% deduction off the top. A good plan might be to turn yourself into a small business - an LLC, or sole proprietorship.

Copyright © 2018 Dave Hoplin

P.S.  By the way, don't forget to file your 2017 return today.