Student is concerned about deductions for charitable giving

The student's words are in black font, and my responses are in this purple font face:

In the 2010 budget proposal, the plan is to limit the tax rate at which high-income taxpayers can take itemized deductions to 28%.  America, probably more than any other country in the world, is distinguished in philanthropy and charitable giving.  Americans are givers – it is a core value of our nation.  In 2007, over $306 billion dollars were given to help the poor, the needy, the mentally ill, the homeless.  Salaries of non-for-profit workers were paid so that they could help those less fortunate.  Those dollars represent the services provided by soup kitchens, schools, medical clinics here and abroad, and countless other organizations.  But more than figures on paper, charitable giving represents changed lives for the better – people living their lives 365 days a year in small communities and cities across the nation, finding help and hope as they are going through physical, emotional, and financial trials.  Now there will be a tax if you want to help others – a tax on giving to the needy - a tax on helping charities so that money can be funneled to the Treasury.  The core value of our government is becoming greed.  In an attempt to punish the benevolent wealthy, the needy and poor will suffer.  It seems that the only winner will be the government.  I sincerely hope this proposal is reconsidered.

It is clear that this administration is about increasing taxes.  We can propagandize and rationalize, but the bottom line is as Joe Biden said, "It's patriotic to pay taxes."  (Unless you're the head of the Treasury, Timothy Geithner, so brilliant and so needed in these economic times that we'll overlook his being a tax cheat and let him handle the money.)  "It's patriotic to pay taxes."  Let the brainwashing begin.  Actually, many years ago patriots didn't like excessive taxation and fought the Revolutionary War to get free of the whole mess.  

The issue as I understand it was not “excessive” taxes. It was the principle of the matter, because English common law, established in the aftermath of the English Civil War, established that taxes could only be leveled on subjects with the consent of those subjects, consent given by their elected representatives (in the House of Commons). But, the British Crown had usurped that power and imposed taxes without the consent of the American colonial governments, or had used colonial governments on which no elected representatives were present to vote for or against the taxes.  Had America been represented by elected representatives who determined whether or not taxes were imposed to pay for the defense of the frontier against Indian attacks or French or Spanish aggression, those representatives might very well have voted for the same sort of taxes.  But without such representation, the British Crown had no right to impose any taxes.  That is, the taxes imposed upon America were not legal, and represented a tyranny (an unlawful exercise of power or a false claim to powers that are not legitimate). If you have authoritative historical information that shows my understanding of this aspect of American history is incorrect I would appreciate being educated. 

The benevolent will probably continue to give, but as a brief synopsis of what I've read, if this goes into effect if a person gives $100,000 to charity, only $93,000 will get to the charity and the government will get $7000.  Those missed dollars are crucial to non-for-profits.  While this administration presents an image of caring for the poor and needy in society, the bottom line is they value the government more than suffering people.  Why else would there be a tax on helping others?

Is your understanding of the policy that a person can only reduce their taxes down to 28% using itemized deductions? If so, this means that persons in high income brackets would only have an incentive to give to charities until their taxes had been reduced to the lowest allowed floor of 28%, and any giving beyond that level would not yield to them any further reduction in taxes.  So, for example, if a person earned $600,000 in a year, and then gave away $549,000 so they only kept $51,000 for their own expenses, rather than being able to deduct all this charitable giving and pay the same sort of income taxes I do (less than 5% to the federal income tax, with my gross income close to $51,000), those “wealthy” philanthropists would still be forced to pay 28%?  That is indeed a stupid policy, if that is in fact what is being proposed. 

I think the solution to this might be to say that all itemized deductions rather than charitable giving to non-profits can bring persons in certain income brackets down to a level where they are paying 28% of their income in federal income taxes, and any additional reduction in federal income taxes below 28% can only come from itemized deductions on gifts to non-profit charities.  That solves the problem you describe and still keeps the spirit of reducing the amount of tax reduction the wealthy get through deductions.  (By the way, the very wealthy tend to pay about 20% to 24% in income taxes after all their deductions, so this is a rule that will raise their income taxes by 15%-20% or so, up to 28% of their income from the 20%-24% where they are paying now, on average, according to the IRS reports I’ve studied.)