Will the sky fall for charities under the new tax law?

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Charities and much of the media are screaming bloody murder about the potential negative impacts of the new 503-page tax reform legislation.

“The tax code is now poised to de-incentivize the heart of civic action in America,” Dan Cardinali, president of Independent Sector, which represents charities, told the Washington Post.

“The GOP tax reform will devastate charitable giving,” shrieked the Los Angeles Times.

Stacy Palmer, Editor of “The Chronicle of Philanthropy,” said on Public Television’s Newshour that as much as $20 billion might not be given in 2018 next year because of the tax law change. An Indiana university study estimated the reduction would be $13 billion.

This apocalyptic vision fits in nicely with the attempt by Democrats to demonize the tax reform law and the Republicans who voted for it in hopes of reaping benefits in the 2018 elections.

But is charitable giving really going to implode? I think not.

The primary concern among the nattering negative cadre appears to be that the number of Americans who qualify for the charitable tax deduction will drop sharply now that the standard deduction has been doubled to $12,000 for an individual, $24,000 for couples. This will result in fewer people itemizing their deductions, and you can only deduct donations if you itemize, a key factor motivating charitable giving, according to the doomsayers.

But this ignores the fact that an awful lot of people already give generously from the heart without claiming a charitable deduction. According to the most recent IRS data, 68.5 percent of households chose to take the standard deduction under the old system, leaving them unable to claim a charitable deduction, but a lot of them made donations anyway. In 2016, the largest source of charitable giving was individuals at $281.86 billion, with two thirds of households giving money to non-profits.

It is estimated that under the new tax law, the share of people itemizing deductions could drop to as few as 5 percent.

It seems highly unlikely that individuals who haven’t been itemizing or those who won’t itemize under the new tax system will decrease their charitable giving when the standard deduction is doubled. In other words, the vast middle class will still probably give, though charities may want to ramp up their appeals.

What looks considerably more threatening for charities is changes in the estate tax under tax reform.

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Before the tax reform law, the estate tax applied only to estates worth at least $5.49 million for individuals and $10.98 million for married couples. The estate tax applied a 40 percent tax rate to estates worth more than those amounts.

In other words, the wealthy have been encouraged to make charitable donations because these donations were not taxed. If their money was left to heirs instead, the estate would pay taxes on amounts greater than about $5.5 million dollars for an individual or $11 million for a couple.

The new tax law tax doubles the annual exclusion amount (the exemption) for estate taxes to $10 million. Couples who do proper planning could double that exemption.

Only 0.2% of all estates ended up being hit with the estate tax under the old formula. The Tax Policy Center estimates that some 11,310 individuals dying in 2017 will leave estates large enough to require filing an estate tax return.

Under the new law, it’s likely that fewer than 1,000 estate tax returns will be filed per year with a tax due. In other words, just 10,000 individuals may be less likely to make charitable donations to avoid estate taxes.

But those individuals control a lot of wealth and many may be people who were previously motivated to give by a desire to avoid estate taxes.

According to the National Committee for Responsive philanthropy (NCRP), study after study shows that tax policy matters in charitable giving and that the estate tax is one of the most important motivators for those at the top of the income distribution. “Rather than see a sizable portion of their estates subject to taxation, wealthy families give while living to reduce the size of their estates; and they also give in the form of bequests upon their death, “ the NCRP says.

The Chronicle of Philanthropy has compiled detailed data on publicly reported charitable gifts of $1 million or more in each state. The largest recipients include private and community foundations, colleges and universities, healthcare programs, the arts, museums and libraries. The Chronicle assumes that a large proportion of those donations is motivated by estate tax planning.

So Oregon charities relying on big gifts may be in for a harder struggle going forward.

The Chronicle data shows the following significant gifts of $1 million or more to Oregon institutions just in 2017 and 2016:

2017

Donor Recipient Gift Value
Anonymous U. of Oregon (Eugene) $50,000,000
Anonymous Oregon State U. at Corvallis $25,000,000
Robert W. Franz Providence Health and Services (Portland, Ore.) $20,000,000
Michael and Arlette Nelson U. of Portland (Ore.) $10,000,000
Anonymous Oregon State U. at Cascades (Bend) $5,000,000
Fariborz Maseeh Portland State U. (Ore.) $5,000,000
Jordan Schnitzer Family Foundation (Jordan Schnitzer) Portland State U. (Ore.) $5,000,000
Anonymous U. of Oregon, Jordan Schnitzer Museum of Art (Eugene) $2,250,000
Keith and Julie Thomson U. of Oregon (Eugene) $2,000,000
Tim and Mary Boyle Providence Foundations of Oregon (Lake Oswego) $2,000,000
Tykeson Family Foundation (Don Tykeson) Oregon State U. at Cascades (Bend) $1,000,000
Robert W. Franz Blanchet House of Hospitality (Portland, Ore.) $1,000,000
Charles McGrath Oregon State U. at Cascades (Bend) $1,000,000

Note: Most of the bequests listed in this database are estimates. In many cases, donors’ bequests are announced long before their wills are settled.

 

2016

 

Donor Recipient Gift Value
Philip H. and Penelope Knight U. of Oregon (Eugene) $500,000,000
Gary and Christine Rood Oregon Health & Science U. (Portland) $12,000,000
Charles and Gwendolyn Lillis U. of Oregon (Eugene) $10,000,000
Philip H. and Penelope Knight Fanconi Anemia Research Fund (Eugene, Ore.) $10,000,000
Tim and Mary Boyle U. of Oregon (Eugene) $10,000,000
Allyn C. and Cheryl Ramberg Ford U. of Oregon (Eugene) $7,000,000
Edward and Cynthia Maletis U. of Oregon (Eugene) $5,000,000
Roberta Buffett and David Elliott Oregon Shakespeare Festival (Ashland) $5,000,000
Don and Willie Tykeson John G. Shedd Institute for the Arts (Eugene, Ore.) $2,000,000
Tim and Mary Boyle Reed College (Portland, Ore.) $2,000,000
David and Anne Myers Columbia River Maritime Museum (Astoria, Ore.) $1,000,000

 

Note: Most of the bequests listed in this database are estimates. In many cases, donors’ bequests are announced long before their wills are settled.

Source: Philanthropy.com; http://bit.ly/2lljb8m

 

 

 

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Reducing the home mortgage interest deduction: enough with the crocodile tears

 

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A Christie’s International Real Estate warning.

The tax bill just passed by the Senate would let new homeowners continue to claim a deduction for the interest they pay on mortgage debt of up to $1 million. Under the House bill, existing homeowners could continue writing off interest paid on mortgage debt up to $1 million, but new mortgages would be subject to a $500,000 cap.

The House provision would be calamitous, tragic, disastrous, critics argue.

Reducing or eliminating the mortgage interest deduction “will hurt millions of hard-working American families and marginalize homeownership,” said Granger McDonald, Chairman of the National Association of Realtors.

Slicing the home mortgage interest deduction could lead to a housing recession, said Jerry Howard, CEO of the National Association of Home Builders.

Let’s get real here.

The change proposed by the House wouldn’t really mean much to many taxpayers. You have to itemize deductions to claim the deduction on your tax return now. Only about one-third of taxpayers now itemize and only three-quarters of those claim a mortgage interest deduction, according to the Urban-Brookings Tax Policy Center.

But that would change because the tax bill would almost double the standard deduction, from $12,700 to $24,000 for married couples and from $6,350 to $12,000 for single filers. With this change, fewer taxpayers would benefit from the mortgage interest deduction. The Tax Policy Center figures the share of households claiming the home mortgage interest deduction would drop to 4 percent. That’s right. Just 4 percent.

That drop would also reflect the fact that, despite a lot of high cost homes in the Portland Metro Area, it’s pretty easy to buy a home for less than $500,000 in most of the rest of Oregon and the nation.

For example, the median home value is $251,100 in Tillamook, $336,600 in Corvallis and $162,300 in Pendleton.

According to the Mortgage Bankers Association, Americans who applied for a mortgage to buy a home in January 2017 were looking for a loan sized at an average of $309,200. The median home value in the United States is only $203,400, according to Zillow.

 

State Home Values

NAME MEDIAN Zillow Home Value Index
California $469,300
New York $267,100
Florida $192,600
Illinois $163,100
Texas $159,000
Pennsylvania $155,000

 

Georgia $149,300
Michigan $126,100
Ohio $122,400

Only 5.4% of all loans originated in 2017 have been for more than $500,000, according to ATTOM Data Solutions. That’s just 325,000 loans, most of which went to the wealthy.

Want to know the median list price by city, state, zip code, and neighborhood? Zillow’s Home Value tool provides that data.

The three states with the highest percentage of home mortgage loans over $500,000 in 2017 have been Washington, D.C. (35.1%), Hawaii (15%) and California (11.5%), followed by Delaware, Massachusetts and Washington state at about 9%.

They’re the ones who would see their ox gored under the House bill, and it’s the members of Congress from these states in the forefront of wanting to preserve the $1 million level.

In Democrat-dominated California, the pain would be noticeable. In the San Jose metropolitan area, 75% of new mortgage loans as of early November 2017 were for more than $500,000 and the median home price was more than $1 million, according to an analysis by CoreLogic Inc. In the San Francisco metro area, 60% of new loans were for more than $500,000.

“I think that harming the ability for Americans to own their home is like attacking motherhood and apple pie,” Rep. Judy Chu (D-Monterey Park), who represents an area that includes Pasadena and much of the San Gabriel Valley, told the Los Angeles Times.

So what the Senate is doing is defending a tax break that mostly benefits a small number of affluent homeowners and distorts the housing market?

The distortion occurs because the tax reduction increases the price of housing. Well-off buyers are willing to pay more because they anticipate deducting their mortgage interest, effectively lowering their monthly house payments.

”… there’s good evidence that cutting back the mortgage-interest deduction would lower prices in high-cost areas, where newcomers find it difficult to move nowadays,” asserts Howard Husock, vice president for research and publications at the Manhattan Institute.

So enough with the weeping and wailing. Reducing the home mortgage interest deduction would be a good thing.

Personal Income Taxes Floating Oregon’s Boat; Corporate Taxes shrinking.

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Oregon has a new distinction. In 2016, broad based personal income taxes represented 69.6 percent of state government revenue, the highest share in the country, up slightly from 69.1 percent in 2015 and up substantially from 37.7 percent in 2010.

Since about 1980, corporate income taxes have become an increasingly smaller share of total state tax revenues and a smaller share of businesss’ costs across the country, according to the Federal Reserve Board of San Francisco.

Broad-based personal income taxes are the greatest source of tax dollars in 28 of the 41 states that impose them, the Pew Charitable Trusts reported today.

In fiscal year 2016, the share of total state tax revenue from personal income taxes grew to its largest percentage in at least 65 years, Pew said. The share from general sales taxes also increased from the previous year, while those from corporate and severance taxes edged down.

SFH_taxes_by_type_2017_update

Taxes and federal funds together account for more than two-thirds revenue for the 50 states, another Pew study reported. Taxes are the largest revenue source in 46 states, while federal funds are greatest in three.

Keep The Kicker

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Oregonians learned earlier today that they may be up for another kicker.  And the progressive Oregon Center for Public Policy is already bitching about “lost revenue.”

“Should it come to pass, this unanticipated, automatic tax cut would cost the state about $400 million at a time when Oregon schools and essential services are at risk from budget cuts and suffer from long-term underfunding,” the Center said in an e-mail blast.

“Lost revenue?” “Cost the state?” Give me a break.

It’s not the state’s money. It’s yours. But progressives keep finding reasons to take it away.

In 2015, when an improving economy triggered a “kicker” rebate of about $400 million, State Rep. Tobias Read, D-Beaverton, sponsored a bill that would have diverted half of that $400 million to education and half to the state’s general reserve. Fortunately, Read’s bill didn’t get a committee hearing.

According to The Oregonian, Sen. Alan DeBoer, R-Ashland, plans to introduce a bill to redirect the kicker to K-12 education. If it passes, voters will make the final decision.

Oregonians already made it perfectly clear what they think of this idea. In 2016, Oregon taxpayers were given an opportunity to donate their kicker rebate to the state’s Common School Fund when they filled out their tax forms. Hardly any did. At one point, records showed fewer than one-half of one percent of taxpayers were choosing to do so. Hardly a magnanimous endorsement of the idea.

The state got itself into a real mess with its constant spending increases and ever-expanding pension obligations. Don’t let that be an excuse for ending the kicker.

 

City Club of Portland: wrong on Measure 97

tax-increaseAppalling! What else can you say?

Members of the City Club of Portland voted Tuesday to support Measure 97, which proposes imposing burdensome gross receipts taxes on Oregon businesses that could total $6.1 billion in the 2017-19 biennium.

It’s hard to believe that such a distinguished civic group could support such a flawed scheme.

Oregon’s General Fund expenses are expected to grow by about 14 percent, or $2.7 billion, in the 2017-2019 biennium. The budget anticipates only about half that will be covered by new revenue, translating to a projected $1.35 billion shortfall.

Given such things as public employee pay increases, higher Medicaid expenses, and pension rate increases for state government and school district employees covered by PERS, some additional revenue may be justified. But not $6.1 billion. That’s highway robbery.

And collecting the additional revenue through an odious gross receipts tax, which ignores a business’s profitability, or lack thereof, is irresponsible. How well-educated City Club members, many of whom presumably work in the private sector, could endorse such a tax is inexplicable.

Also damning is the uneven applicability of Measure 97’s proposed taxes. Taxation of just C Corporations would create a vastly uneven playing field for Oregon businesses.

As the minority noted in the City Club’s committee report, “Many large businesses are LLCs and S corps, and they often compete with C corps in similar sectors. For example, Fred Meyer (Kroger) and Safeway grocery store chains are C corps and would pay the tax. New Seasons Market, a B corporation,47 and Albertson’s, a limited liability corporation (LLC),48 would not pay it. “

The flaws in the City Club’s arguments in favor of Measure 97 are evident right off the bat.

The City Club committee charged with determining the merit of Measure 97 said it “…presents a long-awaited opportunity to assure adequate investment in the health, education and the well-being of Oregonians.”

Nonsense!

The fact is there is absolutely no guarantee the legislature will apply Measure 97 revenue to early childhood through grade 12 public education, healthcare and services for senior citizens, in the coming years as the measure states.

If Measure 97 is approved by voters, the Legislature can appropriate its revenues “in any way it chooses,” Legislative Counsel Dexter Johnson said in an Aug. 1 letter to Rep. John Davis, R-Wilsonville, a member of the House Committee on Revenue. Not only are Legislators “not bound by the spending requirements” of Measure 97, they can “simply ignore” them,” Johnson added.

What is most likely is that over time Measure 97 revenue would be spread around like honey in response to pressure from self-serving special interests with access to, and influence on, decision-makers.

Rep. Mitch Greenlick (D-Portland) said when endorsing the measure, “If that passes, we’ll have a lot of money to pay for stuff.” The hundreds of groups that spend millions annually lobbying the legislature will have plenty of ideas on what “stuff” to spend the money on.

There’s also a high likelihood that some of those lobbyists will seek exemptions from all or part of the tax, just as Nike cut a deal with former Gov. John Kitzhaber and the legislature in 2012 to protect it from changes in the way the state calculates the company’s state income taxes.

Gov. Brown has already said she’d favor some “technical adjustments” if Measure 97 passes, including:

  • Allowing businesses to subtract a portion of their Oregon payroll from their corporate tax bill.
  • Prohibiting businesses from changing their corporate status “for the primary purpose” of evading the new gross receipts tax. (As written, the measure would exempt “benefit corporations” from the new tax)
  • Helping out software companies in Oregon by classifying sales of their services based on the location of the purchaser, rather than the location of the company selling the service.

The majority of the City Club committee that recommended a “yes” vote on Measure 97 also argued that “… the potential benefit of adequately funded state services outweighed any of the tax’s potential detrimental effects and that the consequences of prolonging the state’s revenue shortage where (sic) too great.”

Outweighed “any of the potential detrimental effects”? In other words, satisfying the state’s greed with $6.1 billion in additional revenue per biennium is more important that an expected dampening of income, job and population growth. Give me a break.

Finally, in endorsing Measure 97, the City Club is giving an easy out to liberal Democrats who want to avoid tackling difficult spending issues.

For example, as the minority pointed out, the unfunded PERS liability is $21-$22 billion. If nothing is done to deal with the creeping cost of PERS, even the Measure 97 windfall won’t be enough to avoid a funding crisis.

It’s not as though Oregon’s budget problems snuck up on the Democrat-controlled Legislature, leaving it no choice but to abdicate its responsibilities and leave it to a poorly crafted union-inspired ballot measure to fix things.

It’s been abundantly clear for a long time that trouble was coming. Where was the grit to fix things right?

 

Marijuana: Oregon’s new lottery

Oregon government has found a new addiction – marijuana taxes.

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Oregon collected $3.48 million in marijuana taxes in January 2016, the first month of taxing legal recreational marijuana. Based on these returns, the future looks bright for Oregon’s budget.

Economics consulting firm ECONorthwest initially projected the state would see $38.5 million in marijuana tax revenue in 2016. The Oregon Liquor Control Commission, which regulates recreational marijuana, projected less. But if Oregon sales for the rest of the year stay on the current trajectory, Oregon will collect $41.76 million in 2016, the Bend Bulletin figures.

“While state officials were quick to caution that it will take time to get an accurate view of the money coming in through marijuana sales, the early estimate shows pot may be a bigger boon than initially thought for Oregon’s schools and police, which receive a portion of tax revenue,” the Bulletin said.

Under Ballot Measure 91, revenue after costs will be divided as follows: 40 percent to the Common School Fund; 20 percent to mental health, alcoholism and drug services; 15 percent to state police; 10 percent each to cities and counties; 5 percent to the Oregon Health Authority for alcohol and drug abuse prevention.

What a windfall is coming their way.

And soon enough, just as has happened with the State lottery, the Oregon Liquor Control Commission and the Legislature will find themselves looking for ways to generate more marijuana money.

Lottery money has already turned the state into an addict, as Oregon’s lottery take has gone from $87.8 million in FY86 to $1.12 billion for the fiscal year ended June 30, 2015, an increase of 6.1 percent over fiscal year 2014. The Lottery is a very big business.

Going forward, the Lottery is working hard to expand its audience and revenues with development of new games, platforms, and venues in order to attract more diverse demographic groups.

The lure of raking in lottery dollars without having to raise taxes has long been appealing to politicians anxious to satiate government’s insatiable thirst for revenue. In fact, the lottery is often referred to as a “voluntary tax”, though behavioral research calls the “voluntary” part into question.

Whatever it’s called, the state always wants more of it, just as it will with marijuana taxes. You can count on it.

 

 

 

 

 

 

 

 

Sock it to ’em: the left dreams of more taxes and more government

The left’s collective veneration of the state and readiness to surrender self- reliance to its generosity are becoming ever more evident as the presidential race accelerates.

After exhaustive research, the New York Times has concluded that if the federal government raised taxes on the wealthy it could generate a lot of money. You don’t say.

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The Times also figured out that the potential amount of revenue the government could raise from the wealthy would depend on how much the government raised their taxes. That’s groundbreaking.

Not only that, The Times said, but the government could raise one hell of a lot of revenue from high earners “…while still allowing them to take home a majority of their income,” How very thoughtful.

The Times effused over the things the government could do with a ton of additional tax revenue, like eliminating undergraduate tuition at all the country’s four-year public colleges and universities, as Senator Bernie Sanders has proposed. The potential next step — student loan forgiveness?

With the base of the Democratic Party moving swiftly to the left, you can expect more of these “we can do it because the wealthy will pay for it” proposals.

In the end, the Times took 2085 words to conclude that the more you tax rich people, the more taxes the government will collect (assuming the well-off don’t figure out how to avoid paying the taxes) and the more the government can spend on all sorts of stuff.

What the Times didn’t do is address the question of whether it would be a good thing for the government to reap enormous revenue increases and vastly expand its penetration into our daily lives.

Do we really want a massive expansion of government that would be a successor to the New Deal and the Great Society?

When you invite the government to pay for more things, the government becomes your partner, or, more likely, your boss. Is that what Americans want?

When government gives you things, they always come with new federal rules and regulations accompanied by known and unknown costs. Is that the American dream?

The Times also didn’t address the growing fiscal problems we are already facing:

  • Federal spending still exceeds revenue by over 400 billion dollars a year
  • deficits are expected to resume growing
  • even with declines in discretionary spending imposed by sequestration, entitlements are expected to grow in the future.

“You wouldn’t know that we have an unsustainable fiscal path from the debate we’re having right now,” Rudy Penner, a former director of the Congressional Budget Office, told the Wall Street Journal.

A message to the left and the NY Times. Be careful what you wish for.

 

(P.S. – Yes, I know, you also have conservatives proclaiming how they want to cut taxes when we can’t even pay our bills now, but that’s another story)