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Merryn's Blog

For a tax-free social life, head to the USA

If you think our rules on tax relief for charitable giving are bad, you should see those in the States.

I've written a lot here about the business of charity tax relief, my basic point being that it should be abolished in its entirety. You can read all the arguments for this here and here.

But as bad as we think things are here (in terms of the use of tax relief to both hypothecate and avoid tax by the few at the expense of the many), they are worse in the US. Gillian Tett, writing in this week's FT magazine notes that there, not only are actual cash gifts to charity tax deductible (as they are here) but so are things that you buy in aid of a charity.

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She has just taken her children to see Spiderman on Broadway. After the show "the performers stepped forward and appealed to the audience to donate to the charity for Aids sufferers", noting as they did, that "contributions over $50 are fully tax deductible."

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So anyone wanting to buy, say, the glasses worn by Spiderman in the show, could do so and then hand the receipt over to their accountant to offset it against their tax bill. They effectively get the glasses tax-free.

Tett is also invited "almost every month" to a swanky charity dinner of one kind or another in New York, again with the reminder that the cost can be offset against tax. In the US the rich effectively get to socialise tax free too.

This doesn't come cheap. A new book about the American debt burden White House Burning, by liberal economists Simon Johnson and James Kwak has calculated that the cost to the state of this shockingly generous tax break is about $53bn.

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Gillian quotes their core argument: "This tax deduction is occasionally defended as a way of patching our meagre social security safety net, but homeless shelters and soup kitchens compete for donations with the Metropolitan Opera, Harvard University and even politically orientated think tanks." In effect "the government spends $53bn on non-profit organisations but lets rich people decide who gets the money."

These views are totally un-mainstream in the US, but they are exactly the arguments we used here a few weeks ago. It just makes no sense for the general taxpayer to have to subsidise the socialising, the political lobby groups and the hobbies of the well off. Not heres and not in the US either.

If we must have tax relief on charity giving (and I really don't think we should) it is, I think, time to distinguish between what is a charity that fits into the brief of the state and should therefore be considered a deserving charity and what is not.

Soup kitchens? Yes. Cancer research? Mostly. Literary festivals? No. Opera? No. Theatre? No. The Brownies? No. Youth clubs in deprived inner cities? Yes. Donkeys? No. Red Squirrels? No. Think tanks? No. Save the Rhino? No. Private schools? No (a voucher scheme would be better). Personal/family foundations? No. Horse Sancturies? No. You get the idea.

PS: George Osborne's budget suggested that we limit tax relief to £50,000 or 50% of gross income in the UK. In the US it is already limited to 50% of income. Obama gets it. He'd been trying to mitigate the losses to the state from the relief by cutting the income tax rate you can claim back from 35% (the top rate of federal income tax) to 28% since 2009. It isn't going down well but I have found this good blog from Felix Salmon on the matter. He also gets it.

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