Taxes, Deficits and the Government We Want

It has been way too long since I have posted my thoughts on this blog, but today seems like a good day to continue a dialogue in which many of you have participated.  Today, tax returns are due and the news is filled with stories about taxes, deficits, income groups, corporate tax rates and government programs (some of which we love and others we truly do not understand).

There was an article in the Seattle Times yesterday that stated “40% of Americans do not pay any taxes”.  On MSNBC there was an article that stated the top 400 American wage earners pay less in taxes today than they did 2 decades ago.  This week The Daily Beast shared their research on the states that receive more Federal funds than they pay in taxes (Mississippi leads the list receiving $2.83 back for every dollar of Federal Taxes its citizens pay).

On Yahoo today was an article about “true” statements made by people as compared to people who stretch the truth.  It seems the President last week made the claim that if the surpluses from the Clinton years had been allowed to continue we would be debt free as a country by now.  Turns out, that claim is true.  So what happened?  The first thing were the Bush tax cuts of $1.5 trillion, and then wars in Afghanistan and Iraq, followed by one of the worst recessions in our history and $700 billion spent during the Obama’s Recovery Act.  I kept thinking about potential solutions to this problem and tax increases have to be part of the answer.

In reading the various articles about taxes, it is hard to know what the actual tax rates are for Americans, as there are so many deductions for certain circumstances.  These deductions are called “loop holes” in the tax code, especially if you disagree with them.  Examples of “loop holes” for most Americans are the dependent deduction, the mortgage interest deduction, and the charitable contribution deduction.  Another significant deduction is for paying taxes to state or local municipal entities.  We all embrace these “loop holes” in the tax code and would be appalled if they were eliminated.  There are many more “loop holes” that are directed to specific taxpaying groups or corporate entities and because they are designed to help only that group, they do not receive great support from the broader public.

As many of us work in the nonprofit sector, we do not cherish the thought of having the charitable deduction lowered to the 28% level as is being considered by the President.  I wonder sometimes whether the President is right on this one, but I also know the importance of this deduction on donor psyche.  My experience tells me people donate because they believe in the mission of an organization and the urgency of the immediate need.  They certainly take advantage of the tax deduction, yet the deduction is not what motivates them.  However, the deduction becomes a marketing driver to encourage the American public to donate across our whole culture.  What would happen to that “driver” if that deduction was eliminated?  I am not prepared to find out!

The deficit solutions range from keeping taxes lower and cutting programs, to increasing taxes to be sure the societal safety net remains intact.  Over the next two years this debate will play out in the media, on the state level and the Federal level.  We will discover what we truly value during this debate; my hope is that we value the right things, the first time.

All the best,