Bob O'Brien
Head Instructor
bobrien@mywealth.com
Last week in his prime time news conference the President made it very clear when asked about his plan to reduce the deduction for charitable contributions, “if people were just contributing to charity for the deductions than it was not really charitable to begin with”. Who can argue with that? He also stated that “the poor economy has reduced contributions”. Who can argue with that too?
You also cannot argue with the fact that these charities are going to receive even less because of the reduction of this deduction.
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First of all, a lot of people that tithe a portion of their income like 10% or 20% do so, on a net basis. There will be a decrease in the charitable contributions because they will now have less net income and therefore some will feel forced to cut out some giving as part of their overall financial plan.
Regardless of whether this is the proper way to give, charities will receive less!
The people that make big contributions are really good with their money and that is why they have a lot and are able to make large charitable contributions. They also put their own financial security first, because they want to make contributions to charity and they do not want to become a charity themselves!
Taking care of yourself first, is at the foundation of financial planning. “Pay yourself first” and “act in your own interest first in order to serve the common good” (Adam Smith). Obviously, these need to be tailored with common sense as well, and certainly stealing and unethical behavior does not serve the common good.
The bottom line is that, his proposed plan will cause charities to receive less, because most really wealthy people have a formula for tithing as part of their financial plan. The tithing percentage is genuine and from the heart, and this percentage will stay the same but the dollar amounts given to charities will be reduced by this policy.
I have had wealthy clients that wanted to give more to charity then they should be giving and told them they need either to give less or reduce their lifestyle significantly because your plan will not sustain you through retirement. They would usually cut a little of both, which does not bode well for the charities.
I really like President Obama, and realize that people have different priorities when it comes to tithing. But I cannot understand what he has against charities and why he would even risk them receiving less, especially when he could just increase the top bracket by a fraction to create the same effect for government revenue.
Why not make paying/giving additional federal income tax, tax deductible? A person pays an extra $100k in taxes and they get back $40k. The IRS is still up $60k. The person that gave it feels like they gave $100k to reduce the national debt and the government feels like they gave them $40k.
Our political leaders do not use their fiscal policy power as creatively as they should!
This type of fiscal creativity could have been really useful, while the real estate bubble was forming. Why didn’t someone come out and call for the elimination of all the deductions for real estate when things got out of control. By just making this threat alone, this could have cooled off the real estate market significantly!
Make certain that you have a formula for your finances, and this exactly what we assist you with in our courses.
Sincerely,
Bob O’Brien
Sr. Instructor
