No Good Deed Goes Unpunished – Charitable Giving

by Darwin on January 30, 2010

When I was a kid, I remember listening to my Dad come home from work and frustratingly relay a story to my mom. For whatever reason, the story stuck with me and I continue to see similar behavior from people that should know better – or if they don’t know better, they should shut their mouths. The gist of it is, he supervised a small crew of people and took them out to lunch at the end of the year for a job well done. He didn’t make a ton of money, especially when I was younger and spending a few hundred dollars on a nice outing for his team certainly set back the family budget for the month considerably. He paid for it out of his own pocket since he wasn’t in the position to spend company money on entertainment for staff.

Well, when the meal was done, one of the staff thanked him and he said, “No problem, it’s the least I can do for a great year” or something to that effect. As they were leaving, someone else muttered, “Yeah, like he paid for it? The company pays for this stuff”. He ignored it, simmering inside I’m sure. So, not only was that an uninformed, incorrect statement, but now his staff may have felt he took credit for something he shouldn’t have, completely negating any goodwill that stemmed from his gesture. That was the last year he did the outings. I never asked him about it later, but that was the story as I remember it.

People Don’t Donate “Because They Have To”

More recently, I overheard someone discussing another acquaintance and admiring how much they gave to charity. They were saying how he gave thousands to this charity and so much to another and served on some board, etc. It was a nice compliment. Well, some ignoramus says, “He does that because he HAS to! He has so much damn money, he has to decrease his reportable income for tax reasons or he gets killed by the IRS!”. It wasn’t my conversation to intervene, but what a load of crap! Not only was this person completely ignorant of how tax deductions work, but they were talking with such authority and nobody challenge him on his asinine assertion. With people nodding heads and putting their hands to their chins like “Wow, I never thought of that” I’m thinking “How the hell doesn’t anyone know he’s full of it and call him out?!?” It’s rude to go butt in on a conversation that you’re not part of, especially with people you don’t know all that well, so I figured I’d post on it – and them perhaps share the link with them in a passive aggressive manner later.

In case you’re one of those people that thinks rich people give because they have to, I have news for you – they don’t have to.

Put simply, let’s say someone’s salary has their income in the top tax bracket of 35%. If they give $10,000 to a charity that is tax-deductible, they’re essentially lowering their taxable income by $10,000. In essence, you could think of it as them getting to donate $10,000 but it only cost them $6,500 to do so since they are being taxed at 35% on $10,000 less for the year.

But they still gave away $6,500!

That part gets lost on the haters. They didn’t “benefit” financially by making this donation at all. They gave $6,500 of their money for the betterment of someone else. This is not a rich person tax trick. It’s one act of kindness that millions of Americans do every year and to think that so many people don’t understand this is just frustrating to me.  Are people just jealous? misinformed?…or stupid?  I don’t get it.

On a related note, one of the big concerns for charities throughout the world this year has been what will happen to their incoming funds in the wake of the financial crisis since so much of their funding comes from wealthy people tied to the financial industry. I recently watched a 60 minutes segment on entire blocks of NYC dedicated to specialized safe schools for kids with top teachers to try and turn around the prospects for inner-city kids. The results are astounding – this is what happens when a private charity/industry combine to do something better than the government can – which usually destroys everything it touches. The program’s run by an incredible charismatic man that grew up in those conditions and it costs millions of dollars per year to run on such a large scale. The source of funds? Rich Wall Street firms and employees. They basically fund it and keep it alive and this year, the endowment is suffering because of the crash.  What would happen if this money went away entirely?  With the administration stirring populist rhetoric and fomenting hatred toward those with resources, it is ironic that they are indirectly damaging the very people that need the help the most.

So, what’s my point? Rich people aren’t all that bad.They actually help a lot of people when they could be helping themselves.

Disclosure: We’re not rich, I don’t work in the financial industry and I don’t have any family that does so either. Just sayin’

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1 Revanche January 30, 2010 at 2:12 pm

That staffer’s comment really burns my britches: what an ungracious thing to say! First off, he did assume that your dad was not paying out of pocket and he was wrong about that. But to grouse that he didn’t deserve thanks for taking time out of his day to do so, regardless of who paid the bill, is just plain rude. How did that staffer know what went into making that lunch happen? Even if the company paid, what if your dad really had to go to bat for the funds?

Not a single one of our bosses personally paid the bill for any of our meals out, but we always thanked them just the same for taking us.

2 Monevator January 30, 2010 at 3:01 pm

Yes, people think the same thing with self-employed or small business expenses – as if you can just spend money freely out of some perpetual tax deducting machine that makes everything ‘free’. (I even know self-employed people who seem to think this, and have obviously never spoken properly to their accountant).

3 Reputo January 30, 2010 at 3:46 pm

To answer your question somewhat about why people don’t understand that the rich are still giving money away even when they get a tax deduction, a lot of it probably goes to the complexity of our tax code and the fact that 50% of the people in this country pay no income tax. People buy bigger houses for the “tax deduction.” Many of the people who do pay income taxes don’t realize they do because they got a tax refund. Somehow, they miss the $10000 the government takes out of their paycheck and say that they didn’t pay taxes because Uncle Sam sent them a check for $2000. If we could get rid of paycheck withholding and have everyone pay on a quarterly basis, then we might actually get some changes to the tax code. Maybe.

4 Evan January 30, 2010 at 7:13 pm

Great Post. I remember being in Federal Income Tax class and the professor asking over and over, what is better a deduction or not paying the tax!

5 oilandgarlic February 2, 2010 at 11:00 am

I just discovered your blog and enjoy your writing and posts. You made a lot of good points in this post. However, I don’t understand why you said this current administration is stirring up hatred against those with resources. Sure, the democrats tend to side with the poor (at least with rhetoric) but hatred is too strong of a word. I don’t think anyone in the government is pushing for a populist revolution against the rich!

6 Darwin's Finance February 2, 2010 at 12:30 pm

Hi Oil,
There’s not really a speech or soundbit that goes by where I don’t hear him or his administration sounding off on “fatcat bankers”, “cadillac health plans” and other coined terms that seek to forment anger at the wealthy.

Regarding “revolution”, even though I didn’t use that word, that is actually what Obama’s agenda entails. It’s pretty obvious. If you look at virtually every policy enacted under his tenure from the bailouts to the proposed health care legislation, it has categorically always involved a redistribution of wealth from those with means to those who want what they have. And he has appointed several people who have been very sympathetic and vocal to a true revolution to overthrow capitalism as we know it in this country. This is not a political blog so I don’t focus on the administration per se, but if you research some of his czars, including the ones who resigned once some of their true intentions and prior statements came to light, you’ll have a better appreciation for where the sentiment is coming from.

7 finance February 3, 2010 at 4:40 am

great post you have there, they’re doing it because it helps them to lower taxes even if they didn’t to but it’s a way of making their tax lower. LO 🙂 I like these quote.

So, what’s my point? Rich people aren’t all that bad.They actually help a lot of people when they could be helping themselves.

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