Will the British Rich Stop Giving?

Posted: 27 Mar 2012 09:04 AM PDT

The U.K.'s new budget has ignited all manner of class warfare. Retirees say it's a gift to the rich at the expense of the poor. The wealthy say it's another attack on success and job creators.

But one piece has gone largely unnoticed: the limit on philanthropic giving. The measure would cap the tax relief for wealthy givers at 25% of their annual income, or £50,000, whichever is higher. It takes effect next year.

It's similar to the Obama proposal, which would limit charitable deductions for high earners to 28% for couples with incomes of $250,000 or more or individuals with income of $200,000. The White House says limiting itemized deductions would shrink the deficit by $584 billion over 10 years.

The U.K. expects its measure (along with caps on business deductions) to result in $490 million in saved revenue.

“Giving shouldn’t mean you pay no tax,” according to the U.K. Treasury.

Yet charities say the plan would put a chill on philanthropic giving just as the U.K. government is trying to create a new culture of giving.

The government has waged a massive PR campaign in the past two years to get the British wealthy move toward the American culture of philanthropy. Last year, Prime Minister David Cameron released the "Giving White Paper" which aimed to “renew Britain's culture of philanthropy by working with charities and businesses to support new ways for people to contribute which fit into busy modern lives.”

It included millions in government support for charity groups, research and committees.

The new tax, say many charity groups, rolls back the efforts. The new limits will be especially damaging to people who make a one-time gift of more than half of their wealth to a foundation — which the wealthy often do for estate planning.

“People should not have to pay tax on money they have given away for the public benefit,” said Chris Lane of the Charity Tax Group, quoted in the Third Sector magazine.

Do you think the new limits would reduce giving in the UK or U.S.?

Do the Rich Work Less as Their Taxes Increase?

Posted: 26 Mar 2012 10:31 AM PDT

: Everett Collection

The idea of “going Galt” has been a key argument for those opposing higher taxes on the rich.

The wealthy, according to the argument, are just like everyone else when it comes to incentives. If you tax their income above a certain rate, they will stop working, stop creating jobs and stop creating wealth that gets spread around the economy. (The term “going Galt” comes from Ayn Rand's hero in “Atlas Shrugged,” John Galt).

Yet a new paper by Jeffrey Thompson at the University of Massachusetts Amherst Political Economy Research Institute says the “going Galt” argument doesn’t hold up to close research. According to the data, “affluent households are unlikely to make substantial changes in their 'real' economic behavior in response to modest tax increases.”

Reviewing two earlier studies tracking American earners during the 1980s, Thompson finds that “high-income households did not alter their labor supply in response to large federal tax changes.” A second study showed that high-income doctors didn't change their work hours at all in response to changes in state tax laws.

The study concedes that if the wealthy had to pay a tax rate of 100%, they would work less. And it says that the reported income or “taxable income” of the wealthy does change in the face of tax changes: a fact often cited by Arthur Laffer and other conservatives.

Yet Thompson says that these changes are the result of the wealthy managing their incomes through stock sales. When taxes are expected to go up, they sell more in advance to avoid them.

The study says that “these households are pursuing tax avoidance strategies, rather than altering their real economic behavior.”

Do you think the wealthy would change their work under the Obama plan?