An Idea on Charitable Donations
A good way to reform taxes would be to eliminate the tax deduction for donations of property to charities. This is much abused, and requires difficult record-keeping if the value is to be accurately determined. Instead, however, if I have property that I wish to donate, I should be allowed to sell it and then give the money to the charity without having to report the capital gains part of it as income. Here’s how it would work.
Under current law, if I buy a painting for $10,000 and its value rises to $15,000 and I donate it to a charity, I get a deduction of $15,000 from this year’s income. If, instead, I sold the painting for $15,000 and gave the money to the charity, I would still get the $15,000 deduction, but I would also have to report a $5,000 capital gain and pay tax on that. I would pay more tax than if I donated the painting directly, and I would have to show how much I paid for the painting, the basis, which can be awkward sometimes (suppose I had inherited it instead, or received it as a gift).
Under my proposal, if I donated the painting, I would get no deduction. If I sold it and gave the $15,000, though I would get the deduction for $15,000 without any need to report the $5,000 income or to find out what the tax basis was.
Of course, my proposal isn’t perfect. The person who wanted to give his painting away to his alma mater would be discouraged from doing so under it. Maybe some special provision could be made, some costly and conservative valuation process for property gifts– say, the requirement that $2,000 be paid to cover the cost of an IRS valuation, and no possibility of doing your own valuation.