1. Chapter 18 You are interested in estimating the effects of tax breaks on the

Question

1. Chapter 18 You are interested in estimating the effects of tax breaks on the level of charitable contribution. How could observing changes over time in tax rates & associated charitable contribution levels help you to distinguish between marginal & inframarginal effects of the tax break?   Are there provisions in either the Senate or House bill that may impact the level of giving by certain taxpayers?

2. Chapter 20. What is the theoretical justification for the Laffer curve? Basing your view on the empirical evidence described in the text, is the approach the Federal government currently regarding tax reform the best one for the country at this time? Support your answer.

3. Chapter 21 Congress proposes reducing the tax exemption for children in married families where only one parent works outside the home. Why would this proposal improved equity, from a Haig-Simmons perspective?

4. Chapter 22 Gale and Scholz (1994) estimate that increasing the contribution limits for IRAs would have little effect on the overall rates of savings. Why do you think this might be the case? Are there any changes being proposed as part of tax reform relating to IRA’s?

5. Chapter 23 Why does the property tax, as implemented in this country, provide a disincentive for property owners to improve their property? How would a land tax alter these incentives?

Explanation / Answer

1.Answer

Federal law significantly limits the political activities of charities, but no
one really knows why. In the wake of Citizens United, the absence of any strong
normative grounding for the limits may leave the rules vulnerable to
constitutional challenge. T his Article steps into that breach, offering a set of
policy reasons to separate politics from charity. I also sketch ways in which my
more-precise exposition of the rationale for the limits helps guide interpretation of
the complex legal rules implementing them.
Any defense of the political limits begins with significant challenges
because of a long tradition of scholarly criticism of them. Critics of the limits
suggest that the “market failures” that justify tax subsidies for charity also afflict
group efforts to monitor politicians and organize politically, so that the subsidy
should extend to cover those activities. These claims, though, overlook a series of
additional issues suggested by transaction cost economics and other aspects of
economic theory.
Most significantly, even if lobbying and electioneering should be
subsidized, it does not follow that these functions should be carried out by
charities. I argue that combining politics with charity produces a set of
diseconomies of scope, including higher agency costs, diminished “warm glow”
from giving, and greater inframarginality of deduction recipients. In addition, I
argue that the economically ideal tools for reaching the socially optimal levels of
charity and lobbying are incompatible with one another. While there are also off-
setting gains from the combination, many of these gains further exacerbate the
diseconomies.

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