Presently, if an individual contributes stock that has been held for
more than a year to a qualified charitable organization, he or she gets
an itemized tax deduction for the fair market value of the stock
contributed, and also gets to avoid the capital gain tax that would
otherwise apply if the stock were sold.
Thus, for very high income individuals, the tax benefits endowed on them
by this practice, particularly starting in 2013, are really obscene.
Let's say a taxpayer making above $1 mil in 2013, contributes long-term
capital gain common stock, which has a tax basis of $10,000, but is
worth $200,000 when contributed. Thus, this taxpayer not only gets a
charitable itemized tax deduction of $200,000, which yields a tax
benefit of 39.6% X $200,000 = $79,200, but he also is able to avoid
capital gains tax of 20% on the $190,000 appreciation, or another
$38,000. Hey, that's not bad.
Clearly, the tax loophole here is that capital gains tax of $38,000 is avoided.
Thus, my recommendation is that starting in 2013, this egregious tax
loophole of avoiding capital gains tax is eliminated entirely, on high
income taxpayers with Adjusted Gross Income above $1 mil, and with
taxpayers with Adjusted Gross Income above $250,000, but less than $1
mil, having a portion of this capital gain being taxed, with this
percentage recognized increased as Adjusted Gross Income above $250,000
increases.
Some people argue that this is going to hurt charities. But when the
country is in such dire financial traits, I would much rather eliminate
this clearly egregious tax loophole that benefits charities rather than
having to cut critical items like Medicare Benefits, Medicaid Benefits,
Food Stamps to the poor, and Pell Grants.
All of the US Tax Revenues raised by the elimination of this egregious
loophole favoring the very wealthy should be used to reduce the US
Deficit.
