Don’t tax the rich; entice them

A friend passed along a video the other day of an interview of Nobel Laureate Robert Schiller by Wall Street Journal contributor David Wessel that suggest a different focus for tax-cutters.
Schiller cited the work of Psychologist Yaacov Trope at New York University, who has studied the behavioral patterns on the super-rich.
Schilller suggested that the widening income inequality in our society could only get worse in the next twenty to thirty years and it is time to start planning for that eventuality. But, it occurred as he continued to speak, why wait?
The Missouri legislature is more than halfway through a session in which it badly wants to cut taxes. The latest thing is that Governor Nixon has told the tax-cutters their proposals are “non-starters” unless they also send him significant changes in the tax credit program. It’s a balancing act is what it is. Reducing the amount the state loses when it foregoes collecting taxes for this or that worthy project will offset the amount the state will not collect when it cuts taxes.
In the Senate, Will Kraus is on his fourth proposal—and he hopes the Senate will approve it this week, for all the good it will do if there’s no tax credit reform legislation that also gets to the governor.
In his interview Schiller suggests taxing the rich is one solution when income inequality reaches a certain level. He admits the idea might be the “most horrible, politically inexpedient thing politically right now.” And that’s when he brings up Trope’s studies.
He suggests expansion of the charitable donation deduction as an alternative to taxing the rich. There’s nothing better to do with a huge sum of money, he says, than give it away. Become a Bill Gates or an Andrew Carnegie, he suggests. But an incentive is needed to encourage that sharing. Looser charitable donations deductions could be that incentive.
Let’s noodle this around a little bit, based on the comments of Schiller and Trope.
As income inequality widens, government encourages those at the high end to give away large amounts of their money instead of government taking it away from them through taxes the government lacks the political will to enact anyway.
Proper expansion of the charitable deduction system could lead to millions, billions of dollars flowing into universities for new buildings, laboratories, endowments, scholarship programs, millions or billions flowing to benevolent charitable organizations that serve public needs. Pressure on government to spend tax money for these things is relieved. The poor are not a component of tax cut-tax increase puzzle.
Real economists, those who study the psychology of finance, and deep political thinkers might be able to create a more functional plan. But expanding the charitable donation exemption is an approach that hasn’t been discussed during the search for a tax cut structure than pleases enough people to get enacted, which means approved by Governor Nixon.
Or maybe a Nobel Laureate doesn’t know what he’s talking about.

http://live.wsj.com/video/robert-shiller-on-investing-in-the-housing-market/30973DA4-4F30-41C4-B6EA-2413646E0CC6.html#!30973DA4-4F30-41C4-B6EA-2413646E0CC6

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