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Published on April 19th, 2012 | by Robert Bickers
Image © [caption id="" align="alignnone" width="562" caption="A Cheque to charity- a thing of the past? © Robert Bickers"][/caption]   The latest measure in last month’s budget to attract widespread criticism has been the proposal to limit the amount of tax relief that high earners can claim on donations to charity. The fundamental principle behind this change is sound, in that it is correct that high earners should contribute significantly to the running of the state regardless of how much they contribute to society through charitable giving. The old system of unlimited tax relief on donations to charities was not fair as it allowed the rich to pay inappropriately low rates of income tax. You might ask, why does it matter if someone pays a low rate of tax if they contribute to society through charitable giving? My answer would be that charitable donations alone are not a fair way to contribute to society as they do not distribute the wealth to the various causes that require public funding. Individual charities, despite having significantly positive social results in their areas of operation, do not help all areas of society in the same way that the state does. So therefore, by a person donating to charity instead of paying tax, they are only contributing to help particular parts of society that they feel to be important. This is not acceptable, it should be the public as a whole who decide which social projects are important, not rich individuals who decide what society needs by targeting their funding. Hence it is important that tax is the primary way that all people (in this case the rich) contribute to society, as it is only through a democratically elected government distributing funds that all important areas can get support. I am by no means arguing that Philanthropy is an inappropriate way of contributing to society, only that it should never replace taxation as the primary source of funding for public projects. The government’s decision to limit tax relief on donations is therefore fundamentally sound as a principle. However I do worry that the current proposed cap of tax relief on donations of 25% of earnings is too low and will discourage donations to charity.  A limit of 50% would be more appropriate as it would safeguard large donations to charity as well as lead to a fair amount of tax being paid on the remaining 50% of earnings. In order for this to raise a fair amount of tax revenue, other tax reliefs must be drastically curtailed.

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Generosity or tax avoidance?

A Cheque to charity- a thing of the past? © Robert Bickers

 

The latest measure in last month’s budget to attract widespread criticism has been the proposal to limit the amount of tax relief that high earners can claim on donations to charity. The fundamental principle behind this change is sound, in that it is correct that high earners should contribute significantly to the running of the state regardless of how much they contribute to society through charitable giving. The old system of unlimited tax relief on donations to charities was not fair as it allowed the rich to pay inappropriately low rates of income tax.

You might ask, why does it matter if someone pays a low rate of tax if they contribute to society through charitable giving? My answer would be that charitable donations alone are not a fair way to contribute to society as they do not distribute the wealth to the various causes that require public funding. Individual charities, despite having significantly positive social results in their areas of operation, do not help all areas of society in the same way that the state does. So therefore, by a person donating to charity instead of paying tax, they are only contributing to help particular parts of society that they feel to be important. This is not acceptable, it should be the public as a whole who decide which social projects are important, not rich individuals who decide what society needs by targeting their funding. Hence it is important that tax is the primary way that all people (in this case the rich) contribute to society, as it is only through a democratically elected government distributing funds that all important areas can get support.

I am by no means arguing that Philanthropy is an inappropriate way of contributing to society, only that it should never replace taxation as the primary source of funding for public projects. The government’s decision to limit tax relief on donations is therefore fundamentally sound as a principle. However I do worry that the current proposed cap of tax relief on donations of 25% of earnings is too low and will discourage donations to charity.  A limit of 50% would be more appropriate as it would safeguard large donations to charity as well as lead to a fair amount of tax being paid on the remaining 50% of earnings. In order for this to raise a fair amount of tax revenue, other tax reliefs must be drastically curtailed.

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