Charitable Giving and Taxes

Filing Taxes
Financial Planning

Charitable Giving and Taxes

We are going to take a moment here and talk about taxes. You may ask, “What do taxes have to do with giving to missions?!” In a word, everything. Because taxes are a factor in everything we do.

Taxes have been around for thousands of years. The Romans collected taxes. In some cases it was characterized as tribute. Similar enough. Our current system of taxation in the United States officially started in 1913. The highest rate at that time was seven percent and less than one percent of working people paid any tax. But, in just a couple of years, the highest tax rate rose to seventy seven percent.

The Harding-Coolidge administration instituted reduced regulation and taxes following World War I to induce economic growth. This era has become known as the Roaring 20s. One of the most prosperous eras our nation has known. Government revenue also prospered.

Then in 1929, Herbert Hoover became president. Hoover had been advocating for an agricultural tariff before he became president. He submitted it to Congress, many things were added to it and it became the Smoot-Hawley Tariff. Many say that this is what triggered the stock market crash of 1929. Keep in mind that a tariff can be in effect like a tax and sometimes worse. The idea seemed noble but the effect was disastrous. The tariff was designed to protect American farmers and other industries from foreign competition. The result was that the foreign countries raised their own tariffs making it much more difficult for farmers and industry to sell abroad and reduced profitability as well. Now we are in the Great Depression.

FDR entered office in 1933. He left taxes as they were under Hoover but he did institute the Bank Holiday Act. What was done under the Bank Holiday Act was pretty shocking.

  • Banks could not buy or sell silver or gold
  • Banks could not provide foreign exchange
  • Any contracts containing gold clauses were negated
  • Americans were forced to sell their gold to the US Treasury

In addition, Americans were forced to sell their gold at a discount and the Treasury devalued the dollar by sixty percent. During this time, unemployment rose, taxes were raised to the highest marginal rate of ninety four percent and World War II began. Things did not get better during the war. The economy continued to decline.

Presidents Truman and Eisenhower left the tax burden as it was and made no real changes. Then Kennedy took office and increased defense spending and reduced taxes helping to create the growth period known as the “go-go sixties.” Then from President Johnson up through President Carter many economic policies and tax increases lead to a period of stagflation. President Reagan then cut and simplified the tax code reviving the American economy. President Clinton cut government spending and reduced taxes leading to more economic growth. Then Presidents Bush and Obama increased taxes and began stimulus spending and economic growth slowed considerably. President Trump then took office and cut taxes and his policies led to growth that outperformed the GDP of Europe. In addition, tax revenues (not rates) increased while unemployment decreased.

Hopefully, you can see a pattern here. I’m sure there are some who want proof of many of these statements. But that is beyond the scope and limitations of this article. Some loved Hoover, some hated him. Some loved Kennedy, some hated him. Some loved Reagan, some hated him. And some love Trump and some still hate him.

The point here is to see that taxes absolutely impact our economy and therefore our lives. In a nutshell, taxes are used as positive incentive or a negative incentive. Some would say taxes are manipulative. Our objective, then, should be to take advantage of the positive incentives and mitigate the negative incentives. Real Estate and Charitable Planning can be two of the more powerful tools to take advantage of the positive incentives. We will keep our focus on Charitable Planning. Our next article will go into more detail on some of the tax advantages. We have touched on some but we will go a little deeper next time.

Please note: All charts and numbers are for illustration purposes only. Accuracy is neither warrantied nor implied.  We are not attorneys or tax advisors. This information is educational only. Not to be considered as advice or recommendations. It is imperative that you consult with a tax advisor and/or attorney when considering any of these concepts. In addition, it is critical that the attorney, tax advisor, and financial advisor are knowledgeable and practiced in these areas.

If you would like help finding such an advisor, we will be glad to introduce you to an experienced planner with your best interest in mind. Please give us a call at 1-800-522-4324.

Read previous articles on the art of Chartiable Giving


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