Pharos-Tribune

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November 29, 2012

Why vague plans to limit tax breaks may soon die

(Continued)

Under this approach, if someone gave $1 to a charity, the government would also contribute, say, 15 cents more to that charity in the form of a matching tax credit. (It may be necessary for both constitutional and policy reasons to exclude religious organizations from this matching credit. Such organizations could, though, continue to benefit from a simple flat-rate tax credit that takes the form of a rebate, as with the existing structure.) The tax subsidy per dollar of charitable giving would no longer depend, as it does today, on the individual's marginal-tax bracket.

The bottom line? The legislative process will soon reveal the flaws in vague, simplistic strategies to limit tax deductions. If we are going to put in the effort to reform the tax code, we should at least try to do it right.

Peter Orszag is vice chairman of corporate and investment banking at Citigroup and a former director of the Office of Management and Budget in the Obama administration.

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