Outside the marginals

a commentary on the politics that followed the UK 2010 & 2015 elections

Being charitable towards the rich

If a non tax-payer donates £100 to charity the rest of us do not top up his donation.

If a standard rate tax-payer donates £1,000 to charity the rest of us top it up with “gift aid” of £250 (The charity receiving £1,250 – we contribute 20% of that amount to support the individual’s charity)

If a maximum rate (currently 50%) tax-payer donates £1,000,000 to charity the rest of us top it up with “gift aid” of £250,000 (The charity receiving £1,250,000) and then we give a further £375,000 back to the maximum-rate tax payer to “support his philanthropy” – we contribute 50% of the amount the charity receives.

So the richer someone is, the more we have to support their charitable urges – we have to be charitable to them – at the expense of other things on which our taxes could be spent. How so?

Let’s just check that.  The current concept is that charitable donations can be made out of before tax income – you receive tax relief at your marginal rate.  To make things comparable let us consider the effect of a charity receiving £1,000 in each of the three scenarios above.

Tax Relief on Donations
“Poor man” “Average man” “Rich Man”
Marginal Rate 0% 20% 50%
Charity Gets £1,000 £1,000 £1,000
Gift Aid (A) £0 £200 £200
Tax Relief (B) £0 £0 £300
Cost to the Individual £1,000 £800 £500
Subsidy from us (A+B) £0 £200 £500

There are two things that worry me about this:

  • The richer you are (in terms of taxable income) the more we have to support your philanthropy – which might be to support causes like Medical Research that most us may support or it might be to support a donation to a more obscure charity that the majority of us might not prioritise.
  • By giving relief to the rich we do not have as much tax income to support causes like the NHS, Welfare, Industrial Strategy, Defence etc.  In effect we are forced to prioritise the choices of the rich over the choices of the many.

Some philanthropists claim that restricting tax relief on donations will under-mine charitable giving.  This is based on what I see (from my viewpoint) as a miss-understanding of the level of giving by the individual.  In the above table the amounts given by the poor,  the average and the rich are £1,000, £800, and £500 respectively (the amount by which their disposable income has decreased as a result of their generosity).  The rest of the “gift” comes from us – but we (the tax-payers) do not appear in many lists of donors – or get asked to fancy dinners.

So if tax relief / gift aid was totally abolished, the individuals could continue to give the same amounts.  Society could then decide whether the amounts previously given as relief / gift aid should go to the NHS, Welfare etc., or to Medical Research or Opera etc.  The wealthy would not however see their generosity publicly amplified at our expense – but that surely would not reduce their generosity?

Related Posts

The problem with the rich

Impoverish the poor or soak the rich?

Bonus Fetid Culture

Playing the percentages

Taxation and the behaviour of the rich vs. the rest of us

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3 thoughts on “Being charitable towards the rich

  1. Similar comments now showing on BBC piece Artful (tax) dodgers?

  2. Pingback: Tax and Consent | Outside the marginals

  3. Pingback: Honour and Dishonour | Outside the marginals

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