Nobody outdoes the Wall Street Journal at decrying the federal deficit, berating President Obama for it, and predicting economic disaster if it isn’t fixed.
So it was amusing to see the Journal weeping over a lapsed tax break that added to the deficit, and begging Congress to bring it back—a tax break that slapped Uncle Sam in the face, welshing on the contract that underlies trillions of dollars in retirement savings.
In its own special way, let the Journal give you the background. Here are the opening paragraphs from a late January piece: “Sixty federal tax provisions expired in 2011, but one stands out for causing older taxpayers trouble: the individual-retirement-account donation rule.
“This popular provision allows IRA owners 70½ and older to contribute up to $100,000 of IRA assets directly to a tax-free charity. Such donations aren’t tax deductible, but neither do they count as income that might trigger higher taxes on Social Security payments or higher Medicare premiums. Now this benefit is gone, at least until Congress restores it.”
That’s how the Journal spun the story. Here’s the real reality:
The IRA charitable contribution allowed affluent taxpayers to avoid paying taxes on mandatory required distributions from retirement accounts. The tax payback on those accounts is the implicit contract that Uncle Sam struck long ago to encourage retirement savings—tax-free contributions, tax-deferred gains, taxes due and payable when the funds are withdrawn.
The IRA charitable contribution was a siphoning away of public monies to private charities. The money was diverted not only from the federal Treasury, but from hard-hit state and city coffers as well. To put it bluntly, the IRA charitable contribution was thievery—enabled by lawmakers always ready to repay their donors by twisting the tax code in their favor.
The Journal is clearly rooting for an encore. As the paper put it, “No fix is in sight, although many experts think lawmakers will act eventually. In 2010, the law also expired, and Congress didn’t re-enact it until mid-December of that year.”
There was never any genuine reason for the IRA charitable contribution. It gave a tax break (in fact a multiple tax break; see paragraph five above) to people in no need of a tax break. As for the charities that benefitted, contributions to charities have long been tax-deductible. The IRA charitable contribution was just another example of benefitting the few at the expense of the many, and the deficit be damned.
Even more galling is the fact that the affluent—those who are running away from the tax payback—are precisely the ones who always benefit most from the retirement account tax break. Between IRAs and 401(k)s, the government foregoes $65 billion in tax revenues a year. It’s the third-largest of all tax breaks, trailing only employer-provided health insurance and the mortgage interest deduction. Overwhelmingly, it’s upper-income households who reap the biggest rewards.
The Wall Street Journal should be ashamed of itself to encourage this sort of tax avoidance (but may be too tone-deaf to even know why). Congress should also be ashamed if it even thinks about bringing IRA charitable contributions back.
Jason Scorse