David Cay Johnston received the Pulitzer Prize for his coverage of tax policy while at The New York Times. He now teaches at Syracuse
University College of Law and is the author of three books about taxes: Free Lunch, Perfectly Legal, and The Fine Print.
In this column, Johnston writes that Arizona lawmakers let some donors make charitable gifts in a way that makes the donors richer, a trend sure to spread unless Congress stops it.
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Arizona taxpayers who itemize deductions on their federal returns can turn a profit by giving to charity, thanks to a system of state tax credits.
Instead of a tax savings that merely reduces the cost of charitable giving, in Arizona, five individual tax credits can be cumulatively applied to make a tidy profit from the federal government. The biggest profits can come from giving to religious schools, raising questions about both the separation of church and state and the First Amendment.
Charitable donations of just under $3,300 by a married couple in the top tax bracket can yield a profit of almost $1,300. That is a nearly 40 percent return. Best of all for the donor, that return is risk free and guaranteed, so long as one complies with the rules, which the Legislature has gradually turned from maddeningly complex into really simple.