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Investor's Insight - Wednesday, January 11, 2006
"A Digest of Investment Opinion From the
World's Leading Financial Advisers"

Comment The Post Below...

by Scott Burns

My Christmas column on charitable giving offered IRS
statistics indicating charitable giving declined as
income rose.

That's not what one would expect.

Scores of readers responded, and I'd like to share
some of their comments.

Kurt in Salem, Ore., wrote: "I work for a finance
company and have many high net worth clients. I have
observed with much curiosity the inverse relationship
you describe where those with higher incomes give a
disproportionately lower share of their income to

Some readers, however, were skeptical. Many went dir-
ectly to the weakest point in the statistics -- that
few lower income taxpayers itemize their deductions --
but the figures were based on returns with itemized
deductions. Rich A., a Houston reader, went to the
source data and observed that only 9 percent of lower
income returns were itemized, while 89 percent of high
income returns were itemized. It's a point well-taken.



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Z.A., an hourly airline employee in Texas, explained
that while his adjusted gross income was often around
$16,000, he lowered his tax liability through rigorous
use of noncash donations of used clothing, appliances,

Catherine M. suggested that many of the people with
lower reported incomes might also be workers in cash
businesses such as restaurants and salons. As a result,
their charitable donations may reflect their total cash
income rather than their reported W-2 income.

G.R. in Dallas pointed out that the differences may be
due to the tax code itself. "The top 50 percent of
earners in the U.S. pay 96 percent of total income taxes.
The lowest income group pays little or no taxes and may
actually pay 'negative' taxes due to government subsi-
dies. Many people see taxes as charitable giving, since
much of it goes to support the poor. Further, when high
income people do give to charity, the IRS phase-out rules
give them only partial credit (or none at all) for their

G.R. also observed that lower income earners have little
fear of IRS audits and may feel free to exercise "more
artistic license on reported income and giving. High in-
come people are not necessarily more honest, just more
closely watched."

He wasn't alone.

Walter A. chided me for "stoking the fires of class war-
fare." He pointed to the role government plays in "re-
distributing money from those more fortunate to those
less fortunate."

Randy G. in Plano, Texas, went further: "I have worked
very hard, taken big risks, employed many people and
generally have contributed to the economy significantly
for over 30 years. My reward for that is that I am ex-
pected to pay over 35 percent of my income to the fed-
eral government in taxes."


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Scott C. in Minneapolis wrote that he and his wife
"don't contribute an especially large percentage of our
income to charity. We've been working at increasing our
contributions, but I also find that as we make more
money and pay more in taxes, I look at (paying taxes)
as a form of charity."

Jim C. wrote that the figures confirmed his experience
as a door-to-door canvasser for a nonprofit group: "The
most open and generous people tended to be the working
poor, who would often not only give me a crumpled $10
bill, which really meant something to them financially,
but would invite me in for dinner."

Richard K., who has collected on street corners for a
number of national charities, offered that he had "no-
ticed that you get more contributions from people driv-
ing economical and even beat-up cars than you do from
folks driving BMWs and Lexuses."

Stanley D., a Texas reader, observed that the IRS knows
nothing about his giving, but that he and his wife made
gifts in 2005 in the middle to upper five figures. Where
did the giving go? It went to help a woman they knew
could not survive on her small Social Security check.
It went to support a poor relative. It went to help their
children achieve independence.

The pastor of a poor church in San Antonio wrote: "The
poor taste poverty. The poor taste the hopelessness that
many poor live in. The poor taste the sweetness of a
little help."

In fact, the vast majority of the people reading this
column are remarkably fortunate. Some would say blessed.
Sadly, daily life dims our ability to realize this wonder-
ful fact.

That is why giving is important. The discipline of reach-
ing a giving goal is a kind of meditation -- it allows us
to transcend concerns with tax rates. It may even reveal
what is important. And what's not.

(Investor's Insight reflects the opinions of experts. It does
not recommend any specific investments, and no endorsement is
implied or should be inferred. For more information, contact
the individual firms cited).



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