Subject: Re: Harris and the Dem tax proposals,
Presumably this type of proposal would also modify the provisions that say that appreciated assets can be gifted without triggering a requirement to pay taxes.

There's two kinds of gifts to consider: donations to qualified charitable organizations, and gifts to any other kind of organization or individual.

Gifts to charitable organizations are not only tax free to both the giver and the charity, they can actually generate a tax benefit to the giver.

Other kinds of gifts can generate a tax on the giver (the gift tax, which is a companion to the estate tax) and also transfer any income tax liability to the recipient.

Buffet (and Gates, and others, I'm sure) are engaging in the first kind of gifts. They make gifts to qualified charities. Those gifts are free from the gift tax AND they get to claim a tax deduction for the charitable contribution on their income tax return. Even more, the charitable contribution is based on the current FMV of the donated assets. So they can get a tax deduction not only for their original cost (which for these two gentlemen is something negligible) but they can optionally choose to deduct all of their unrealized appreciation. But there are still limits. Because they're going to go for the FMV option, the actual income tax deduction will be limited to 20% or 30% (sorry I don't recall exactly - this isn't an area I practice in) of their AGI, with any excess carrying over for 5 years. I haven't followed closely since Buffet started his gifting program, but his stock gifts in the early years were well in excess of his allowable deduction. And since he was giving stock every year, his excess deductions expire and go unused.

I can actually make a public policy argument for allowing this tax treatment. Because the money is going to charities, and because those charities are watched over by the state in which they are organized (and shut down if they are not doing adequate charitable work with their money), they are able to do quite a bit more work with this untaxed money than they would be if it were taxed first. Presumably, the work charities do is going to be things that a government might do if charities didn't step in, so they are actually saving the government some money. Plus charitable organizations attract a fair amount of volunteer work - work that a government would have to pay for. So charities can leverage their contributions to do even more than a government could do with the same money. All good stuff when they work right.

--Peter