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In Retrospect of 40 Years, Another Look at Andrews’ Personal Deductions Argument: A Comparison of Charitable Contributions and Child-Care Expenses

DePaul Business & Commercial Law Journal Vol. 15:55, 2016

26 Pages Posted: 19 May 2017  

Limor Riza

Carmel Academic Center, School of Law

Date Written: 2016

Abstract

This paper endeavors to find a coherent justification for those expenses that have a normative aspect of altruism, such as charitable contributions and childcare expenses. Accordingly, the paper compares these two major types of expenses to determine whether they should be deducted from gross income. The methodology is to examine whether those expenses meet the three goals of taxation: revenue raising, regulatory and redistributive goals. Only expenses that serve all three purposes help maintain a comprehensive and consistent tax system.

Apparently, child/dependent care expenses and charitable contributions are dissimilar, though they have a lot in common. Both expenses are not strictly private since they have a normative aspect of altruism – helping the other, where the "other" is any person except for the taxpayer himself/herself. A comparison of the two types of expenses shows that by virtue of an expense’s normative aspect, both expenses promote redistribution and regulatory objectives. The discussion hitherto is analogous to Andrews’ landmark paper. Although, Andrews' work is vital to this analysis it misses an important distinction. The difference occurs when we refer to the first objective which requires us to tackle the deduction issue from both sides of the equation – use and source.

We believe that by focusing on the use side (as Andrews) we may miss an important distinction. The ex ante/post distinction is fundamental for differentiating between these two normative expenses. Charitable contributions can be made after the income has been produced, while dependent care expenses are linked to the production of income itself. This is because dependent/child care expenses are mixed expenses that carry both business and private elements (preserving the longstanding dichotomy). This direct link between the use and source is vital to income production since a dependent care is a coercive ex ante expense. Conversely, other normative expenses which are not prerequisites for income production should not be deductible (and may only receive other tax relieves). Following this analysis, our recommendation is to treat childcare expenses as deductions and charitable contributions as credits – the exact opposite of US applicable law.

Keywords: Charitable Contributions, Child/Dependent Care Expenses, Altruism, Andrews, Mixed Business and Personal Expenses, Personal Deductions, Private Expenses, Tax Objectives, Redistribution

JEL Classification: H23, H24, K34

Suggested Citation

Riza, Limor, In Retrospect of 40 Years, Another Look at Andrews’ Personal Deductions Argument: A Comparison of Charitable Contributions and Child-Care Expenses (2016). DePaul Business & Commercial Law Journal Vol. 15:55, 2016. Available at SSRN: https://ssrn.com/abstract=2970829

Limor Riza (Contact Author)

Carmel Academic Center, School of Law ( email )

Haifa
Israel

HOME PAGE: http://www.carmel.ac.il/pages/show/161

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