Question

If Ms. Rich gives $1000 to charity how is her tax payment changed in comparison to a $1000 donation by Mr. Poor?

Answer 1

If Ms Rich gives $1000 towards charity, there is a deduction in the tax she has to pay. This is because in the United States, any amount that is given as a charity can be deducted from the income that the person has to pay a tax on. The donated amount is exempted from tax. This charitable tax deduction helps the individuals who are rich more than the lower income individuals. The Republican tax bill increased the standard deduction amount and this way made many Americans ineligible for the tax deduction.

In this scenario if Ms Poor donates to the charity she might not necessarily be able to exempt that money from paying tax. It should also be noted that unless the individual earns high income, it does not make sense to use the amount paid to charity as an exemption.