Like many Americans affected by the traumatic hurricanes that devastated the south in August and September, graduate student Dan Kelly wanted to help.
His solution, however, was not to donate large sums of money or collect food and clothing, but to create a new tax plan.
"This idea could potentially become a tax law for the years 2005 and 2006. It still has a long way to go but it is generating speed and encouragement," Kelly said.
Kelly, who is enrolled in a Tax Research graduate course offered in the M.S. in Accountancy program, has created a proposal that would give everyone who donates money to hurricane victims a deduction.
"At times like this it is very important to stop thinking about the bottom line and start thinking with our hearts," Kelly said. "These people need our help and it is our responsibility to step up and do whatever it is that we can to help."
Under the current tax system, Kelly said all taxpayers are allowed to itemize their deductions - which include some medical expenses, state and local taxes, charitable contributions and other miscellaneous items.
"After itemizing a taxpayer compares their itemized deductions to the standard deduction and takes whichever is higher. Seventy percent of the taxpayers take the standard deduction, meaning only 30 percent really receive a tax break for their donations," Kelly said. "My plan offers a deduction for hurricane relief donations in addition to the standard deduction."
Kelly's proposal would impact millions of taxpayers if implemented, said professor of accountancy James Wittenbach, who teaches Kelly's Tax Research course.
"Dan's plan is unique in that it provides taxpayers who do not currently itemize their deductions a $1,000 deduction for contributions to charitable organizations that help the victims of Katrina and Rita," Wittenbach said. "Seventy percent of taxpayers would be entitled to their regular standard deduction plus the amount they contributed to organizations that assist hurricane victims."
While Wittenbach's program focused solely on tax research methodology in the past, he said he introduced tax policy into the course this year.
"The first day of class this fall, I broke the students into teams of five and asked them to provide me with four or five tax credits that are currently not in the Internal Revenue Code but would be excellent additions," Wittenbach said. "I ask each group to not only come up with new tax credits, but explain the social, economic or political reason for why the tax credit should be enacted by Congress."
Kelly took the exercise seriously. About six weeks after the project was assigned, Kelly approached Wittenbach and said he had a developed a tax proposal that he felt could significantly benefit the victims of Hurricane Katrina and Hurricane Rita.
"The actual idea took about five seconds. It took me maybe an hour to think it through and understand the impact, but the actual idea just popped in my head," Kelly said. "I was reading an article in the Wall Street Journal about the Hurricane Katrina Emergency Tax Act of 2005 ... I was interested to see what the federal government was doing to help the victims of the hurricanes."
Word of Kelly's proposal has spread outside of Notre Dame. On Oct. 4, Jim Jaeger, Deputy National Tax Managing Partner from Deloitte from Los Angeles and Schott Ecker, Senior Manager at Deloitte from Costa Mesa, attended Wittenbach's Tax Research class to make a presentation.
"Following their presentation I asked Dan Kelly if he would be willing to make a power point presentation on his tax proposal," Wittenbach said. "When Dan was finished both Jim and Scott were very impressed."
Kelly said it was complete luck that the men visited his class and were willing to hear his presentation.
"They were both impressed with the idea, and especially how this idea will shift a portion of the economic burden of this relief effort off the federal government and spread it out across the taxpayers without actually raising taxes," Kelly said.
Wittenbach said the men were most impressed by Kelly's understanding of the economics of the transaction.
"For example, a taxpayer in the 25 percent marginal tax bracket would save $250 in taxes by making a $1,000 contribution. However, as Dan explained, although the federal government will lose $250 in tax revenue there is $1,000 going to benefit hurricane victims that the government doesn't have to spend," Wittenbach said. "Put differently - the taxpayer, the federal government and the victims of hurricanes Katrina and Rita all win."
The men were so impressed by Kelly's presentation that they will be flying him to Washington, D.C. on Oct. 17, with classmate Katie Landsberg, to present to Deloitte's National Tax Policy office.
"Deloitte's National Tax Office monitors tax proposals and tax legislation on a daily basis. They work very closely with policy makers on Capital Hill," Wittenbach said. "The hope is that following Dan and Katie's presentation, the tax policy professionals at Deloitte will carry the proposal to Capital Hill where members of the Ways and Means Committee and the Senate Finance Committee will get a chance to consider it."
Though Kelly said the idea is still a "long shot" at this point, he is trying to get the idea out so more people can learn about it.
"The impact if this did become law will be felt nationwide. First it will help generate more donations to the relief effort," Kelly said. "It will give all taxpayers who take the standard deduction a break for their donations. Finally, it will reduce the burden on the government to fund the relief efforts."
Even if Kelly's proposal does not become law, Wittenbach said the students are lucky to be traveling to Washington, D.C.
"[Kelly and Landsberg] will be getting an opportunity to see how tax legislation works in this country. Deloitte plans to take them to committee hearings in both the Senate and the House and will also be giving them an inside look at how Deloitte's National Tax Office works," Wittenbach said. "This is an opportunity few students would ever have."
Kelly's classmates were equally impressed by his idea and helped to spread the idea by notifying newspapers and congressmen.
"All of the students in the M.S. in Accountancy class are sending Dan's proposal to their Senators and Representatives," Wittenbach said.
