The 1% Solution

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Hungarian income taxes are a simple affair relative to the US. It is essentially a flat rate (16%) with limited deductions and exemptions (again, as compared to the US). I could suggest that they are an even simpler affair in that the compliance rate is pretty low — estimates are that up to 71% of filers under-report their income, which calls to mind Steve Martin’s great tax advice.

One of the interesting quirks speaks volumes about the worldview here (and really, throughout Europe) over the centrality of government. Near and dear to our hearts are charitable contributions; in Hungary there are no deductions for contributions made to a charitable institution, but filers can designate an approved church to receive 1% of their tax payments, and another charitable institution to receive another 1% of their tax payments. It’s closer in concept to the $3 optional contribution to the Presidential Campaign Fund in the US than it is to our method of allowing personal deductions for such gifts.

It’s an interesting politico-philosphical issue. On the one hand, you have the possibility of broader, widespread support for important organizations in the life of any state. On the other, those organizations face an uphill battle to engage people in direct support for their missions when it can be truthfully said that the government is handling it. Not to mention the whole process of governmental review and approval of churches, and in turn having churches receiving payments from governments.

Of course, these payments take on many forms — in the US, for example, churches typically are exempt from property taxes, so just because no one in government is sending them a check doesn’t mean they’re not getting paid.

Jesus had a way of cutting to the heart of the issue, though. When the Pharisees sought to trap him by asking him whether or not he believed it was lawful to pay taxes to Caesar (in their minds, an evil occupier of their homeland), Jesus replied, “Why put me to the test, you hypocrites? Show me the coin for the tax.” And they brought him a denarius. And Jesus said to them, “Whose likeness and inscription is this?” They said, “Caesar’s.” Then he said to them, “Therefore render to Caesar the things that are Caesar’s, and to God the things that are God’s.” (Matthew 22:17-21)

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