Monday
Mar302009
Reduced charity deductions? Bad idea!
Monday, March 30, 2009 at 6:03PM
The Tuesday press conference in the East Room Tuesday night was laden with old stalwarts as well as many new faces. There were not many surprises and, in fact, the conference was well planned, allowing only certain reporters to ask questions. No one even dared to raise their hand. As a result, there was not much in the way of news. President Obama explained pieces of his policies in a manner that got many of the not-for-profit groups out in full force the next day.
The issue? A reduction in the percentage allowed for charitable deductions in the tax code. It is not exactly breaking news that the Obama administration is looking high and low for ways to meet its revenue projections. Its projected rate of overall growth of the economy differs from that of the Congressional Budget Office. President Obama had proposed to collect insurance payments from individual veterans' private insurance for health care treatments that have in the past always been paid by the Veterans Administration. That did not go over well, and the president decided that was not political capital he was willing to spend. Other revenue measures such as reducing the mortgage deduction for the most wealthy will not get millions of protesters but reducing the charitable deduction created mass
protest in Washington, D.C., this week.
The president said he did not think the deduction reduction would impact giving. He said it did not mean that someone would stop giving $100 to the homeless shelter down the street. He is correct, as most people who give $100 to the homeless shelter will not be impacted by the change in allowable deductions. The people who will be impacted give thousands and thousands of dollars. President Obama said instead of being allowed to write off 39 percent, they would be only able to write off 28 percent as do many in the lower income brackets. He doesn't think it is fair, and he is right, but no one said the tax code is fair. Someone who works 40 hours a week and pays taxes in the 28 percent income bracket has to realize that someone else is paying a capital gains tax of only 15 percent. So, if you want fairness, the United States tax code is not your place. However, it is often helpful to understand the purpose of a particular provision in the tax code.
President Obama also said there was very little evidence that this would impact charitable giving and that the best thing he could do for charitable giving was to fix the economy. While that would be a great help to people who may be inclined to give, charities are going to be hurting from this proposed change and hurting big.
The Center for Philanthropy estimated that a change in the tax code would cut charitable contributions by about $3.9 billion in 2006, the last year that they have for which figures are available. That is a big number and translates into a loss of almost $78 million per state. The most vulnerable donations are in the area of the arts. People get sick and still donate to hospitals. Wealthy kids still need to get into college. The arts will be the first to suffer. A small state like Vermont which depends on tourism for a large part of its economy needs its theater and summer concerts. It relies heavily on donations which would most likely be cut by the Obama policy change.
While it is true that good economic times generate more giving than tax deductions, cutting back the allowable deduction will send some charities to the brink. It is a poorly thought out plan. It faces uncertainty in Congress (there was a sense of the Senate vote that narrowly lost) and is a bad way to raise revenue. It won't hurt the rich who can choose to give less. The president pulled back on his veteran health proposal; he should pull back on this one as well.
The issue? A reduction in the percentage allowed for charitable deductions in the tax code. It is not exactly breaking news that the Obama administration is looking high and low for ways to meet its revenue projections. Its projected rate of overall growth of the economy differs from that of the Congressional Budget Office. President Obama had proposed to collect insurance payments from individual veterans' private insurance for health care treatments that have in the past always been paid by the Veterans Administration. That did not go over well, and the president decided that was not political capital he was willing to spend. Other revenue measures such as reducing the mortgage deduction for the most wealthy will not get millions of protesters but reducing the charitable deduction created mass
protest in Washington, D.C., this week.
The president said he did not think the deduction reduction would impact giving. He said it did not mean that someone would stop giving $100 to the homeless shelter down the street. He is correct, as most people who give $100 to the homeless shelter will not be impacted by the change in allowable deductions. The people who will be impacted give thousands and thousands of dollars. President Obama said instead of being allowed to write off 39 percent, they would be only able to write off 28 percent as do many in the lower income brackets. He doesn't think it is fair, and he is right, but no one said the tax code is fair. Someone who works 40 hours a week and pays taxes in the 28 percent income bracket has to realize that someone else is paying a capital gains tax of only 15 percent. So, if you want fairness, the United States tax code is not your place. However, it is often helpful to understand the purpose of a particular provision in the tax code.
President Obama also said there was very little evidence that this would impact charitable giving and that the best thing he could do for charitable giving was to fix the economy. While that would be a great help to people who may be inclined to give, charities are going to be hurting from this proposed change and hurting big.
The Center for Philanthropy estimated that a change in the tax code would cut charitable contributions by about $3.9 billion in 2006, the last year that they have for which figures are available. That is a big number and translates into a loss of almost $78 million per state. The most vulnerable donations are in the area of the arts. People get sick and still donate to hospitals. Wealthy kids still need to get into college. The arts will be the first to suffer. A small state like Vermont which depends on tourism for a large part of its economy needs its theater and summer concerts. It relies heavily on donations which would most likely be cut by the Obama policy change.
While it is true that good economic times generate more giving than tax deductions, cutting back the allowable deduction will send some charities to the brink. It is a poorly thought out plan. It faces uncertainty in Congress (there was a sense of the Senate vote that narrowly lost) and is a bad way to raise revenue. It won't hurt the rich who can choose to give less. The president pulled back on his veteran health proposal; he should pull back on this one as well.
Reader Comments (2)
Ellen, I totally agree with you on this one. Rare indeed. I gave roughly 10% of my before tax gross salary to Charity last year. Based on my take home paycheck the percentage is quite a bit more than that as I am in a high tax bracket and save for retirement through 401k and stock ownership. So take home is about half of gross. With that said, I definitely give much more, knowing that it is tax deductable. There is no doubt many of the charities that I give to would receive less or nothing at all if I did not get that deduction. You have done a wonderful job through your efforts with the Pass Christian Center. Could you imagine the process of trying to fund that through the government alone? Your building might happen in the year 2020 unless it was lucky enough to be earmarked.This is where you and I part ways. We have an extremely compassionate country, and through donations and hard work people find ways to help others. I would much rather give you 10% or more of my income to take care of others than give that money to the goverment for the same purpose. If I gave you a dollar to take care of a charity you would get that dollar there. Giving a dollar to the government to get it to the same hands, heck do you think 10% would make it to the beneficiary. My church is still going on missions to the Katrina area helping rebuild. It is a compassionate group of members that spends thousands and thousands of dollars helping our community through food bank as well as the missions I mentioned. Our giving can only be stifled, or encouraged by the government. I would recommend that the governmnent continue to encourage giving. Conservatives are giving and compassionate. We just know that the government cant handle money wisely. I believe you know that to. I am glad that you agree this proposal is a bad idea. You are so right. It will only impact and hurt those who need it most. Taxing the rich with a belief that it is a great way to help others through social programs is the wrong way to think.
I would state that we could do just the opposite. Begin cutting various government funded social programs by encouraging tax credits and deductions for donations to certain government listed and approved programs. This way, the dollar each tax payer dollar gives gets directly to the eligible organization instead of through the crazy red tape beauracracy that is government. ( I know your a big fan of FEMA, See my point)This would save the government money, allow for smaller government and would result in a better use of all of our money. My tax return would then allow me more money to support the economy or to even give more it is exponential. I tend to donate most of my tax return to charity anyway. If I do not get the charitable dededution, I donate less, I have less return if any, and then I do not have tax return money to donate. This is a piece of the theory behind fiscal conservatism which is what I am. Based on your work I would think that you should really consider this thought process. The government taking yours and my money is not the way to help others. Direct giving is a much better way. We could make government smaller with this thought process I am sure.
Well Said, we need more people voicing their opinion with the conviction you have. Thanks