Charities push back on Obama deduction limits

Charities push back on plan to limit deductions
By Eric Fingerhut

WASHINGTON (RNS) For the second time in as many years, the Obama administration is proposing to reduce the tax deduction that wealthy taxpayers receive for charitable contributions.  And once again, some charities—including several religious groups—are pushing back against the plan.

A number of non-profit groups have criticized or raised questions about the proposal, which was included in the president’s 2011 budget released Monday (Feb. 1). They believe such a move would mean a certain decline in charitable donations, which would be especially harmful in an already turbulent economy.

A similar proposal last year foundered on Capitol Hill, but non-profit groups say they are taking no chances in making their feelings known about its return.

The proposal would lower the tax deduction that married couples earning more than $250,000, and individuals making more than $200,000, can claim for charitable contributions from 35 percent to 28 percent, which is what the deduction was during much of the 1980s.

That would mean that a wealthy taxpayer who donates $10,000 to a charity would be able to only claim a $2,800 deduction on his taxes, rather than a $3,500 deduction.

President Obama last year defended the reduction by saying he didn’t think it was fair for the wealthy to get a much larger tax break for charitable deductions than the middle class, which can claim a 15 percent deduction.

He also doubted the proposal would have much of an impact on charitable contributions. “If it’s really a charitable contribution, I’m assuming that that shouldn’t be the determining factor as to whether you’re giving that $100 to the homeless shelter down the street,” he said in March 2009.

The White House hopes the smaller charitable deduction, along with cuts in the level of other itemized deductions for wealthy taxpayers, will raise close to $300 billion in tax revenues over the next decade.

The one significant difference in the proposal is that last year, the proposed revenues from the change were targeted to pay for health care reform; in the 2011 budget, the additional revenue would go toward deficit reduction.

“We definitely support the idea of deficit reduction, but we don’t think this is the way to go about it,” said Galen Carey, director of government affairs for the National Association of Evangelicals.

Carey said even if the economy was stronger, such a change would still be a bad idea because of its effect on donations to the non-profit sector.

Nathan Diament, public policy director for the Union of Orthodox Jewish Congregations of America, was one of the first to criticize the budget proposal.

“The White House believes this is a matter of tax fairness,” he said, but argued that non-profits seeking to raise significant dollars would be “adversely affected by this proposal.”

John Ashmen, president of the Association of Gospel Rescue Missions, said the change sends the wrong message to donors as well as non-profit groups, telling “people who see needs in their own neighborhoods (that) we’re not going to give you the full benefit you’ve realized in the past.”

Ashmen said he detected fairly unanimous opposition to the change among non-profits and religious groups in Colorado Springs, Colo., where his organization is based.

Also expressing disappointment in the proposal was the Jewish Federations of North America. William Daroff, vice president of public policy and director of the group’s Washington office, said the proposal showed a lack of understanding of the vital role charities are playing in providing a safety net during tough economic times.

Last year, two studies concluded that charitable contributions would decline under the proposal, although the level varied. The liberal Center for Budget and Policy Priorities estimated a small drop of 1.3 percent. The Center on Philanthropy at Indiana University calculated a larger 2.1 percent decline, with high-income households decreasing their giving by 4.8 percent, or $3.87 billion.

Harvard University economist Martin Feldstein, who sits on Obama’s Economic Recovery Advisory Board, warned last year that the change could reduce the charitable contributions of wealthy Americans by as much as 10 percent.

Diana Aviv, the president and CEO of Independent Sector, an umbrella group of 600 non-profit organizations, said groups that do not have access to wealthy donors will likely not object to the proposal. But for those who do, she said the proposal—combined with other tax deduction changes—is likely to be seen as a “shot across the bow” that will sow doubts about the administration’s commitment to spur charitable giving through tax incentives.

Aviv said the top-bracket deductions can be crucial for non-profits. A donor might increase their charitable gift from what they originally planned, she said, if they can be persuaded that a larger donation might result in a larger tax benefit.

“The wealthier the donor,” she said, “the likelier (that) tax incentives stimulate additional giving.”

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