The last thing nonprofits want is government meddling in charitable tax deductions, but that is exactly what Barack Obama is doing.
Obama’s proposal Monday, to limit the value of the charitable tax deduction for high-income contributors is like trolling in dark waters. By some estimates, charitable giving could be slashed by almost $10 billion per year. In his attack on the wealthy, he will probably end up hurting those that charity is meant to aid.
Obama had already asked Congress to limit the deductible value of charitable gift deductions to 28 percent. By comparison, this year’s top tax rate is 39.6 percent for those with taxable income of at least $464,850.
The administration’s tortured reasoning is to “make the tax code more equitable” because the value of the tax deduction is proportional to one’s tax bracket. White House spokesman said the reason is that “it is less valuable to those in the lower brackets.”
Howard Husock, VP for policy research at the Manhattan Institute, writing at Forbes.com, says the proposed limit is likely to have a negative and possibly unforeseen (by the administration) effect.
Husock also cited research that shows in one recent year, only 2.6 percent of American households had an adjusted gross income of more than $200,000. These same households account for 25.1 percent of all income and 29.5 percent of the total value of charitable donations made by all households.
Could it be the administration is more interested in bringing down all incomes to a low base level than in making Americans more prosperous?
Certainly, they appear to prefer hurting the wealthy than helping the poor.
Husock says the new rules amount to “a tax increase on such giving.” He says it would “not surprisingly, reduce charity overall.” Husock also says that economist Arthur Brooks, head of the American Enterprise Institute, estimated the decline at around $9.4 billion, out of annual donations of some $220 billion.
It isn’t clear what the Obama administration is really trying to do, but it if they are trying to reduce charitable giving, they have hit the target.
Wealthy Americans are not the only ones this would affect. Lower-income Americans would also be affected, as well.
Around 80 percent of high-income donors contribute to organizations providing for the “basic needs” of the poor in education, healthcare, the economy, and other areas.
Obama’s proposal would have a direct effect on those contributions.
Congratulations – the administration hits a bullseye and devastates struggling charities!