• September 21, 2014

Obama May Seek Cap on Charity Deductions—Again

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Richard White/Chronicle of Philanthropy

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President Obama appears poised to propose reducing the value of the charitable tax deduction again in the administration’s new budget plan, charity officials say as they point to two recent comments from White House officials.

Jacob Lew, the new Treasury secretary, said during his Senate confirmation hearings that the administration would seek to place a 28-percent cap on the value of itemized deductions taken by the wealthiest taxpayers, including for charitable donations. Today, donors in the highest tax bracket can get a 39.6-percent tax savings for every donation, but Mr. Obama has made repeated efforts throughout his presidency to limit the savings to 28-percent.

Mr. Lew said a 28-percent limit “would have a modest impact on the incentive to make charitable gifts” and is an “evenhanded approach” that is “not intended to single out the charitable sector,” according to a transcript of his Congressional testimony.

“Moreover, only a small fraction of taxpayers—married couples with incomes in excess of $250,000 and single taxpayers with incomes in excess of $200,000—would be affected by the proposal,” Mr. Lew said. “Charitable giving by non-itemizers and taxpayers with incomes below these thresholds—the vast majority of donors—would not be affected by the proposal.”

The Philanthropy Roundtable, an organization that represents conservative donors, issued a news release today, just before Mr. Lew was sworn in, calling attention to his comments.

It said a reduction in the value of the maximum deduction from 39.6 percent to 28 percent could result in a $5.6-billion decline in giving in one year.

Reading Tea Leaves

Last month, another administration official, Jonathan Greenblatt, told charity leaders in California during a Webinar that he thought the administration and charities had achieved a major victory during the New Year’s Day deal that put off the so-called fiscal cliff. As part of the compromise, Congress increased the top tax rate from 35 percent to 39.6 percent and didn’t touch the itemized deduction. He noted that Republicans had been proposing a dollar limit on deductions that he said was even more worrisome than a percentage limit, such as the 28 percent Mr. Obama has sought.

“We will continue to work to preserve the charitable tax deduction,” Mr. Greenblatt said. “We don’t want to do anything to jeopardize that.”

But Mr. Greenblatt would not clarify what he meant by “preserve” after he was asked to do so by Tim Delaney, chief executive of the National Council of Nonprofits, and others on the conference call and Webinar.

“I’m not at liberty to talk about what the budget is going to look like,” Mr. Greenblatt said. “The prior budget proposals remain intact.”

Mr. Delaney said that as “I read the tea leaves” of that comment, it sounds like the administration would not preserve the current 39.6 percent top deduction rate.

“Don’t read the tea leaves: Listen to what I say,” Mr. Greenblatt snapped.

With Mr. Lew’s comments added to the mix, the Philanthropy Roundtable joined Mr. Delaney in saying charities need to be on guard that the 28-percent proposal will be revised.

Dig deeper: See The Chronicle’s extensive coverage of the charitable deduction and what it means for nonprofits.

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