• January 28, 2015

Budget Plan Revives President’s Call for New Charitable-Deduction Limit

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President Obama renewed his proposal to limit the value of charitable deductions for wealthy taxpapers in the fiscal 2011 budget plan he presented today—refashioning it as a way to help provide tax relief to middle-income Americans.

The proposal would limit to 28 percent the tax break couples earning $250,000 (or individuals earning $200,000) could get for their itemized deductions, including gifts to charity.

The president proposed a similar limit in last year’s budget as a way to help pay for a health-care overhaul, but it was not endorsed by Congress.

This year, he included it in a package of proposals that he said sought to correct years of tax policies “that have disproportionately benefited high-income Americans and corporations” and produced a tax code that is “insufficient to meet national needs.” The White House said the change would raise more than $291-billion from 2011 to 2020.

The proposal is sure to spark a furious debate within the nonprofit world, which was divided over last year’s proposal. Many nonprofit leaders and fund-raising consultants condemned the proposed limit, which would also apply to deductions for mortgage interest and state and local taxes, saying it would dampen giving at a time when charities are reeling from the economic downturn. Some, however, defended it as a way to bring more equity to the tax code while also helping to pay for health-care changes that would help nonprofit groups.

The administration argues the current system is unfair because people in lower tax brackets get a smaller-percentage break for itemized deductions than wealthier taxpayers.

The president has paired the deduction limit with a proposal to end the tax cuts for wealthy Americans that were enacted during the Bush administration. That means the top tax bracket would rise to 39.6 percent next year, up from 35 percent now. Normally the value of itemized deductions is tied to a taxpayer’s marginal tax rate—the bracket that applies to the last dollars earned.

But if Mr. Obama’s proposal is adopted, wealthy people will be paying more in taxes while getting less of a tax benefit for gifts to charity.

Matt Dolan, a Washington tax lawyer, said the itemized-deductions cap would increase the after-tax cost of making a charitable donation by almost 20 percent for those in the highest tax bracket.

He predicts the proposal will be a hard sell since it would affect economic areas, including housing, "that are in very dire straits." The administration argues the economy will be in better shape by the time it would take effect.

Rep. Roy Blunt, a Missouri Republican, said he plans to oppose the president's proposal to limit the value of charitable deductions, a position he took last year as well.

"Raising taxes on families during a  recession is bad policy," said Mr. Blunt. "Raising taxes on those who want to help others is outrageous."

Rep. Blunt said that "we've seen in just the past few weeks in Haiti what the hard work and selfless giving of Americans can do in times of disaster. This tax hike will rob charities and churches of support for their good works in order to feed an ever-expanding government."


1. tnjeepman - February 03, 2010 at 11:44 am

It was an awful idea last year and it remains awful. I hope we all think more carefully about how we vote next time. The good looking, smooth talker is not always the best candidate.

2. jamison_tucker - February 03, 2010 at 03:33 pm

Equity in the tax code is exactly what needs to happen. I earn more than $200,000/year and am glad, yes glad, to pay my fair share of taxes. It's the right thing to do. I was very unhappy with Bush's tax cuts because we didn't need the cuts! Our economy instantly went from "black" to "red" with the stroke of his pen, without any consideration of the long-term consequences. Now is the time to make the tough decisions and enact fairness in the tax-code.

As a Republican, it's time for us to "own" the mistakes of Bush's economic politicies and support the new ideas of the Obama administration (don't we always preach taking personal responsibility?). Any action is better than no action.

3. samprince2 - February 03, 2010 at 03:40 pm

It continues to amaze me that not one single person has written about the history of charitable giving when compared with changes in the top income tax bracket.

What a profoundly stupid industry we work in when the entire argument surrounding a particular proposal is all nothing but hearsay.

Sam Prince
Plano, TX

4. peter_panepento - February 03, 2010 at 04:53 pm

Hi Sam:

Some research has been done on this topic. Consider this 2009 report from Indiana University:


Peter Panepento
Web editor

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