The White House on Thursday took pains to explain its recent proposals to limit the value of tax breaks that wealthy people can take for their charitable gifts.
Nonprofit leaders are concerned about two parts of Obama’s budget plan announced Monday: one that would limit write-offs for all itemized deductions, including those for charitable donations, to 28 percent for affluent people, compared with the 35 percent rate many wealthy people now pay; and the so-called Buffett Rule, which requires anybody with income of more than $1-million to pay at least 30 percent in taxes.
Nonprofit leaders have expressed fear that the extra taxes rich people would pay could cause them to decrease their giving. Because few details have been released, it’s hard to tell exactly how the tax on millionaires and billionaires would work, especially in combination with the 28-percent write-off limit.
Jonathan Greenblatt, director of the White House Office of Social Innovation, said in a White House blog post Thursday that the rule would exempt “charitable deductions from the list of tax breaks that should be eliminated for millionaires.”
Mr. Greenblatt says the charitable deduction would be the only major tax deduction excluded from the Buffett Rule, named after Warren Buffett, who has complained that he pays a lower tax rate than his secretary.
While the amount of money that nonprofits could lose from millionaires and billionaires if they have to pay more taxes is of great concern to charity leaders, many of them are just as concerned about the 28-percent limit, because they say it would affect people a lot less rich.
The president wants the 28-percent limit to apply to itemized deductions that can be claimed by individuals who make more than $200,000 and couples who earn more than $250,000.
To explain the White House’s thinking about the proposals, Mr. Greenblatt said limiting the deduction for the wealthy would be fairer to people who don’t itemize and to middle-class families, who pay lower rates than the rich, and therefore deduct a smaller percentage of their income for charitable gifts.
Under the current system, “taxpayers end up subsidizing multimillion-dollar gifts to already well-endowed institutions such as universities while they avoid subsidizing smaller gifts to food pantries, community arts groups, homeless shelters, and advocacy organizations,” Mr. Greenblatt says.
Nonprofits Fight Back
Mr. Greenblatt’s comments did not sit well with many nonprofits.
Diana Aviv, chief executive of Independent Sector, a coalition of nonprofits and foundations, says it’s not only the wealthy who benefit from tax breaks but also charities that receive donations.
What’s more, she says, statistics don’t bear out what Mr. Greenblatt says. She says 85 percent of wealthy Americans donate to charities that provide basic needs such as food and shelter.
“To say that this only affects universities with big endowments is probably one of the deepest inaccuracies,” Ms. Aviv says. “And to suggest that endowments from universities are less deserving is to attack our higher-education system. We want all our universities to have as big endowments as possible so that anyone that qualifies to be a student is not penalized because they can’t pay tuition.”
One potential silver lining, says Ms. Aviv, is that some people who make close to $1-million may give more to charity to reduce their income just enough so that the Buffett rule would not apply to them.
“If by giving to charity, they’re able to lower their taxes, then it’s a true incentive for donors to give much bigger gifts than they otherwise might have,” Ms. Aviv says.