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Tax-Deduction Proposal Would Cause Giving to Drop by 1.3%, Study Finds

President Obama’s proposal to limit the tax breaks would cause giving to decline by an estimated 1.3 percent a year, the Center on Budget and Policy Priorities said today in a new analysis. They said that other proposals in the budget further minimized the effects of the tax changes.

“Over all, the effect of the budget proposals on charities is probably a very small negative at worst—and quite likely a net positive,” the center, which analyzes the impact of government spending on low and middle-income people, said in a report.

President Obama has proposed limiting the tax break that families earning more than $250,000 can get on their itemized deductions, including donations to charity, at 28 cents for each dollar of expenses — starting in 2011. The current top rate, for people in the highest tax bracket, is 35 cents. The tax savings would help pay for a plan to make health care more affordable and available to more people.

The center said an analysis by the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, found that the proposal would affect only 1.2 percent of U.S. households, those in the the 33-percent and 35-percent tax brackets.

To counter that, “Health reform will greatly reduce the burden on nonprofit organizations to provide free health care, thereby offsetting to a significant extent the overall drop in contributions,” the center said.

Furthermore, the center said, the president’s budget proposes keeping the estate tax as it stands, rather than allowing it to be repealed or shrink further, which will operate as “a powerful incentive for charitable giving.” (This tax prompts some people to give to charity as a way to decrease the tax liability on their estates.)

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