White House Doubts Charitable-Deduction Proposal Would Dampen Giving

February 27, 2009

White House Doubts Charitable-Deduction Proposal Would Dampen Giving

White House officials say they doubt President Obama’s proposal to place new limits on tax breaks for charitable deductions would dampen giving.

“What drives charitable contributions is overall economic growth, is other motivations,” Peter Orszag, director of the Office of Management and Budget, told reporters, according to a transcript on the White House Web site. “It’s not done for a tax incentive, but rather out of benevolence or some other related desire.”

Furthermore, he said, the president’s plans to revive the sagging economy will “provide a strong boost” to both charities and their donors. He noted that the recent economic-stimulus package had provided money to strengthen charities.

Robert Gibbs, the White House press secretary, agreed that giving could be affected by the economic downturn, which “the president is keenly aware of and hoping to turn around quite quickly.”

Mr. Obama proposes limiting the value of the tax break for itemized deductions, including donations to charity, at 28 percent for families making more than $250,000. That means people in tax brackets of 33 percent and 35 percent would get a smaller break than they do now.

Mr. Orszag said Bill Gates now gets a bigger tax break than a family making the same donation but falling in a lower tax brackets. If Mr. Gates donates $10,000 (the transcript says $1,000, but $10,000 is presumably what Mr. Orszag meant), “he saves $3,500 in his taxes,” he added. “All we’re saying is we think Bill Gates should get a $2,800 tax break — still a lot larger than a middle-income family — rather than the $3,500 one.”

Tax breaks for wealthy donors were limited to 28 percent when President Reagan left office in 1989, and “I would posit that charitable giving under the Reagan administration was probably pretty robust and just fine,” Mr. Gibbs told reporters, according to a transcript.

Tax experts note that the situation under the Reagan administration was somewhat different, however, because the top tax bracket was then 28 percent, rather than 35 percent. That is why wealthy people could not get a tax break of more than 28 percent.

— Suzanne Perry

Comments

They couldn’t be more wrong about this change not impacting donations. It all comes down to available after-tax dollars.

If a person decides he can afford to donate $6,500 in after-tax dollars, he knows with a 35% deduction that means he can donate $10,000 because he will get $3500 back.

If that same person is only going to get a 28% deduction, he will only donate about $9000.

That’s a 10% drop in charitable donations. And let’s be honest, we all know charities are FAR more efficient at helping people in need than our government is.

— Mike Feb 27, 02:22 PM #
I can certainly understand the Fed’s interest in capturing more tax revenue, but you’d think the Fed would see charitable giving as helping to relieve some of the burden on programs dependent on federal funding. If the Fed moves the top marginal income tax rates to 40%-50% and caps the rate of deductibility of charitable gifts at 28%, then charitable giving is really going to suffer.

— David Mitchell Feb 27, 02:34 PM #
I have donors who give hundreds of thousands of dollars which translates to a lot more than the $700 difference cited in the article above. Those are the ones I’m concerned about. One could argue that donors give money to charities out of the goodness of their heart, but I think we also know they are encouraged to give because of the tax benefits they receive.

— Kimberly Feb 27, 02:50 PM #
The argument that the sky is falling and this will negatively impact charitable giving is silly. A cultivated donor at any level will not be swayed by changes in tax laws. This is a silly argument by those ready and willing to make excuses for their inability and ineffectiveness at differentiating their cause from the many others out there. My guess is the people arguing against the change in tax code are the same ones saying the bad economy is going to kill us. Don’t get me wrong. I know we’ll feel it but I prefer to spend my time telling our supporters why we’re “still” special and how their support is needed more now than ever. My experience has been donors take the deductions due them and are less driven by this “amount” on the front end.

— DG Feb 27, 03:41 PM #
Mr.Orszag must have crawled from underneath a rock if he thinks charitable donations will not be affected.Yes, I give from the goodness of my heart but when you have taken everything away, I become the charity.

— donna Feb 28, 12:01 AM #
It all boils down to the administration’s desire to funnel donations into the “causes” of their choice. Check out the stimulus package and you’ll know what those “causes” are. Many Americans have chosen to support charities that take the load off the government by helping those in need. I guess our choices no longer matter. Someone else will decide what is important and what we do with our money. Charitable agencies are already suffering terribly as a result of the economy and many are closing their doors.

— Bill Mar 3, 02:29 PM #

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