February 28, 2009
Tax-Deduction Plan Won't Hurt Charities During Recession, White House Says
By Suzanne Perry
The White House has denied that President Obama’s proposal to cap charitable tax deductions for wealthy people would harm nonprofit groups during a recession, saying the plan would not take effect until 2011.
By that time “we expect the economy to be recovering,” Peter Orszag, director of the Office of Management and Budget, wrote on his blog on Friday.
In a post devoted exclusively to defending the tax-deduction proposal, which was included in President Obama’s new 2010 budget outline, Mr. Orszag also said the plan would bring more fairness to the tax code and was unlikely to discourage giving.
“The evidence suggests that many factors affect charitable contributions, including the desire to help the charity and overall economic conditions,” he wrote.
Mr. Obama’s proposal would limit to 28 percent the tax break that families making more than $250,000 can get for itemized deductions on their federal returns, including donations to charity. That means they could save up to 28 cents in taxes for every dollar donated —compared with up to 35 cents now.
The money would be used to help pay for a plan to make the country’s health-care system more affordable and accessible. Mr. Orszag said bringing down health costs “is the single most important thing we can do to get our country back on a sustainable long-term fiscal path.”
Some charities and nonprofit leaders have expressed concern that the limits on charitable deductions would prompt donors to pull back, which could be especially damaging during economic hard times.
Mr. Orszag said other areas of Mr. Obama’s budget plan would encourage charitable giving, for example a proposal to retain the estate tax, which had been due to expire in 2010. That tax provides an incentive for wealthy people to give to charity as a way of lowering the tax liability on their estates after they die.
Under current tax rules, the percentage of tax savings for itemized deductions is the same as a filer’s tax bracket. Mr. Orszag said that means wealthier people get bigger tax breaks than middle-income ones when they donate to charity.
“If you’re a teacher making $50,000 a year and decide to donate $1,000 to the Red Cross or United Way, you enjoy a tax break of $150,” he wrote. “If you are Warren Buffett or Bill Gates and you make that same donation, you get a $350 deduction — more than twice the break as the teacher.”
The new plan, he said, “walks that difference back some of the way.”
Mr. Orszag said the administration’s recent economic-stimulus plan should boost charitable giving because it aims to “jumpstart the economy and raise incomes.”
The president plans to produce more detailed 2010 budget proposals in April. They must then be approved by Congress.
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Mr Orszag is obviously not a tax accountant – schedule A deductions are already limited or phased out totally for taxpapers with income over $250,000
— L Paulin Mar 1, 01:22 AM #
Obamunism. What a concept!
Next, they deal with the useful idiots.
— lilimarlene Mar 1, 05:24 PM #
If Mr. Orzag and the Administration is concerned with the ‘fairness’ of a teacher getting the same tax break percentage as Mr. Gates, they should tax them at the same percentage… Populism is no way to run an economy, and class warfare is not a strategy for health.
— J. Anderson Mar 2, 03:29 PM #
It’s really amusing to read the Chronicle of Philanthropy between the lines on this issue. You folks are so thoroughly conflicted!
— arthur smith Mar 2, 04:32 PM #