Senate Democrats have introduced legislation to require the richest Americans to pay a minimum share of their income in taxes, but allow them to continue claiming a deduction for charitable giving.
It would require taxpayers with adjusted gross incomes of more than $2-million, including capital gains and dividends, to pay at least 30 percent in federal taxes. The minimum tax would be phased in for people earning more than $1-million but less than $2-million under a formula that is spelled out in the legislation.
Donors would be able to deduct their charitable gifts from their adjusted gross incomes to lower their tax bills, thus preserving a giving incentive that has been fiercely defended by many nonprofit leaders. As in the current system, the tax break would be available only to people who itemize their deductions.
Nonprofit advocates welcomed the legislation as another sign that the White House, which has previously proposed limiting the value of the charitable deduction for wealthy people, may be changing its tune.
Mr. Obama said when proposing the "Buffett Rule" last week that he wanted to ensure his efforts did not disadvantage "individuals who make large charitable contributions."
"They are backing away from the previous often-stated view that the incentive to charitable giving from the tax deduction is de minimis," says William Daroff, vice president for public policy at the Jewish Federations of North America, citing discussions he has had with administration officials.
He points to a Twitter exchange between one of his colleagues and Jason Furman, principal deputy director of the National Economic Council, during a "White House Office Hours" chat last week. When asked whether the charitable deduction would be preserved in any overhaul of the tax code, Mr. Furman said: "Millionaires don't need tax incentives 4 homes, healthcare & retirement. But incentive 4 charity is impt."
Mr. Obama has previously proposed limiting to 28 percent the amount that families earning over $250,000 can write off on itemized deductions, including those for gifts to charity—first to raise money for the health-care overhaul and then to help rein in the federal deficit.
The new legislation would reinstate one limit to the charitable deduction, however, says Evan Liddiard, a tax consultant in Washington. That measure—which was phased out in 2010 as part of the Bush-era tax cuts—reduced itemized deductions by 3 percent of the amount that a person's income exceeded certain thresholds.
Regardless of what happens to the "Buffett Rule," the 3-percent reduction would return if Democrats succeed in their plan to repeal the Bush tax cuts for the wealthiest taxpayers.
Mr. Obama has named his tax plan after billionaire Warren Buffett, who has complained he pays a lower share of his income in taxes than his secretary.