Saturday, March 28, 2009

Plan To Reduce Charitable Deduction Will Cost Charities $7 Billion

So argues Martin Feldstein of the Washington Post,
President Obama's proposal to limit the tax deductibility of charitable contributions would effectively transfer more than $7 billion a year from the nation's charitable institutions to the federal government. But the high-income taxpayers affected by the rule change are likely to cut their charitable giving by as much as the increase in their tax bills, which would, ironically, leave their remaining income and personal consumption unchanged.

In effect, the change would be a tax on the charities,
reducing their receipts by a dollar for every dollar of extra revenue the government collects. It is hard to imagine a rationale for taxing schools, hospitals, medical research budgets and arts organizations in this way. I suspect that the administration officials who drafted this proposal did not understand that it would have this perverse effect.


lyall said...

or perhaps they did.

by cutting charity, the government makes these non-profits less able to serve the needy or education needs of their respective communities.

then gov't can come in and "claim" that the needy aren't getting helped and people aren't receiving education and they can come in as the community saviors.

Charles D said...

Obama wants to put the deduction for charitable contributions by the wealthy back to where it was before the Reagan administration. As I recall, there was plenty of charitable activity in those years in spite of the lessened tax advantages.

The Center on Budget and Policy Priorities says that overall charitable giving would decline by only 1.3%. That's probably a great deal less than the loss charities have taken from Bernie Madoff whose Ponzi scheme was perpetrated right under the unwatchful eyes of the Bush SEC. Maybe if Republicans had supported securities regulation charities would have been better off.

Cameron said...

Lyall, the thought had crossed my mind.

Cameron said...


"plenty" means the current level minus $7 billion.