Charity Contribution Controversy Continues

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April 24, 2013; Epoch Times

How is the debate about the future of the charitable deduction going? In the wake of President Obama’s FY2014 budget proposal to cap tax itemized deductions, charitable and non-charitable alike, at 28 percent, the nonprofit sector is mobilized once again to defeat a tax code change that many in the nonprofit sector see as deleterious.

As Milton Cerny and Michelle A.W. McKinnon point out in Mondaq, the President’s budget calls for $580 billion in new tax revenues, based on changes in taxes affecting wealthy taxpayers. In addition to the 28 percent deductibility cap, they also note the President’s proposed Buffett Rule—formally called the Fair Share Tax—to insure that millionaires and above pay at least 30 percent of their income in taxes, but exempting their charitable donations from that calculation. Neither proposal eliminates the charitable deduction.

While taking pains not to offer a detailed critique of the President’s budget proposals, the U.S. Conference of Catholic Bishops issued a statement to caution that the budget’s “placing limits on some personal income tax deductions could unintentionally harm charitable giving by eroding or eliminating, in some cases, the value of the charitable tax deduction.” Although not public charities, churches are treated as such under the tax law when it comes to donations, so the President’s proposal would affect the religious donations of taxpayers in the 33, 35, and 39.6 percent tax brackets, who would be limited to deductions at the 28 percent level.

Households with net worth of more than $25 million don’t seem to be particularly exercised about President Obama’s repeated 28 percent deduction cap proposals. Writing for their Millionaire Corner, Catherine McBreen says that Spectrem Research found 47 percent of its surveyed households among that wealth cohort plan on increasing their charitable contributions. That may signify a motivation based more in tax avoidance than public spiritedness. McBreen notes that one-fourth of the ultra-wealthy survey respondents are contemplating moving to states like Florida that do not have an income tax at all.

Although it lacks obvious Democratic champions in Congress, the President’s proposed modification of the charitable deduction has become political fodder for Republicans. A recent report on GOP conversations with liberal Jews, such as the Reform movement in Judaism, suggested that resisting the charitable deduction proposal is one of a number of policy “softballs softballs when it comes to Jewish-Republican dialogue…[with] broad community appeal,” even if liberal Jewish audiences find much of the Republican agenda itself to be a cause for discomfort.

Even at state levels, exempting the charitable deduction from modifications and limitations is popular. In Kansas, the legislature is considering a proposal to phase out all itemized deductions in state taxes—except for the charitable deduction.

Actress Soleil Moon Frye appears to be on the interview circuit talking about how to raise children. The Epoch Times reports that helping kids learn to be charitable is part of the child-raising challenge: “The more hands-on the experiences are, the better…When I’m cooking or baking with the kids to help Haiti or we’re collecting cans for a food drive at school for the homeless, they feel they are really helping and end up being more inspired as a result. When we are no longer here, the imprint we leave on our kids–the lessons we teach them today–can help change the world in a big way.”

She didn’t cite the importance of the charitable deduction as a factor in understanding the importance of giving. Maybe kids will learn how crucial the deduction is to their charitable generosity later in life.—Rick Cohen

  • Eugene Patrick Devany

    In 2000 the nonprofits in the U.S. (excluding churches which do not report wealth to the IRS) were worth about $2.6 trillion – almost twice the net wealth of half the country. By 2010 the nonprofits increased their net wealth to $4.5 trillion while 50% of the U.S. population reduced their wealth to $584 billion. It is fair to ask why the nonprofits now have about 8 times the net wealth of half the country. The answer comes down to the tax code and the $1.2 trillion in tax expenditures (credits, deductions, special rates, deferrals and exemptions) which redistribute 7.5% of the GDP each year to already successful investors and corporations.
    Under scrutiny, all tax expenditures are harmful because they raise the rates of all taxpayers for the benefit of a few. Most tax code reforms tend to focus on reducing or eliminating just enough of the tax expenditures so that the top income tax rates can be reduced to 25% for both individuals and corporations. This will make the successful investors and corporations more profitable without growing the economy or adding a single new job to the business. Although the charitable deduction accounts for only $50 billion a year, it is particularly harmful because it benefits only the wealthy and upper middle class who itemize deductions. The charitable deduction is also harmful because it is the only tax expenditure that encourages investment to be taken out of the private job creating sector and given to the nonprofits which do not pay taxes and many of which do not even help needs in the U.S.
    Wealthy people with money to give away should do so without taxpayer support.