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Obama Administration Continues to Push Proposal to Limit Charitable Deduction for the Wealthy

(May 19, 2009) As Congress turns its attention to healthcare, the Obama Administration indicates it is interested in using the limitation on charitable deductions to help foot the bill for reforms.

Congress, in its recently passed budget resolution, rebuffed the Obama Administration’s efforts to limit the value of the tax break for itemized deductions, including donations to charity, to 28 percent for families making more than $250,000. But the White House is continuing to push for the deduction cap.

White House Budget Director Peter R. Orszag recently wrote a blog entry where he justified the charitable deduction proposal by stating that “[i]f 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.  If you are Warren Buffet or Bill Gates and make that same donation, you currently get a $350 deduction—more than twice the break as the teacher.  Limiting itemized deductions for high-income Americans would help restore balance to the tax code, and any effect on charitable giving is likely to be swamped by other Administration policies.” 

Orszag further added, “The best way to boost charitable giving is to jumpstart the economy and raise incomes—and the purpose of the Recovery Act enacted in the Administration’s first month in office was to do precisely that.” 

AFP disagrees with this assessment.  First, the teacher-Warren Buffet/Bill Gates analogy neglects the fact that Buffet and Gates pay a higher tax rate than the hypothetical teacher.  In addition, assuming that only economic prosperity, and not charitable giving incentives such as tax deductions, affects charitable giving is an incorrect assumption. 

During a roundtable discussion held by the Senate Finance Committee on Tuesday, May 12, 2009, the charitable deduction proposal was raised briefly.  Although it was not discussed in detail, Sen. Max Baucus (D-MT) made it clear that everything, including the charitable deduction proposal, remained on the table as options to pay for healthcare reform.

The committee will next hold closed door meetings to discuss healthcare reforms and ways to pay for them.

Nonprofit Hospitals Tax Exemption also at Risk

Sen. Charles Grassley (R-IA), ranking Member of the Senate Finance Committee, also raised the issue of the tax exempt status of nonprofit hospitals during the committee’s roundtable discussion.  The Senator questioned the necessity of the tax exemption for such hospitals. The panelists generally agreed that some changes to the exempt status were worth considering, but they also argued against eliminating the exemption entirely.  The Senator has been looking very closely at nonprofit hospitals for some time, and this issue will continue to receive scrutiny and consideration.  AFP will continue to monitor this issue as well.

Please Contact Your Members of Congress to Oppose Reducing the Charitable Deduction

AFP is encouraging its members to contact their Senators and Representatives in Congress to oppose any provision that would impose new limits on charitable deductions.

For draft talking points and letters, please go to this link on the AFP website.


Earlier this year, AFP and the Association for Healthcare Philanthropy (AHP) opposed the proposal in a joint statement

In addition, AFP, along with a coalition composed of the American Society of Association Executives, the Alliance of Nonprofit Mailers, DMA Nonprofit Federation and the National Catholic Development Conference, sent letters to key members of Congress in opposition this proposal.  The coalition also thanked the House and Senate Budget Committees for excluding the charitable deduction proposal from the budget resolution.

Were this proposal to become law, it would have a substantial negative impact on charitable giving.  Indiana University's Center on Philanthropy recently estimated that the budget proposal to limit deductions and raise rates, if applied in 2006, would have reduced giving by nearly $4 billion

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