Is Obama’s Proposed Reduction in Charitable Deductions a Good Idea?
My grandmother often repeated the aphorism that charity begins at home. But those living in the White House and Congress just love to tweak tax policy to make charitable giving to causes beyond our doorsteps more complicated. This week President Obama’s 2010 budget plan proposes that allowable charitable tax deductions for those earning more than $250,000 per year be reduced by about 20%.
Since I led nonprofits for 30 years, I can tell you that any time the tax deduction for charitable contributions is decreased, contributions decrease. We’ve tried this before, in the Reagan administration, for example, just to be clear that it’s a bipartisan idea. Maybe that’s why Obama likes it.
At any rate, it was a bad idea then and it’s a bad idea now.
Reactions to taking away tax deductions vary by type of donor.
Donors of small amounts generally continue to give because a reduction in tax deductability won’t amount to a hill of beans for them. Individuals who might have bought a $250 ticket to a charity event even though they aren’t 100% committed to that cause will think twice before writing the check, because the “it’s tax deductible” pitch was part of what twisted their arm to give in the first place.
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The biggest problem with Obama’s plan specifically is that it’s aimed squarely at high earners capable of giving the major gifts that make such a difference to the nonprofit sector’s ability to maintain services to people in need. These donors will will give much more cautiously because their philanthropy is done in conjunction with their financial planning. If contributions are 80% deductible, they will likely give 80% of what they would given at 100% deductibility, because that’s the net effect on their bottom line.
As a consequence, there will be less money for charity and more demands on publicly funded safety net programs. In sum, the Federal government isn’t likely to realize any net gain from reducing charitable deductions in the first place. So why bother creating the additional paperwork that comes from torquing the tax code in this way?
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You are so right. But I also belive that non-profits are bloated and many will have to merge and that is a good thing.
John, are you saying all nonprofits are bloated? Probably not. In any case, it seems like when you compare the typical nonprofit to the typical, say, bank or auto company in America today, the nonprofits come out looking pretty good.
But I would agree with you that there is a good case to be made for merging related nonprofits when it can bring economies of scale and get more service bang for the buck out into the community. It’s a never-ending process.
I think it’s a bad idea. Charitable organizations are having as difficult a time as everyone else in this horrible economy and the thousands of people who rely on these groups will be suffering immeasurably. Then throw into the mix that good ‘ole Bernie Madoff has stiffed hundreds, if not thousands, of charitable groups of tens of millions of dollars (if not more), and we have a recipe for disaster.
I’ve cut my charitable giving because things that seemed certain 6 years ago aren’t anymore. I really haven’t been giving more than $50 now and again to groups I used to write larger checks to.
Yes, some non-profits are bloated, but many are not and barely scrape by. Think of a group like meals on wheels- without them, some people- mostly elderly and disabled, simply won’t eat.
I find it a bit confusing that the feds would reduce the tax deductions for charitable giving yet we still have a Federal Office of Faith Based (“FBI”) Initiatives, which hands out federal dollars to certain religious organizations- I know they are thinking of making some changes to the rules (ie. about discrimination) but if they are going to cut tax deductions to try to save/gain more federal dollars, aren’t they then turning around and spending those same dollars, if not more, by giving federal funds out via the Office of FBI? Or is my reasoning totally off?
Stacy, your last paragraph says it very well. I think such a provision would result in nothing more significant than reshuffling the same money, but causing large donors to have to do more paperwork and calculations in order to have the privilege of giving.
Sometimes people who are new on the job just like to tinker…