Analysts: Giving by Wealthy Would Decline Slightly Under Obama Budget Proposal
March 25, 2009, The Washington Post — President Obama last night defended his controversial budget proposal to cut the rate for charitable tax deductions for wealthy people, arguing that the policy shift would not have an adverse effect on charitable giving.
"If you look at the evidence, there's very little evidence that this has a significant impact on charitable giving," Obama said in his second prime-time news conference.
Under Obama's proposal -- which has drawn criticism in Congress from Democrats and Republicans alike -- the tax deduction for those with incomes over $250,000, which currently is 35 cents for each dollar donated, would be capped at 28 cents on the dollar. This would return the rate to where it was during President Reagan's administration.
Obama said this would help equalize the tax break for those donating to charity. "When I give $100, I'd get the same amount of deduction as when some -- a bus driver, who's making $50,000 a year, or $40,000 a year, gives that same $100," Obama said.
But two independent analysis centers concluded that the administration's proposal could decrease giving by as much as $3.87 billion to the nonprofit sector, which already is struggling to raise funds during the economic recession. Americans donate about $300 billion a year, according to Giving USA, which conducts annual surveys.
The Center on Budget and Policy Priorities said total charitable contributions would decline by about 1.3 percent, while the Center on Philanthropy at Indiana University calculated that overall giving would drop by 2.1 percent (PDF). The highest-income households would decrease giving by 4.8 percent, or $3.87 billion, the philanthropy center found.
"Charities and the public need to understand that in the current economic environment, which is creating difficulty for some nonprofits and their constituents already, this public policy change is likely to have an additional negative effect," Patrick M. Rooney, the philanthropy center's interim executive director, said in a statement. "However, changes in personal income and wealth, both of which have declined in the past year, have a greater impact on charitable giving than do tax rate changes."
Experts said nonprofits such as universities and arts organizations that rely heavily on large donations from wealthy individuals are more likely to be impacted by the administration's proposal than food banks, shelters and other social service groups that raise money in smaller amounts.
Dean A. Zerbe, managing director of Alliant Group and a former senior tax counsel to the Senate Finance Committee who closely tracks the nonprofit sector, said Obama's proposal will impact the behavior of wealthy donors.
"Of course it's going to effect behavior," Zerbe said. "The charities recognize that. Everyone does.... People just don't have their feet on their ground if they're not recognizing that reality."
Still, Obama said his proposal should not deter giving.
"Now, if it's really a charitable contribution, I'm assuming that that shouldn't be a determining factor as to whether you're giving that $100 to the homeless shelter down the street," Obama said.
