Foundation Group Opposes Charitable-Deduction Cap and Supports Estate Tax

March 11, 2009, Chronicle of Philanthropy — The Council on Foundations has decided to oppose President Obama’s proposal to limit the tax break wealthy Americans get for charitable deductions, fearing that it would dampen giving, Steve Gunderson, the group’s president, said today.

The council, which represents more than 2,000 grant makers, also for the first time has decided to weigh in on the estate tax, formally backing President Obama’s plan to keep it at current levels, Mr. Gunderson said in an interview.

The council’s board, which met last week, adopted both positions as part of a comprehensive review of tax policies affecting philanthropy, he said.

President Obama has proposed capping the tax break (at 28 percent) that families who make more than $250,000 can get for itemized deductions. The move would raise money for a fund to help pay for efforts to reshape the country’s health system. Many people in upper tax brackets can now get charitable tax breaks of 33 percent or 35 percent.

Unlike mortgage interest and state and local taxes, which also qualify for itemized deductions, giving to charity is discretionary, Mr. Gunderson said. “If our goal is to both recognize the appropriate role and responsibilities of government and create an environment for philanthropy to grow in size and service, you have to oppose a cap,” he said.

President Obama has also proposed keeping the estate tax, which is now being phased out and is scheduled to disappear in 2010. He would maintain the current rates, which exempt amounts of up to $3.5-million ($7-million for couples) and impose a 45-percent tax on the value above that.

Studies have shown that the estate tax prompts wealthy people to give more money to charity, both while living and in bequests, since they can shield some assets from taxation.

While the issue has in the past been considered “too hot to handle,” Mr. Gunderson said, the council now agrees it should take a stand because of the tax’s impact on charitable donations.

Mr. Gunderson said previous debates occurred before he took the helm in 2005, but that he believes the issue has been sensitive partly because many people who run foundations come from wealthy families that would be affected by the estate tax.

“I said you can’t have probably the most significant issue affecting the growth of philanthropy and not take a position on it,” he said.

Mr. Gunderson said the two new positions will be integrated into the council’s overall tax-policy strategy, which also calls for changes in areas like excise taxes on foundations, donations from individual retirement accounts to donor-advised funds, and foundation support of “low profit limited liability companies.”