Even though America is home to over 1.6 million tax-exempt organizations which account for nearly a tenth of the U.S. economy and are primarily funded by wealthy people, Obama's new budget plans on limiting the charitable deduction for the wealthy. The move, which conservatives see as an unprecedented intrusion into the private sector, has discomfited nonprofits across the country. The budget slashes the tax deduction those earning more than $250,000 can take for their charitable giving, dropping it from 33-35% to around 28%.
Obama’s budget director, Peter Orszag, says by limiting itemized deductions, $634 billion would be available to fund health care reform. He argues that although the top income tax deduction for charitable contributions was reduced from 38.6 percent to 35 percent between 2002-2003, individual charitable contributions rose. Yet in a study released earlier this week, the Center on Philanthropy at Indiana University shows that charitable giving is sensitive to the after-tax incomes of high-income households.
The study shows that if the provision had been in place in 2006, charities would have lost almost $4 billion in donations in the intervening period. Independent Sector reports that 89% of American households contribute to charity, with an average contribution of $1,620, which comes out to 3.1% of their income. Additional IRS statistics reveal that the average taxpayer with AGI over $200,000 makes over $20,000 of charitable contributions.
Twenty-four hours after the Presidents FY 2010 budget hit the press, Orzag attempted to reassure ruffled nonprofits. He posted on his Office of Management and Budget blog that the tax change wouldn’t be imposed until 2011, when “we expect the economy to be recovering…from the recession we inherited.”
Conservatives feel that they’re being blamed for the economic mess, and they fear that successful American families will bear the brunt of the government’s implementation of “positive change.” It appears that the proposed limitations on charitable giving is the government’s way of cutting out the individual from social change—getting rid of the Citizen Middleman. Then the government can choose which programs to fund to “help” society. Right now, the American tax payer gets to decide whether their charitable dollars will aid the poor or build new facilities for colleges; depending on their personal information on which would be more effective or necessary. The theory is: People make better choices than bureaucracies and have more freedom to be generous.
Perhaps the connection problem between the Obama administration and charitable giving is that there isn’t one.
During last year’s campaign, Bill Burton, a campaign spokesman, defended the Obamas scanty charitable donations, saying they gave as much as they could afford. Barack and Michelle gave less than one percent of their $1.2 million income from 2000 to 2004. The Biden’s tax returns show that the Bidens have been amazingly tight-fisted as well. Despite income ranging from $210,432 - $321,379 over a ten-year period, the Bidens have given only $120 - $995 per year to charity, which amounts to 0.06% - 0.31% of their income. Compare that to John McCain, whose tax returns show that he gave 27.3% - 28.6% of his income to charity in 2006-2007. Not that Biden’s charitable contributions haven’t increased. They suddenly spiked in 2007 —which would be just about the time he decided that the White House was within reach. Unfortunately, Biden must have forgotten all the flak Vice President Al Gore took when America found out about his whopping $353 in charitable contributions one year.
Although President Obama is counting on the charitable tax change provision to raise $179.8 billion over 10 years for government spending, Roberton Williams, senior fellow at the Tax Policy Center, predicts organizations dependent on philanthropic giving will have to pay the price.
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