Obama Tax Plan Could Reduce Charitable Donations


By Ryan Messmore

A budget plan sensitive to the needs of the poor would encourage charitable giving, right? At the very least, in an economy where more people struggle to pay for medical procedures and their kids’ education, a responsible budget shouldn’t discourage giving to hospitals or universities, right?

Unfortunately, this isn’t the case for President Obama’s proposed 2012 federal budget.

Obama’s plan, which the Senate Finance Committee will discuss at a hearing this Wednesday, would likely dampen charitable giving in the years ahead. The plan would not only weaken one of the incentives for those most able to donate large gifts but would further shift perceived responsibility for social welfare from individual donors to the state.

Specifically, Obama calls for raising the tax rate for families making more than $250,000 per year from 35 percent to 39.6 percent, beginning January 1, 2013. Obama also proposes reducing the rate at which these taxpayers can take itemized deductions from the current rate of 35 percent down to 28 percent, beginning January 1, 2012.

While it’s true that most donors don’t make gifts based solely on the charitable deduction, experts suggest that the deduction sometimes alters the manner and timing of giving as well as the number and size of gifts. This is especially true concerning large gifts from high-income Americans, the very taxpayers Obama’s plan targets. These high earners make up only a small percentage of total American households, but they contribute almost half of the donations claimed each year as charitable deductions.

The result of Obama’s proposals will likely be decreased revenue for hospitals, educational institutions, and nonprofits that help the poor. The Center on Philanthropy at Indiana University estimated that if Obama’s proposed changes had been in place five years ago, they would have reduced total itemized giving by wealthy households by almost $4 billion. While this is only a small percentage of total annual charitable donations, it is more than the combined annual operating budgets of the American Cancer Society, World Vision, St. Jude’s Children Research Hospital, Habitat for Humanity, and the American Heart Association.

Perhaps most importantly, Obama’s proposal sends the message that federal bureaucracy can deploy the resources of the wealthy more effectively than civil society can. Raising taxes while decreasing an incentive for charitable giving implies that the state should assume responsibility for people’s needs even at the expense of vital nonprofit organizations. Churches, ministries, and other community-based institutions, however, are often better equipped to serve people in need. And they often do so at reduced costs.

At a time when charities most need resources to care for the hurting, President Obama should seek ways to encourage voluntary giving and protect nonprofit groups. Instead, his proposed tax changes move the dial of social responsibility one more notch in the direction of the state.


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