Some worry move would hurt charities
President Barack Obama has made several bold proposals in his budget plans. His biggest project is a plan to put $634 billion toward health care reform. It’s a spendy project, and it’s Obama’s job to figure out how to fund it.
Among his budget proposals, he has suggested limiting tax breaks for itemized deductions. That would only apply to families that make more than $250,000 per year or more.
Will people be less charitable?
Itemized deductions include tax breaks for charitable giving. Critics worry that if tax deductions are capped for wealthy people, they won’t donate as much to charity. The majority of donations to charitable causes come from the same income bracket that would experience the decreased tax breaks.
Obama’s proposal
The 2010 budget proposal that Obama has laid out calls for a 28 percent limit on the value of the tax break for itemized deductions. So, for every dollar donated to charity, people who make more than $250,000 would save 28 cents on their taxes.
Currently, the rate people save on itemized deductions is about 20 percent higher than the proposed cap. So the wealthiest people can save 48 percent on itemized deductions.
Bringing in big money
The cap on itemized deductions would raise $318 billion. That would get the president about halfway to his $634 billion health care goal, which is aimed at making health care more affordable and available to everyone in the United States.
The itemized deduction cap would also apply to deductions for mortgage interest.
Charities worry about funding
Independent Sector, a coalition of charities and foundations, and the Council on Foundations have said they are worried that they will get less funding as a result of the limit on tax breaks. A study from Indiana University says it’s possible that billion of dollars in charitable giving are at stake. Others say the effects of the change could be limited as far as charity donations go.
Two points of view
Washington lawyer Sheldon Steinbach says the proposal could hurt many groups, including the colleges and universities he represents.
“Any disincentive to charitable giving, especially in the current economic climate, will have an impact far beyond the black letter law. It will have an exponentially negative impact,” Steinbach says.
However, Stanford University associate professor Rob Reich says even if there is a decrease in charitable giving, the new health care system will be worth it. In a way it will balance things out.
“Is the good that will be done through health-care reform greater than the good that would have been done with the charitable projects of the wealthy people?” he says.
The great divide
Reich also points out that the charitable deduction favors the rich and is unfair to the poor. People with incomes too small to itemize get less of a break because they are in a lower tax bracket.
Obama believes the deduction cap is an important step toward a goal that will benefit the country as a whole.
“With this budget, we are making a historic commitment to comprehensive health-care reform. It’s a step that will not only make families healthier and companies more competitive, but over the long term it will also help us bring down our deficit,” Obama said.
I think that capping the amount of charitable contributions isn’t a good idea. The thing is that if they can deduct enough to get around taxes by giving to charities, guess who also benefits from it? Charities! Charities also do a lot of work for disadvantaged and lower income people, so if he were to lift the cap on charitable donations, everyone wins.