Friday, Mar. 6 2009 @ 5:09PM
Just to show how difficult a sell
Barack Obama's budget will be, even many of the powerful nonprofits that would seem to sympathize with his social agenda are wailing about the prexy's plan to reduce the charitable tax deduction for rich people.
This despite the Obama team's clever proposal to use the money to help create a $634 billion reserve fund to pay for health-care reforms.
In other words, the money would help many of the same people whom the charities currently help.
Nevertheless, some critics are dusting off the familiar complaint that such a change in the tax laws would sharply reduce the amount of charitable donations made by the wealthy. In addition, say the critics, less donations mean cutbacks in the staffs of nonprofits.
This argument is made by, among others, William Daroff of the United Jewish Communities. See Jacob Berkman's "Nonprofits fret over Obama's plan to tax wealthy."
The facts don't back up this complaint.
And while it's true that the social-service nonprofit sector is hurting for certain right now, their big-bucks contributors can't argue that Obama's proposed tax-deduction cuts should stop them from giving.
Go to the Center on Budget and Policy Priorities (one of my favorite wonk tanks) for the real skinny. An analysis published yesterday by Paul N. Van de Water concludes:
President Obama's proposal to limit the tax deduction for charitable contributions would affect only the top 1.2 percent of affluent U.S. households and, despite claims to the contrary, would reduce total charitable contributions by only 1.3 percent.
Citing Urban Institute-Brookings Tax Policy Center figures, he adds that "the proposal would affect only 1.2 percent of U.S. households -- those in the top two tax brackets. The other 98.8 percent of households would not be affected."
And of course, Van de Water notes that "offsetting this decline, the proposal would help finance universal health coverage, which would greatly reduce burdens on the charitable sector to provide uncompensated health care to millions of Americans who lack insurance."
In any case, the whining by the wealthy is, for now, boy crying wolf. As Van de Water says:
The proposal would be unlikely to hit charities during the recession, because it would not take effect until nearly two years from now — January 2011 — by which time the economy is expected to be recovering.
If the economy is still weak at that time, Congress and the President almost certainly will delay implementing the proposal. In fact, under those circumstances, it would be difficult politically for them not to do so.
See, that's one reason I like the CBPP. Solidly pragmatic, this wonk tank usually blends into its economic analysis a good helping of political reality instead of simply the coulda-woulda-shoulda spewed by more ideological or less sophisticated brainiac collectives.
Even in explaining Obama's actual plan, it gives some needed historical perspective:
Currently, middle-income Americans receive an individual income tax subsidy equal to 10 cents or 15 cents for each dollar of their deductible expenses (if they itemize deductions), while affluent Americans get a subsidy of 35 cents for each dollar of deductible expenses.
The Administration's proposal would cap the subsidy at 28 cents on the dollar for those with incomes over $250,000 — the same rate at which those expenses could be deducted during the Reagan years, when the top tax rates were lower. As a result, the incentive to incur those expenses would be the same as under President Reagan.
The same as under Reagan, so what's the beef, you in the top tax brackets?
Not only would the rich not be tormented, the CBPP argues, but the impact of the Obama plan on charitable giving would be negligible. There would be "some decline," but it would be "quite small." The wonk tank explains:
First, a substantial portion of charitable giving derives from foundations, estates, and corporations and from individuals who do not itemize their contributions on their tax returns. Itemized contributions represent only 62 percent of total charitable giving.
Second, the proposal would affect only the 1.2 percent of tax filing units that are in the top two income tax brackets. Tax Policy Center data indicate that these taxpayers account for only 18 percent of the charitable contributions that are reported as itemized deductions. Thus, only about 11 percent of total charitable giving would be affected.
And don't forget the estate tax, which the Bush regime tried like hell to abolish. The CBPP's Van de Water does a nice job of picking up the loose political pieces here, so the verbatim follows:
The Administration's budget also proposes to make permanent the estate tax as it stands in 2009, rather than to allow the estate tax to be repealed or shrink further, as would occur under a number of other proposals that have been advanced on Capitol Hill and in political campaigns.
The estate tax operates as a powerful incentive for charitable giving. Giving by estates would be significantly higher under the Obama proposal than under competing proposals that would further curtail the tax.
The projected loss of about 1.3 percent of total charitable contributions from the cap on itemized deductions should thus be weighed against the beneficial effects on the charitable sector of both universal health coverage and maintaining the current estate tax.
Overall, the effect of the budget proposals on charities is probably a very small negative at worst — and quite likely a net positive.
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