Wednesday, September 14, 2011

Charities React to Deduction Limitation Proposed in President’s American Jobs Act of 2011

Yesterday, we blogged about selected provisions of the American Jobs Act of 2011 proposed by President Obama.  One provision that we observed is section 401, which, in relevant part, would essentially limit the value of itemized deductions for high-income earners to the value that they would have were the high-income taxpayers in the 28 percent marginal income tax bracket.  In Jobs Bill Would Limit Charity Tax Breaks, the Chronicle of Philanthropy takes a critical view of this feature of the proposal:

President Obama’s proposed $447-billion jobs bill would be financed mainly by limiting the percentage of income wealthy donors could write off, including tax breaks for charitable gifts.

Mr. Obama, who today released the details of the plan he outlined to Congress last week, suggested limiting write-offs for itemized deductions to 28 percent. The nation’s most affluent people are currently allowed to write off 35 cents of every $1 they spend on charitable giving, housing, medical expenses, and other deductible items.

Of course, if (as provided by current law) the so-called Bush tax cuts do indeed expire with no further reduction in marginal income tax rates, and if the proposed itemized deduction limitation is enacted and remains in place, the tax-adjusted cost of charitable giving by wealthy donors would increase to an even greater degree than that illustrated in the above excerpt.  Nonprofit leaders are aware of the possible consequences, as the story continues:

The president, who has proposed similar changes to the charitable deduction several times throughout his presidency, has faced stiff opposition from nonprofit leaders. They say that limiting the value of the tax break would cause wealthy people to reduce their giving.

Today’s announcement quickly drew a similar outcry among nonprofit leaders, many of whom said the idea would force job cuts at charities just as the president is seeking to increase employment.

A competing view was offered by Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities, who argued that charities should also contemplate the negative effects of sustained economic sluggishness on charitable giving.  Charities stand to gain more from a healthy economic recovery than they stand to lose from this proposal, according to Van de Water.  

JRB

http://lawprofessors.typepad.com/nonprofit/2011/09/charities-react-to-deduction-limitation-proposed-in-presidents-american-jobs-act-of-2011.html

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