Tuesday, March 3, 2009

Study Released Today Supports Claims Made in Earlier Posts that Tax Limits on Charitable Deductions Will Cause Minimal Decline in Giving

Suzanne Perry reports in The Chronicle of Philanthropy on a study released today, March 3, 2009, by the Center on Budget and Policy Priorities. This center is a national policy organization that conducts research and analysis at the federal and state levels on fiscal policy and public programs that affect low- and moderate-income families and individuals. According to the center's website, the center works to inform public debates over proposed budget and tax policies with the goal of ensuing that the needs of low-income families and individual's are considered in these debates about the proposals.

Ms. Perry's summary of the report states that the decline in charitable giving because of President Obama proposal to limit the tax breaks would be an estimated 1.3 percent per year and only affect about 1.2 percent of all taxpayers. As a consequence, the

[o]ver all [sic], the effect of the budget proposals on charities is probably a very small negative at worst—and quite likely a net positive," the center, which analyzes the impact of government spending on low and middle-income people, said in a report.

. . .

The center said an analysis by the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, found that the proposal would affect only 1.2 percent of U.S. households, those in the 33-percent and 35-percent tax brackets.

. . .

Furthermore, the center said, the president’s budget proposes keeping the estate tax as it stands, rather than allowing it to be repealed or shrink further, which will operate as "a powerful incentive for charitable giving." (This tax prompts some people to give to charity as a way to decrease the tax liability on their estates.)

For the full story, please click here.

In addition the report provides these reasons why the reduction in giving would be so minimal.

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. (footnote omitted)

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.(footnote omitted)

Reducing the tax subsidy for charitable giving increases the after-tax price of a dollar of contributions. Someone who is now in the 35-percent federal income tax bracket and lives in a state with a top income tax rate of 6 percent pays 59 cents after taxes for each dollar contributed to a tax-exempt charitable organization. Under the proposal, which would limit the federal deduction to 28 percent, that person would face an after-tax cost of 66 cents — an increase in cost of 12 percent. (The increase in the cost of giving would be 8 percent for those in the 33-percent income tax bracket.) Based on research on the effect of tax incentives on charitable giving, this change would be expected to reduce total charitable giving in the U.S. by about 1.3 percent. (footnote omitted)

For the full report, please click here.

The report is consistent with claims regarding the minimal impact of the tax proposal on giving made in numerous posts on this blog last week following the release of the President's budget proposal.



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