Opinion

The Great Debate

Keep the charitable tax deduction

April 2, 2009

 Diana Furchtgott-Roth– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. —

The economy is in a painful slump. Growing numbers of people need help, charities are facing a decline in donations and states are cutting back on services. The April employment report from the Labor Department will show a further increase in the number of unemployed.
Yet, rather than harnessing the generosity of Americans to help out, President Obama has proposed to reduce the tax incentives for charitable giving. He wants Congress to limit to 28 percent the tax saving from contributions for taxpayers who itemize their deductions.

Mr. Obama proposed to use the revenue gained to fund universal health care. He would make the 28 percent cap on the tax saving for contributions take effect in 2011, when he contemplates letting the Bush 2001 tax cuts for upper-income people expire.
The combination of higher rates and a 28 percent cap on the value of deductions for charitable contributions (and mortgage interest) would diminish donations to charities ranging from local churches to national opera companies. Cutbacks on charitable giving would be more pronounced among the well-to-do, not only because they have more to give, but because their tax rates would rise at the same time as their deductions would be limited.

Mr. Obama’s proposal has resulted in opposition from not only charities, but also Republicans and Democrats in Congress.

According to Senate Finance Committee Chairman Max Baucus, a Montana Democrat: “I’m a little – especially concerned about the 28 percent limitation, which has nothing to do with health care.” And Senate Republican Leader Mitch McConnell said, “Congress should preserve the full deduction for charitable donations and look for additional ways to encourage charitable giving, not discourage it.”

Under the law now, if a taxpayer in the 35 percent federal tax bracket gives $100 to charity, he can subtract the $100 from his taxable income, reducing his total tax bill by $35. The after-tax cost of his gift is $65. (Relief from state income taxes might bring the net cost still lower.)
If the value of the deduction is limited to 28 percent, the after-tax cost of the gift rises to $72, and the net result would be diminished giving.

In a March 24 news conference Mr. Obama argued that his change would add fairness to the tax system because the tax saving for those in the 33, 35 or 39 percent brackets should not exceed the saving for people taxed at 28 percent.

Research has shown that charitable contributions are price sensitive, and the gifts of higher-income taxpayers are more sensitive to price than are the gifts of those lower on the income scale, according to George Washington University economics Professor Joseph Cordes. So reducing tax savings will shrink giving, hurting recipients.

In 2007, Americans gave $306 billion to charity, with 88 percent coming from individuals and the remainder from foundations. As a percent of GDP, Americans are the most generous in the world, giving twice as much as the British and over 10 times as much as the French.

Without undiminished deductions, the government would gain billions in tax revenue, but charities and others would lose. That would lessen the ability of charities to help the neediest, not what the president intended.

In fact, on February 5, in an executive order expanding the role of President Bush’s Office of Faith-Based Initiatives, Mr. Obama stated that “few institutions are closer to the people than our faith-based and other neighborhood organizations. It is critical that the Federal Government strengthen the ability of such organizations and other nonprofit providers in our neighborhoods to deliver services effectively.”

But tax policies that move funding from charities and towards the government would hurt those organizations that Mr. Obama wants to help. The full deductibility of charitable deductions enhances our national generosity, and we should leave that tax provision alone.

Comments
37 comments so far | RSS Comments RSS

You didn’t explain that quite well enough. This isn’t a candy store. Right now, the law simply says that when you have income, you can give it to charity rather than keep it for yourself, and you only pay tax on what you keep for yourself. This regardless of your income level. Obama’s proposal is very much like saying that if a well-to-do person works 4 hours a month for a charitable cause, free, they have to pay the federal government 7% of what their time (which they’re not getting paid for) is worth for the priviledge of doing so! Obama’s proposal amounts to a statement that high-income people should be discouraged from making charitable contributions.

Posted by Pete Cann | Report as abusive
 

Heaven forbid that we would lose 7 percent off the deduction ammount. Sometimes (especially in these difficult times) it would behoove us, morally, to give and not expect something back. The fact that you can get a tax deduction from a charitable donation shouldn’t determine whether you make a donation or not. If it does, now might be a good time to reevaluate yourself as a human being. In american we live under a market system. This market system will never deliver compassion. Compassion and profit margin dont usually go hand in hand. So if we can remember that and add the human element to our market we can make up a little for the negative impacts this type of sytem can cause. Now with a large deficit coupled with massive debt and soaring health care costs I think this tax change is a clever way to generate extra revenue. Sitting around speculating whether it will decrease giving or not won’t solve any problems. Try it…if it doesn’t work…we try something else. Sitting idly by with speculation is a waste of our time.

Posted by louis scholnick | Report as abusive
 

If charitable contributions are truly price sensitive, then we as a country really need to look at ourselves in the mirror. Seriously, if you truly believe in the charity, who it helps, and how it benefits the community, then you should be willing to give money or goods WITH NO TAX REDUCTION! You people who base your annual charitable contributions on the tax implications should really consider changing your first, middle, and last name. Perhaps something with the initials…A…I…G.

Posted by mas92875 | Report as abusive
 

It is reasonable to have constraints. The limits do not prevent most people from being giving. Beyond the constraints we are talking about substantial charitable contributions probably from wealthy individuals. I heard Buffett say that wealthy Americans pay surprisingly little tax. We shouldn’t forget that Obama has the backing of people with deep pockets. He is sensitive to that segment of the population.

Eventually a person has to do what is right rather than accommodating every special interest. The average person can still give plenty of money to charity. There are cases where individuals might take a vow of poverty. Those are unusual situations.

Posted by Don | Report as abusive
 

Ms. Furchtgott-Roth, what do you propose as an alternative method of increasing revenue that would have no adverse effect on anyone?

 

That the charity “market” is booming in America in comparison with other countries is something we shouldn’t be proud about; it is a symptom of how bad the average citizen fares in the current economic system. Of how polarized wealth has become.

Charity is not big in France because people don’t need as much charity there. They have a socialized healthcare system, a socialized education system, working social services and better labor relations than in the US.

Obama is absolutely right about it – the system needs to be changed so that the average citizen doesn’t need to appeal to charity in case of urgent need or catastrophe. It is a matter of dignity. Why encourage charity when just a bit more fairness and a bit less greed in the economic system (healthcare system etc.) would eliminate the need for it?

Posted by Andy | Report as abusive
 

I am fine with Mr. Obama’s idea of limiting the deduction for charity to 28% if the top tax rate is also limited to 28%. That way nobody saves more than 28% of the value of the contribution.

Posted by Craig Coal | Report as abusive
 

Some people don’t understand the full benefit of charitable giving. The reason that wise government has always encouraged charitable giving isn’t just for the building of charitable organizations and the helping of the poor.
There is much more too giving than that: giving anonymously to good causes and/or helping others without getting ourselves in the spotlight has a wonderful character building and therapeutic effect on the giver.
By encouraging people to give willingly, government is inadvertently encouraging us to become better citizens, better neighbors and better human beings.
If you don’t believe me try giving, when you really don’t have the extra money, to an organization or person that is in great need and see how it makes you feel. I don’t care why we give but if it takes a tax deduction to get someone started giving and sharing this feeling it is ok with me.

Posted by Marv | Report as abusive
 

I have never heard so much sanctimonious baloney. What lunacy to say that tax ramifications should have no bearing on giving, and anyone that takes this into account is a selfish tyrant? Anyone with any wisdom at all should ALWAYS take this into account….ever heard the term “marginal rates”?….the more the tax benefit, the more I am ABLE TO GIVE, and therefore the more goes to the charity. Who are you lefties that always want to vilify others….dolts I guess..

Posted by mwest | Report as abusive
 

Marv articulated a very important point about charitable giving that seems to go over the heads of many of the previous posts. To replace charity with more government services breaks down much of the good that is brought out of charity such as character building, societal awareness, and caring about the less fortunate. What happens to a society where the individual simply gives more of their money to the government instead of choosing to give to charity instead? The attitude that person has towards the less fortunate may be much different from one circumstance to the other. Not to mention, the freedom issue: charity as a choice or forced charity from the threat of the IRS. I would rather live in a society where we are encouraged to use our discretionary spending money to help out the less fortunate rather than be forced to hand over more to the federal government for more spending programs. Private charities are usually much more efficient with the use of the money they receive than the federal government. The private charities in Katrina have had a much more positive impact for the people there than the slow-moving and inefficient federal government has had. And for those who argue that people shouldn’t need a deduction as incentive to give to charity, they should want to give anyway. Well, those people aren’t dealing in reality. Many wealthy people out there (who put out the biggest chunks of charitable donations) give extra because they’d rather some of their tax dollars go to a charity of their choice than be frittered away on a pork project in Washington. A society without charity and full of only government services is a very sterile and cold society if you ask me.

Posted by Jerry | Report as abusive
 

Andy, America’s charity extends around the world so though you may be ashamed of it there are millions who are not. Charity may not be big in France but neither is their employment rate. I exhibit at trade shows annually in Europe and I can tell you you have never met a more miserable bunch than Europeans. They would all give their eye teeth to trade places with any of us and take advantage of our capitalist system. Obama is just trying to exchange private charity with Government charity. It is all about control.

 

One should ask why is there a need for charity in the first place. Both here in the US and around the world. If you ask this question, you will discover that both here and abroad charity addresses needs that would not have existed, were it not for the recklesness exploitation of Americans as well as third-world citizens by the same global corporate crony capitalist system. A sick child can’t get treatment in the US because his parents lost their jobs (outsourced to China in search for more profit). Another child is born disabled in China because of the pollution from the outsourced factories. The answer for both: Charity! Would Africa need charity today, if its human and natural resources hadn’t been plundered with such rapacity over centuries? The benefit of charitable giving is that it puts out the fire, here and there, from time to time. But why fixate on putting out the fire, why not try to see whether we can avoid starting the fire in the first place?

And by the way, speaking of charity, let me tell you who were the biggest recipients of charity in the past few months: AIG, Goldman Sachs, City… Charity from all us taxpayers, so their managers can keep getting their multi-million dollar bonuses and of course donate some of these money to charity.

Posted by Andy | Report as abusive
 

talk talk talk talk talk + more talk talk talk + talk talk talk with some speculation = not getting anything accomplished. Why dont we at least try something for christs sake. If it doesn’t work try something else. Sitting around second guessing each other is a waste. Do don’t talk.

Posted by Mr Realistic | Report as abusive
 

“The Deduction” one gets to keep is “The Tax burdens” the rest have to bear. In the end, there is no free lunch – someone has to pay for it, the cost of running a country.

“Tax Deduction” is really nothing but a BACKDOOR of avoiding paying YOUR SHARE to the society. And that goes to mortgage interest deduction as well.

A citizen of a country has to pay for the cost of running the country — whether she/he agrees with how money (i.e. policies) is spent. She/he does not get to pick and choose – it is an obligation to the country we live in.

“Tax Deduction” allows a citizen to pick-and-choose what she/he is willing to support AT THE EXPENSE of the priorities set by the majority!

Let us be honest “The Deduction one gets to keep is the tax burdens the rest have to bear.”

John

Posted by John | Report as abusive
 

Obama is sounding more and more like the typical policitian – say one thing (what the voters wanted to hear) but do another (after getting elected. Typical!

Posted by John | Report as abusive
 

People should be charitable. Giving means sacrificing. The point of contention is the size of the tax deduction. People do not have to receive any deduction in order to give. Certainly when I give a person on the street some cash, I do not ask for a tax receipt. When I send food and clothing to relatives – mine being quite poor – I do not expect a tax deduction. The concept of a tax deduction is really kind of alien from a Biblical standpoint.

The article states correctly that people cannot be as giving if there is less of a tax deduction since the deduction affects how much can be given. Fair enough. But in a manner of speaking all of us indirectly subsidize contributions by receiving less tax. The administration is just putting the subsidization on an even playing field. We do not subsidize rich people more than the average person.

Like I said that’s all tax stuff. I don’t recall any Biblical guidance about tax deductions; uneven distribution of benefits based on income tax brackets; esoteric stuff like that. People can still give all that they want. If it’s any consolation, to the extent that I will not subsidize a rich person’s tax return, I will give to poor people without asking for a tax refund.

Posted by Don | Report as abusive
 

Personally, I do support LEGITIMATE tax breaks for religious organizations but not for the ILLEGITIMATE ONES. The rub now comes in distinguishing them and avoiding endless law suits. Thus, we are faced with the tasteless action of forgoing them all. This will have as much chance as the proverbial snowball in hell.

Remarque

Posted by Gordon Sutton | Report as abusive
 

I understand that giving to Harvard or Yale qualifies as a charitable deduction. It was also my understanding that these Universities and other Foundations like them are so wealthy that they could fund their entire operations off the interest of what they already have. Perhaps this is the kind of Charitable giving we could do without.

Posted by Captain Krunch | Report as abusive
 

Historically, giving has not decreased when Congress tinkers with the charitable income tax deduction. Especially for the wealthy, whose income is in large part from capital gains, the tax deduction for charitable gifts is rarely a motivation for giving to charity. Additionally, not a great deal of money will accrue to government coffers from lowering the threshold of charitable deductions on just those who make over $250,000 per year.

What we really need to do is raise the capital gains tax to 25% on people who make over $250,000 and that would put a lot more money at the government’s disposal.

The argument you make in your commentary is fallacious and unhelpful.

Respectfully submitted,

John G. Fike, CFRE
President
Philanthropy Solutions, LLC

President
Greater Detroit Chapter
Association of Fundraising Professionals

 

Dispite her titles and position her article is a rant of the privileged. It is’nt giving if you are making the government or others pay for it. Like Warren B. said: It should’nt be that a janitor has to pay a higher tax rate than he.

 

I’d just like to repeat a point made by an earlier poster here.

The tax deduction system for charity currently means that you only pay tax on what you are keeping for yourself, not what you are giving away. This is fair, and is a benefit to the nation as a whole because it encourages charitable giving – which has been shown, time and time again, to use money more efficiently than the federal government. It has to: charity rankings are easily and publicly accessible, and charities that waste money find it hard to raise more. Ideally this would also be true of politicians!

Posted by Charles | Report as abusive
 

And precisely *WHY* should we the public be forced to subsidize the pet causes of the rich as much as we are? They make the decision and we pay over a third of the price. This is even if we are not members of their “faith” and are not eligible for equal treatment from their organizations. How about giving us the Medicare and Social Security we have already paid for instead? That is where public money should go, not to pet causes.

Posted by Texas Mike | Report as abusive
 

I believe the adjustment to the deduction should be made in order to reconcile a benefit that individuals with higher incomes receive for their charity versus that of individuals with lower incomes. Meaning 28% of all funds donated to charities should reduce a taxpayers ordinary income regardless of their marginal tax bracket, or in fact in increase the amount for lower income individuals to that of the 39% that wealthier taxpayers enjoy. In other words everyone’s charitable contribution should transfer the same benefit regardless of their income.

 

I’m a pastor and let me tell you, the last reason people give is the tax break. More and more I find people giving because they want to become a part of something bigger than themselves and to make a difference at home and in the world.

Like previous posts, if you’re giving just for the tax benefit, that is far from the “cheerful giving” the Scriptures recommend.

Posted by UM pastor | Report as abusive
 

If you want less of anything, tax it more; if you want more of anything, tax it less. This axiom is as true for charitable giving as it is for income or property values — or car sales, for that matter. If private citizens provide less charity, then needy people will be more dependent on the government for their comfort and survival. This proposal is, quite simply, one more dimension of the power grab that Obama and the Democrats in the US Congress are perpetuating on the American people.

Posted by EPLogos | Report as abusive
 

The time is now for the Obama regime to go in for the kill, to head us into socialism. Don’t you see it? Bailing out banks is a way for “them” to slighly creep into institutional ownership. Bailing out corporations is a way for “them” to gain ownership and control, allowing “them” to operate and make the decisions for your’s and my business. For “them” to discourage giving to non-profits is just another way for “them” to gain control. Next they will be requiring all of us to install micro chips (the numer 666) under our skin so that “they” could monitor and control our health care needs, finances, our gov’t loyalty, our religion, and where we go and live. Its just the first steps in the bigger scheme of things.

Posted by Dan Elliott | Report as abusive
 

Joh G. Fike wrote:

“What we really need to do is raise the capital gains tax to 25% on people who make over $250,000 and that would put a lot more money at the government’s disposal.”

I’m planning on going to get a TACO Bell job and living in a small house so I WON’T contribute to more money going for “the government’s disposal” – The FEDERAL GOVERNMENT IS evil and should have VERY LITTLE money to dispose of. If I ran my home like they run the government, I’d be living in the streets. Federal Government should be put out of business! Disgusting!

Posted by BZ in NH | Report as abusive
 

Since wealthy individuals tend to give less to charity as a percentage of their income than do poor people. We should eliminate that tax deduction for charitable giving altogether while at the same time giving every American an equivalent tax reduction. The effect on taxes would be a wash – the amount collected by eliminating the deduction would be off set by the reduced taxes everyone would pay. This would be like a pay raise to poor people, who, since they give a higher percentage of their income to charities, would actually increase the total charitable giving. Of course the issue is all about control. The charities supported by the poor tend not to be places like Yale or Harvard, and more like the local soup kitchen.

Posted by dan | Report as abusive
 

Lets remember one thing. The top 1 percent of taxpayers (AGI over $388,806) earned approximately 22.1 percent of the nation’s income (as defined by AGI), yet paid 39.9 percent of all federal income taxes. I am not lucky enough to be one of these people, but think that their tax burden is probably high enough already.

That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns.

Fairness is not really part of the equation here. This is not the lower income earners “subsidizing” the ability for the “rich” to give to their pet causes. This is the top earners subsidizing everyone else, and then getting some very minimal tax advantage for giving away some of their income.

If this is really going to change, it’s not about the tax rate, but what is considered a “charity”, which congress also controls.

Check my facts at http://www.taxfoundation.org/news/show/2 50.html

Posted by mentally taxed | Report as abusive
 

Besides the bottom line that there will be less money donated to charity (besides whether or giving for a tax break is right reason), there are differences between government or charitable spending that should be considered in evaluating the reason to provide more or less incentives for charitable giving.
Which finds more of the money get used for overhead? It would useful to know the efficiency or percentage of the dollar spent by the two different systems. (This should be a broad study & not a case one).
The second is what are their success rates? Why not choose to keep supporting a cause that is three times more successful than the other. Or in the case where they both work well, support both of them, which creates a better chance of continuing success.

Posted by Joe | Report as abusive
 

Reducing the deduction for charitable giving is one of the scariest and most rediculous suggestions I’ve heard in a long time. Charitable giving allows individuals and organizations to exercise some control over where their money goes, unlike our tax dollars which are going to bailout the irresponsible corporations and individuals of the world. I am not rich by any stretch of the imagination, but I do recognize that we need wealthy people to do greater things than the average American can do. I fear that President Obama and many Americans not only lack an appreciation for all that charitable giving provides, but also that many despise the wealthy.

 

Texas Mike,
Your government run Medicare (,Medicaid ,) and Social Security services aren’t very good examples of why charitable giving shouldn’t be supported. Medicare & Medicaid don’t pay enough to cover costs, they are months behind in payments & do not give out payments under a certain dollar amount (meaning that one or two doctor office will never get paid for seeing Medicare patients). And all of the money for Social Security has been borrowed against to never be returned. I just hope no one is counting on it.

Posted by Joe | Report as abusive
 

The motive behind this change should be quite obvious. The current administration would prefer that they, not the people, be the primary disseminators of charity. Obama and his fellows would much prefer that society be even more dependent upon them than upon the private sector. To be frank, this administration views private giving as a threat to its power.

Posted by Matthew L. | Report as abusive
 

The efficiency of charitable giving and the benefits procured from voluntary effort are always much higher then the inefficiency of the government dole out. There are more social security administrators then social security recipients. Charitable organizations have cheerful volunteers(their free time). Government has employees. The biggest welfare recipients are government workers and large corporations. Individual welfare recipients have no personal involvement from the community to change their lives into more productive individuals, and thus creates idle individuals leaning more toward crime and counterproductive behavior.

Truth be known, the entire motive of politicians for increasing the tax burden has nothing to do with needed funds. They have a central bank to produce as many Federal Reserve Notes as they need. The motive is for creating a higher demand for those Federal Reserve Notes so people don’t resort to using private currencies. It is one more way to subsidize the behemoth financial system we have forced upon us. On top of that, directing the tax increases into things like this are for the intent of transferring purchasing power from charitable organizations to the corporations and financial institutions that lobby our government for more control.

Posted by J Johnson | Report as abusive
 

I’m not a big fan of this writer, she’s a biased republican apologist and that needs to be taken into account when you read these things.

That being said she’s dead on. ANYTHING that raises taxes on a public where the average homeowner pays 30% in taxes/fees one way or another should eb screamed out against. People give what they afford, they’re taxed than there’s less they can afford.

The good thing is it doesn’t seem like most of the commenters are republican apologists, hopefully you’re all RON PAUL SUPPORTERS!!! ;)

Posted by Michael Ham | Report as abusive
 

She is right on. I don’t understand where some many of the repsonses here are coming from. Maybe someone will explain why someone should have to pay tax on money they gave away to charity. I am middle class and give about 15% to charity so this will not affect me, but I think it’s foolish to say that it would not affect those who give high percentages of their income to charities. If there is a cap, then it would prevent someone from giving high percentages since they would still suffer the tax burden of money they gave away.

Posted by Ben | Report as abusive
 

THE TRUTH ABOUT TAXES

As taxes go up the rich have less money to invest with. Less money to invest with results in less jobs created and increases the incentive for businessmen in America to send jobs overseas. I know being one of them. If my whole business goes over there what does that do for America?

The “smart” government knows that they must give the wealthy incentives to keep business growing in their respective countries. To do that the government offers tax-breaks to them as a reward for producing jobs. In this case the charity donations tax deduction. Reducing the charity donation tax deduction will force me to give less to charity thereby forcing me to seek other tax shelters and reduce costs of doing business.

The working man however is affected by emotion and rightfully so since employees are heavily taxed. This is because sadly our tax laws are written in the favor of those who are rich and that is because the rich produce jobs. Therefore you have people saying the rich shouldn’t get tax-breaks and people shouldn’t base their charitable giving based on tax deductions.

The only way to solve the tax problem in america is to go back to a national sales tax. This is how we got of out debt (thanks to the wisdom of Alexander Hamilton) before and if only the right people would listen we do so again.

May the Lord bless all who read this comment

Posted by Bluemage | Report as abusive
 

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