Cars Donation

President Obama’s long-awaited budget proposal, to be released today, does not come right out and say that it  intends to reduce  contributions to charity—but that is almost certainly what would happen were it to become law.  Here’s why.  The White House has effectively doubled down on a tax change it has been pushing for four years that would limit the value of the charitable tax deduction.  The Administration has, since 2009, pushed unsuccessfully to allow only 28 cents on a dollar donated to charity to be deducted—even though the top tax rate for the wealthy donors who make most use of the deduction has been 35 percent.  In the budget released today, the President again proposes to cap the charitable deduction at 28 percent—despite the fact that the top rate on the highest earners has increased to 39.6 percent.  Think of it this way:  the White House proposal would raise the cost of giving to charity from 60 cents per dollar to 72 cents per dollar.  That’s a 20 percent increase in what can be called the “charity tax.” 

When one taxes something more, of course, one gets less of it—and it’s likely that the current $168 billion in itemized charitable giving would decline.  Indeed, Indiana  University’s Center for Philanthropy  has previously estimated that capping the charitable tax deduction’s value at 28 percent—even when the top income tax rate was 35 percent—would lower giving by 1.3 percent, or some $2.18 billion in 2010.  The new proposal would likely take an even bigger bite from giving. The Chronicle of Philanthropy reports that the reduction in giving could be as high as $9 billion a year.