President Barack Obama proposes to pay for his $447 billion jobs bill mainly by limiting tax deductions for wealthy Americans. Unfortunately, if enacted, this policy will likely dampen charitable giving and further shift perceived responsibility for social welfare from individual donors to the state.
The President’s plan calls for lowering the rate at which wealthy taxpayers can take itemized deductions—from the current rate of 35 percent down to 28 percent, beginning in 2013. The change would affect individuals making more than $200,000 (and families making more than $250,000) per year.
This isn’t the first time President Obama has suggested this approach. He did so in his proposed 2011 and 2012 federal budgets and in 2009 attempted it as a way to pay for his health care plan.
The result of President Obama’s proposal will likely be several billion dollars in decreased revenue each year for hospitals, educational institutions, and nonprofits that help the poor. While giving would probably drop only a small percentage, the anticipated amount would total more than the combined annual operating budgets of the American Cancer Society, World Vision, St. Jude Children’s Research Hospital, Habitat for Humanity, and the American Heart Association.
Those who are served by these institutions aren’t the only ones who would be hurt by decreased giving. Many people’s jobs would also be threatened.
“If charities have less resources, they’ll be forced to choose between laying off employees or cutting needed services,” argues William C. Daroff of the Jewish Federations of North America. “Nonprofits employ almost 10 percent of the work force nationwide, and in many states nonprofits are the largest employers. In our view, cutting the deduction is like cutting your nose to spite your face.”
While it’s true that most donors don’t make gifts based solely on the charitable deduction, experts suggest that the deduction sometimes alters the manner and timing of giving as well as the number and size of gifts. This is especially true concerning large gifts from high-income Americans, the very taxpayers Obama’s plan targets. These high earners make up only a small percentage of total American households, but they contribute almost half of the donations claimed each year as charitable deductions.
Perhaps most importantly, Obama’s proposal sends the message that federal bureaucracy can deploy the resources of the wealthy more effectively than civil society can. Decreasing an incentive for charitable giving implies that the state should assume responsibility for people’s needs, even at the expense of vital nonprofit organizations. Churches, ministries, and other community-based institutions, however, are often better equipped to serve people in need. And they often do so at reduced costs.
At a time when charities most need resources to care for the hurting and hire more employees, President Obama should seek ways to encourage voluntary giving and protect nonprofit groups. Instead, his proposed jobs bill moves the dial of social responsibility one more notch in the direction of the state.