Once again, President Barack Obama has proposed lowering the income tax deduction for charitable giving. In his proposed budget for fiscal year 2013, the President calls for reducing the charitable deduction rate from 35 percent to 28 percent for those in the top tax bracket (individuals making $200,000 or more or families making $250,000 or more). By decreasing the value of itemized tax deductions for higher-income taxpayers, Obama’s proposal would weaken the incentive for the wealthy to give to organizations that help the poor.
President Obama has tried this before. Not once, not twice, not three times, but on four previous occasions, he has put forward a plan to lower the deduction rate for wealthy donors (twice in previous budget proposals and twice in funding proposals for other priorities, including Obamacare).
As The Heritage Foundation has previously noted, the President’s plan would likely dampen charitable giving at a time when nonprofits have been forced to do more with less. The greatest impact would probably hit organizations like hospitals and educational institutions that depend on large gifts from wealthy donors. While these donors make up only a small percentage of total American households, they contribute almost half of the donations claimed each year as charitable deductions.
How far would Obama’s proposal cause total itemized contributions to fall? Experts predict up to $5.6 billion each year. This is only a small percentage of total annual charitable donations, but it is more than the annual operating budgets of the American Cancer Society, World Vision, St. Jude Children’s Research Hospital, Habitat for Humanity, and the American Heart Association combined.
This proposed tax change was wrong when we wrote about it before, and it is wrong now. The tax deduction for charitable giving not only incentivizes giving to organizations that serve the needy but also allows citizens to control more of their own money, from which they can potentially donate more to charity. Sadly, President Obama seems to believe that federal government bureaucracy can deploy the resources of the wealthy more effectively than nonprofit, civil society organizations.
If enacted, the President’s proposal would harm charitable organizations while moving the dial of social responsibility one more notch in the direction of the state. Sadly, many of these nonprofit organizations are the same charities whose religious liberty is under attack by Obamacare’s anti-conscience mandate. As Yuval Levin of the Ethics and Public Policy Center points out in a video produced by Heritage, President Obama has engaged in a pattern of weakening the status and identity of civil society institutions. The result: Citizens will have far fewer options for help and, ultimately, less freedom.