Is Obama's Proposed Reduction in Charitable Contibutions a Good Idea?

My grandmother
often repeated the aphorism that charity begins at home. But those
living in the White House and Congress just love to tweak tax policy to
make charitable giving to causes beyond our doorsteps more complicated.
This week President Obama's 2010 budget plan proposes that allowable charitable tax deductions for those earning more than $250,000 per year be reduced by about 20%.

Since I led nonprofits for 30 years, I can tell you that any time
the tax deduction for charitable contributions is decreased,
contributions decrease. We've tried this before, in the Reagan administration, for example, just to be clear that it's a bipartisan idea. Maybe that's why Obama likes it.

At any rate, it was a bad idea then and it's a bad idea now.

Reactions to taking away tax deductions vary by type of donor.

of small amounts generally continue to give because a reduction in tax
deductability won't amount to a hill of beans for them. Individuals who
might have bought a $250 ticket to a charity event even though they
aren't 100% committed to that cause will think twice before writing the
check, because the "it's tax deductible" pitch was part of what twisted
their arm to give in the first place.

The biggest problem with Obama's plan specifically is that it's
aimed squarely at high earners capable of giving the major gifts that
make such a difference to the nonprofit sector's ability to maintain
services to people in need. These donors will will give much more
cautiously because their philanthropy is done in conjunction with their
financial planning. If contributions are 80% deductible, they will
likely give 80% of what they would given at 100% deductibility, because
that's the net effect on their bottom line.

As a consequence,
there will be less money for charity and more demands on publicly
funded safety net programs. In sum, the Federal government isn't likely
to realize any net gain from reducing charitable deductions in the
first place. So why bother creating the additional paperwork that comes
from torquing the tax code in this way?



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