December 03, 2012

Charities Would Lose $10-Billion Under Tax Cap, White House Says

President Obama won' t support an annual limit on deductions, including those for charitable giving, as the White House issued an estimate that such a break would cost charities at least $10-billion a year.

That will come as a relief to nonprofit leaders who say such limits are essentially the same as ending charitable deductions.

Advocates of a cap have said that it could raise $1-trillion over 10 years, the same sum that would come from allowing Bush-era tax cuts to expire, as the Obama administration seeks.  The Bush cuts mainly lowered the rates for wealthy people, so letting them expire would mainly hit America's affluent.

The idea of an annual cap on deductions of $25,000 was proposed by Republican Mitt Romney during his failed bid for president. The idea has gained some traction during discussions to avert the massive spending cuts and tax increases scheduled to go into effect on January 2.

Support doesn't just come from Republicans. The Committee for a Responsible Federal Budget has advocated for the $25,000 cap as one way to avoid tax-rate increases that would still raise revenue predominantly from higher-income individuals.

“Capping these deductions at a dollar amount, for example $25,000, would in itself be progressive, given that two-thirds of taxpayers don’t rely on itemized deductions and only 11-percent have deductions as high as $25,000,” states a November 15 report by the committee’s president, Maya MacGuineas.

But nonprofit leaders say that taxpayers who do itemize would hit the cap by first applying other deductions, including one for mortgage payments. Once the cap is met, they argue, taxpayers would have far less incentive to give to charities.

"Plausible tax expenditure limitations that protect middle-class families, and incentives to give to charity would raise far less revenue from the well off than is needed for a major budget agreement," the White House blog says.

Send an e-mail to Doug Donovan.