January 01, 2013

Fiscal Cliff Deal Could Hurt Charitable Giving

Legislation the Congress passed Tuesday to avoid the fiscal cliff limits how much wealthy people can claim in deductions for charitable contributions and other spending when they itemize their tax returns.

The legislation raises the top tax rate to 39.6 percent on household incomes above $450,000 but maintains current rates for everyone else, or about 98 percent of all Americans. It also delays for two months the $110-billion in federal spending cuts scheduled for 2013.

Throughout December nonprofits have been lobbying Congress and President Obama not to impose limits on the tax savings wealthy donors get when they make charitable contributions.

The Senate-crafted plan enacts limits that charities have opposed. It reinstates a provision eliminated in 2010 that reduces itemized deductions by 3 percent of the amount that household income exceeds $300,000. Write-offs grow more limited the more taxable income a person has and could reduce the value of deductions by up to 80 percent for the highest-income taxpayers, according to the Tax Policy Center.

The 2010 limits have long been opposed by charities. Independent Sector noted that the limit could reduce giving in its February analysis of the idea, which was included in President Obama's 2013 budget proposal.

The organization, which represents about 600 nonprofits, also signed a letter this summer from the Charitable Giving Coalition to Sen. Harry Reid, the Senate majority leader, stating its opposition to the deduction limits.

The letter, signed by nearly a 30 of the nation's largest nonprofit organizations, said the limits would "result in fewer contributions flowing to America’s charities, which are now being asked to provide even more services to the most vulnerable among us."

The legislation also called for a serious overhaul of the tax code. That means charities could spend much of 2013 fending off tax changes they fear would deter giving. President Obama has long supported imposing a 28-percent limit on the value of itemized deductions taken by the wealthiest taxpayers, including those for charitable giving.

“Cutting spending has to go hand in hand with further reforms to our tax code so that the wealthiest corporations and individuals can’t take advantage of loopholes and deductions that aren’t available to most Americans," President Obama said in a press conference near midnight Tuesday.