News and analysis
September 12, 2011

Obama’s Jobs Bill Includes Plan to Limit Charitable Deductions for the Wealthy

Chuck Kennedy/Official White House Photo

The President's plan to limit the charitable deduction is expected to face stiff opposition from nonprofit groups.


President Obama’s proposed $447-billion jobs bill would be financed mainly by limiting the percentage of income wealthy donors could write off, including tax breaks for charitable gifts.

Mr. Obama, who today released the details of the plan he outlined to Congress last week, suggested limiting write-offs for itemized deductions to 28 percent. The nation’s most affluent people are currently allowed to write off 35 cents of every $1 they spend on charitable giving, housing, medical expenses, and other deductible items.

In effect, Mr. Obama’s plan means that a donation of $100,000 would save a donor $28,000 in taxes, $7,000 less than he or she would save today. The plan, which would take effect in 2013, would apply to married couples with an adjusted gross income of at least $250,000 ($200,000 for individuals) and would provide roughly $400-billion for the federal government over 10 years, the White House said. It would not affect the deduction taken by people who earn less.

Opposition From Charities

The president, who has proposed similar changes to the charitable deduction several times throughout his presidency, has faced stiff opposition from nonprofit leaders. They say that limiting the value of the tax break would cause wealthy people to reduce their giving.

Today’s announcement quickly drew a similar outcry among nonprofit leaders, many of whom said the idea would force job cuts at charities just as the president is seeking to increase employment.

“Limiting the itemized deduction would certainly lead to a significant decrease in charitable contributions. If charities have less resources, they’ll be forced to choose between laying off employees or cutting needed services,” said William C. Daroff, vice president for Public Policy at 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.”

Hurting the Needy

Sandra Swirski, executive director of the Alliance for Charitable Reform, a coalition of grant makers and donors, said the president’s effort to limit tax deductions would harm his goal of creating more jobs.

“That’s exactly the wrong direction to go in,” said Ms. Swirski.

She also said that it goes against another goal Mr. Obama outlined when he spoke to Congress last week. He said that policy makers need to make sure the neediest are not neglected, she said. “And at the end of the day, limiting the charitable deduction is going to hurt those folks the most.”

Proponents of the plan, however, say the White House's proposal will help charities.

"Charitable organizations need to look at both sides of the ledger," said Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities, a liberal think tank in Washington. "Getting out of the recession would be a big benefit for charitable organizations of every sort. If the economy doesn't recover, the effect of the weak economy on charitable giving is going to be much more severe than the modest effect of this particular proposal."

Today’s proposal is the same plan that President Obama outlined in the spring as a way to cut the budget deficit and earlier in his presidency as a way to pay for the health-care bill.

Nonprofit groups said they are prepared for a similar fight in the face of the latest plan.

“We have seen this proposal before and we were able to defeat it,” Mr. Daroff said. “And while we don’t look forward to the fight ahead, we are up to the challenge.”