November 29, 2010

Liberal Deficit-Cutting Plan Proposes New Charitable Tax Credit

Three liberal groups have offered a new proposal on how to cut the federal deficit, proposing yet another way to change the charitable deduction.

The proposal—by the Century Foundation, Demos, and the Economic Policy Institute—suggests converting the federal income-tax deduction for charitable donations to a 25-percent tax credit. The credit would be available to all federal taxpayers, including those who don't itemize or owe any income taxes.

"This would result in a net increase in the tax incentive to give for more than three-quarters of the population," their report says, noting that most taxpayers, primarily lower-income filers, take the standard deduction instead of itemizing.

The report, "Investing in America's Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility," follows two other prominent deficit-cutting plans offered in recent weeks that propose ending or changing the tax break for charitable gifts.

Two sets of recommendations issued earlier this month, one by the co-chairs of a deficit commission appointed by President Obama and the other by a committee that includes former Democratic and Republican government officials, suggested either limiting or ending charitable deductions as part of a package of spending cuts and tax increases designed to get the country on sounder economic footing.

The new recommendation is part of a broader proposal by the three groups to limit the value of all itemized deductions, saving the federal budget roughly $87.9-billion a year by 2015. The other tax breaks would be capped at 15 percent of the money spent, however, instead of the 25 percent proposed for charitable gifts. (The current mortgage-interest deduction would also be converted to a credit available to all taxpayers and would be available only for debt of up to $500,000.)

The groups said their package of tax proposals, which also include recommendations in areas like capital gains and the Earned Income Tax Credit, "demands responsibility by rebalancing the tax code and increasing tax revenue from those most able to pay."