A proposal to reduce the federal debt unveiled on Tuesday calls for changes to the charitable deduction as part of an overall strategy to overhaul the tax code.
An executive summary of the plan—drawn up by a bipartisan group of senators dubbed the "Gang of Six" and praised by President Obama—does not spell out what those changes might be. However, it says its overall strategy is "consistent" with recommendations that the president's debt commission issued last year.
That plan—drafted by the co-chairs, Erskine Bowles, a former Democratic White House chief of staff, and Alan Simpson, a former Republican senator, and endorsed by the majority of the panel's members—called for replacing the charitable deduction with a 12-percent tax credit. However, it would be available only for amounts donated beyond 2 percent of the taxpayer's adjusted gross income.
The Gang of Six plan, which calls for slashing the budget deficit by almost $4-trillion over 10 years, says the tax code should be simplified by reducing the number of tax brackets to three, with the top rate a maximum of 29 percent (compared with 35 percent now). At the same time, various tax breaks would be ended or changed in an effort to raise $1-trillion over 10 years.
"Reform, not eliminate, tax expenditures for health, charitable giving, homeownership, and retirement," the executive summary says.