October 20, 2011

New Study Says Charities Could Lose Up to $3.2-Billion From Obama Tax Change

In another new study on President Obama's proposal to limit the value of the charitable deduction, the Tax Policy Center has estimated that the change would depress giving from $1.7-billion to $3.2-billion a year.

That is less than the estimate of $2.9-billion to $5.6-billion offered in another study released this month.

C. Eugene Steuerle, a fellow at the Urban Institute, mentioned the new research in testimony he provided to a Senate Finance Committee hearing on Tuesday.

President Obama has proposed several times raising money for federal coffers by limiting to 28 percent the tax write-offs that high-income people can get for their itemized deductions, including charitable gifts—down from a maximum of 35 percent now. Most recently, he suggested it as a way to pay for a jobs bill, although Senate Democrats have rejected that idea.

The Tax Policy Center, a project of the Urban Institute and Brookings Institution, produced the study under a $1-million grant from the Bill & Melinda Gates Foundation for research into tax policies that affect charitable giving.

Like the earlier study—done by Joseph Cordes, an economics professor at George Washington University, also as part of the Gates project—the new research offers low and high estimates for the impact on giving because economists differ over how much influence tax policy has on donors.

Joseph Rosenberg, a research associate at the Tax Policy Center, said the study projects how much donations would fall in 2011 if Mr. Obama's proposal were in effect now.

He said the estimates of $1.7-billion to $3.2-billion are lower than Mr. Cordes's because they take into account that the plan would not affect all high-income taxpayers in the same way. For example, some already face a 28-percent limit on itemized deductions because they are subject to the alternative minimum tax, a system that seeks to prevent wealthy people from using loopholes to avoid paying taxes.

Furthermore, the plan would apply only to people with adjusted gross incomes of at least $200,000 a year ($250,000 for married couples). Some taxpayers who earn less than that now fall in the 33-percent tax bracket, Mr. Rosenberg said. Since the tax break for charitable giving is tied to a donor's tax bracket, those tax payers would be able to continue writing off 33 percent of their gifts rather than only 28 percent.

To read more about the charitable deduction and what economists say about how much it matters, see this special section of The Chronicle.