News and analysis
February 13, 2012

Nonprofits Oppose Obama Plan on Limiting Charity Write-Offs

KAREN BLEIER/AFP/Getty Images/Newscom

President Obama renewed his call to limit charitable deductions for the fifth time in his presidency Monday, seeking again to limit the percentage of income that wealthy donors can write off for gifts to charity and other purposes.

The proposal, included in the White House’s 2013 budget plan, quickly prompted criticism from many nonprofit leaders who say the proposal would stifle giving.

The disapproval stands in sharp contrast to the praise that many in the nonprofit world gave President Obama following last month’s State of the Union address, when White House officials said that they would work to protect tax benefits for charitable contributions.

“We thought we had turned the corner of the issue, that we had made progress with the administration, only to learn that we are back to square one,” says Diana Aviv, chief executive of Independent Sector, a coalition of nonprofits and foundations. “We will be focusing once again, in a very active way, on the charitable-deduction issue.”

Critics have accused Independent Sector and other nonprofit advocates of spending a disproportionate amount of energy protecting the charitable tax break, given other critical issues facing the nation, especially those facing vulnerable people.

Ms. Aviv said last week that Independent Sector "sympathized with that point of view" and that it would promote policies to cut the nation's deficit and overhaul the tax code that do not "exacerbate income inequality or increase poverty."

But she added that the organization would also continue its efforts to fight a cap on the charitable deduction, a notion that was reinforced Monday with the President's budget proposal. "Where the administration is putting us leaves us no choice," she said.

Editor's note: The previous three paragraphs have been revised from an earlier version of the story to give a fuller description of Independent Sector's plans.

The Charitable Deduction

See past coverage of proposed changes to the charitable deduction, analysis by economists, videos, and more in our special section.

28-Percent Limit

Mr. Obama’s 2013 budget calls for limiting the value of the itemized deduction to 28 percent for couples with incomes of more than $250,000 and individuals with incomes of more than $200,000.

The White House says its proposed limits on itemized deductions would reduce the deficit by $584-billion over 10 years. Though Mr. Obama has repeatedly suggested limits on the deductions wealthy people can take, none of the ideas have ever gotten very far in Congress, in part due to opposition from charities and in part because of disagreements over how to trim government spending and subsidies.

'Buffett Rule’

Giving by wealthy donors could also be affected by two other proposals in the budget plan.

Mr. Obama suggested that every household with more than $1-million in earnings annually would be required to pay at least 30 percent of their income in taxes—a provision known as the “Buffett rule” because of Warren Buffett’s complaint that he pays a smaller share of his income in taxes than his secretary does.

The Buffett rule would replace the alternative minimum tax, which was originally designed to prevent wealthy Americans from escaping taxation by taking advantage of loopholes in the tax code but now affects a growing number of middle-class Americans.

The increased taxes could dampen the amount people who are millionaires and billionaires give to charity, but Mr. Obama said Monday he wanted to be sure that did not happen and pledged to structure the tax code in a way that would not “disadvantage individuals who make large charitable contributions.”

Fundraisers also say wealthy donors might be influenced by Mr. Obama’s proposal Monday to return the estate tax to 2009 levels.

Today couples can leave their heirs estates as large as $10-million tax-free. They face a tax of 35 percent on anything beyond that sum. Under Mr. Obama’s proposed 2013 budget, the tax would be set at 45 percent, with just the first $3.5-million exempt. That change could become an incentive for donors to give to charity as a way to reduce the amount that could be subject to big estate taxes.

Questions About Equity

While the estate-tax idea could help charities, nonprofit leaders were still far more concerned about Mr. Obama’s attempts to limit write-offs on charitable deductions by the wealthy. They fear that because people will be paying more in taxes, they will have less discretionary money to give,

“The president is sending mixed messages to the charitable community,” said Sue Santa, senior vice president at the Philanthropy Roundtable, an organization that represents conservative donors. “On one hand, he wants to limit the charitable deduction. On the other, he wants millionaires to continue to give to charity while also paying higher taxes.”

The White House did not respond to The Chronicle’s request for comment.

Ms. Aviv says that she’s concerned that the White House is saying it will protect charitable gifts for millionaires and billionaires but not for people who make from $200,000 to just under $1-million.

“How do you protect gifts for a millionaire but limit the deduction for someone who earns $200,000?” Ms. Aviv asks. “This leads me to wonder if the Buffett rule isn’t as generous as we thought.”