March 24, 2009

President Obama Stands By Proposed Charitable-Deduction Limits

President Obama tonight stood by his proposal to limit tax breaks for charitable deductions for wealthy people, saying it would have little effect on giving.

“I’ll tell you what has a significant impact on charitable giving is a financial crisis and an economy that’s contracting,” he told a televised news conference. “And so the most important thing that I can do for charitable giving is to fix the economy, to get banks lending again, to get businesses opening their doors again, to get people back to work again. Then I think charities will do just fine.”

President Obama has proposed limiting to 28 percent the tax break couples earning more than $250,000 (individuals $200,000) can get for each dollar of itemized deductions, including charitable donations, starting in 2011. People in the highest tax brackets can now get 33 percent or 35 percent.

Many nonprofit leaders have criticized the proposal on the grounds that it would dampen giving, harming charities that are already under strain from the economic downturn. Others, however, support it because the tax revenue would be used to bring down health-care costs, which they say would benefit both charities and the people they serve. The plan has mustered little support in Congress so far. (See an article from The Chronicle of Philanthropy about the status of the proposal.)

President Obama said his proposal would affect only about 1 percent of Americans and is part of his broader strategy of asking people who have prospered over the past decade to “pay a little more.”

He said it would also help “equalize” the tax breaks for charitable deductions, noting that he can now get a bigger tax break for his own charitable contributions than someone in a lower tax bracket.

“Now, if it’s really a charitable contribution, I’m assuming [the lower rate] shouldn’t be the determining factor as to whether you’re giving that hundred dollars to the homeless shelter down the street,” he said.

President Obama said the 28-percent limit would be comparable to the top deduction rate allowed in the Reagan administration. (Some tax experts say the comparison is not valid, however, since the top tax bracket then was also 28 percent, compared with 35 percent now. The top bracket would rise to 39.6 percent in 2011 under separate Obama tax proposals. That means wealthy taxpayers would be paying higher taxes while also getting a smaller break for their itemized deductions.)

“So I think this was a good idea,” the president said. “I think it is a realistic way for us to raise some revenue from people who benefited enormously over the last several years. It’s not going to cripple them.”

Suzanne Perry