News and analysis
April 13, 2011

President’s Deficit Plan Seeks to Limit Charity Write-Offs by the Wealthy

Mark Wilson/UPI/Newscom

President Barack Obama

President Obama is making a renewed call to limit the value of charitable tax breaks taken by wealthy people, saying that such changes are needed to help close the nation’s mounting federal deficit.

The proposal has triggered anew questions about whether such tax changes hinder giving.

President Obama said that his plan, outlined in a speech today in Washington, borrows from recommendations from his bipartisan commission as well as his 2012 budget proposal. The 2012 budget proposal would eventually reduce the value of itemized deductions for those in the top tax bracket by 30 percent.

The plan calls for limiting itemized tax deductions, including those for charitable donations, to 28 percent for taxpayers in the highest brackets. Currently that rate is set at a maximum of 35 percent.

The Obama administration says such a move, which would be coupled with changes to other itemized deductions such as those offered for mortgage interest, would reduce the deficit by $320-billion over 10 years and would eliminate inequities in the tax code that the president says unfairly benefit the rich.

“While I agree with the goals of many of these deductions, like homeownership or charitable giving, we cannot ignore the fact that they provide millionaires an average tax break of $75,000 while doing nothing for the typical middle-class family that doesn’t itemize,” Mr. Obama said.

Deduction Not ‘Sacred’

Rob Reich, an associate professor of political science at Stanford University, agrees with the president’s concerns.

Mr. Reich says the current system for charitable deductions is unfair, since those who itemize get greater benefits than those who do not.

“If tax expenditures in general are on the table to be examined, there is nothing sacred about the charitable tax deduction,” Mr. Reich said.

But Diana Aviv, chief executive of Independent Sector, a coalition of nonprofits, says such a move would stifle giving by the wealthy.

“The president is trying to address the deficit, and he’s doing the right thing, but we are concerned with the way that he has conflated the charitable deduction with the mortgage-interest deduction and health care,” Ms. Aviv says.

“These are entirely different,” she adds. “In the case of health care and the mortgage-interest deduction, there is a direct tangible benefit to the individual. In the case of the charitable deduction, the benefit goes to someone else. They don’t get to keep the money. It goes to the charity.”