October 06, 2011

Price Tag for Charity Tax Break Loss: at Least $2.9-Billion

President Obama's plan to limit the value of charitable deductions for wealthy people would cost nonprofits at least $2.9-billion and perhaps as much as $5.6-billion, according to a study to be unveiled Friday.

Economists examined how people would be affected by Mr. Obama's plan to limit to 28 percent the amount affluent people could write off in all itemized deductions. People in the highest income bracket now can write off 35 percent of their deductions, including those for gifts to charity.

Charities have been strongly opposed to Mr. Obama's effort to limit the incentive to give, especially at a time when giving has dropped because of the bad economy.

The new research will be presented Friday at a conference by the Urban Institute’s Center on Nonprofits and Philanthropy and was one of several forthcoming projects paid for by a $1-million research grant from the Bill & Melinda Gates Foundation.

The wide range in the estimate is a sign of disagreements among economists about the exact impact of  tax changes on giving, writes Joseph Cordes, an economics professor at George Washington University and author of the paper that includes the new estimates.

Mr. Cordes's study also found that a plan proposed last year by a deficit-reduction panel to replace the charitable deduction with a 12-percent tax credit would have a far bigger effect on charitable gifts. He says donations would decrease by $9.7-billion to $24.6-billion under that plan.

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