Charitable Deduction | Federal
Feb 10, 2012
Buffett or Buffets – Our take on the new tax restrictions
Consider This…
So we wonder, what do people think when they hear the President talking about the Buffett Rule?
Well of course all of you astute readers know that the Buffet Rule is all about billionaire Warren Buffett’s tax rate and not about a salad bar that goes on for miles. President Obama’s basic premise behind the Buffett Rule is this: millionaires and billionaires should not have a lower tax rate than their secretaries, the police officer that protects them or the teacher that educates their children.
Some wonder how that that scenario could be possible. It’s possible because , as you likely know , some high income earners make most of their money from investments. Investment income is taxed at a flat rate of 15 percent, while the rest of our income is taxed on a progressive scale, up to 35 percent.
The President’s Buffet Rule would impose a minimum tax of 30 percent on anyone earning at least $1 million, no matter how it is earned. Interestingly, the President would also remove all deductions for this group, except the charitable deduction, which is a shift from his past position on itemized deductions. This proposal is easier said than done because, as everyone knows, taxes are complicated. We expect to see more details on all of this when the President releases his budget on February 13th.
In the meantime, Senator Whitehouse (D-RI), along with nine of his fellow Democrats and one Independent, has introduced legislation to implement the Buffet Rule - they’re calling it the “Pay a Fair Share Act.” While many find the legislation problematic and prospects for its enactment are low, a bright spot is that the Whitehouse legislation also preserves only one deduction– the charitable deduction. Of course, one question that we don’t know the answer to yet is: if millionaires are taxed more and therefore have less money in their pocket to spend, what will the impact be on their charitable giving?
It remains to be seen if the President will include the Buffett Rule with the carve-out for the charitable deduction in his budget proposal next week. Or, will President Obama’s budget include –as it has in this Administration’s past– a 28 percent limit on itemized deductions, including the charitable deduction or will it include something else entirely. We will, of course, keep you posted on all of the above.