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‘Only Charitable Deduction Preserved In New Buffett Rule Tax Proposal’

BNA

Only Charitable Deduction Preserved In New Buffett Rule Tax Proposal

By Diane Freda
Reproduced with permission from Daily Tax Report, 22 DTR G-5 (Feb. 3, 2012).
Copyright 2012 by The Bureau of National Affairs, Inc. (800-372-1033)
http://www.bna.com

The charitable contribution deduction is the only deduction that would be allowed under the Buffett rule tax proposed by Sen. Sheldon Whitehouse (D-R.I.), in legislation that would ensure that millionaires pay a minimum effective 30 percent tax rate, charitable sources told Bloomberg BNA Feb. 2.

“The legislation builds on what the president’s blueprint stated, which was that the administration is going to impose the [Buffett rule tax] on individuals with certain high incomes, but is going to hold harmless their contributions to charity,” Sandra Swirski, executive director of the Alliance for Charitable Reform, said.

The proposed legislation (S. 2059) is the second piece of good news charities have received in less than two weeks, indicating that both the administration and at least some elements in Congress intend to preserve the deduction (17 DTR G-4, 1/27/12). Charities have been cowering under a possible 28 percent limitation on itemized deductions that they said would largely kill off incentives for charitable giving. Instead the Obama administration has signalled an apparent willingness to preserve the deduction, with Whitehouse and eight co-sponsors taking up the call.

The 30 percent tax on high earners would be phased in for incomes between $1 million and $2 million, Whitehouse has said, with taxpayers paying a portion of the tax that the Buffett rule adds as they go up the line in income between $1 and $2 million. It does not fully kick in until they reach $2 million. However, those giving to charities would be eligible for a tax deduction.

Charitable Deduction Comes Off First

“Essentially the bill allows the modified charitable deduction to be deducted from adjusted gross income before the 30 percent tax rate is applied,” Evan Liddiard, partner at Urban Swirski & Associates of Washington, said.

The proposed legislation would reduce the charitable contribution deduction for taxpayers with adjusted gross incomes of more than $175,450 in 2013. The reduction attempts to mirror the limitation on itemized deductions set to become effective when the tax cut provisions from 2001 expire at the end of 2012, Liddiard said.

Those considered to be higher income taxpayers with AGI over the $174,450 threshold will lose part of their itemized deduction, including the charitable contribution deduction, for regular tax purposes beginning next year, he said. The proposed legislation attempts to give taxpayers the same result under the Buffett rule tax as they would get under the regular income tax. The Paying the Fair Share Act would signal that incentives for private giving should not be used as a revenue offset for competing priorities, according to Alliance for Charitable Reform.The group said while it is pleased that there has been wide recognition that the charitable deduction is different from all other deductions, in that it encourages people to give away their money, the creation of wealth is also important. A surtax on high-income earners could hinder that goal, it said.

“We are hopeful Congress and the Administration can come together and create a proposal that accomplishes all of these goals,” Sue Santa, senior vice president of the Philanthropy Roundtable, said.