Federal Legislation

Feb 1, 2010

President Obama Releases FY 2011 Budget Proposal

Charitable tax deduction is back on the chopping block

President Obama Releases FY 2011 Budget Proposal

The President released his FY 2011 Budget this morning.  As part of this new budget, as we expected, President Obama again proposed to limit the itemized deduction, including the charitable deduction.  The proposal would limit those who earn over $200,000 (singles) and $250,000 (couples) annually to a 28% itemized deduction cap (versus the 33% and 35% rates currently applied to these taxpayers).  Unlike last year, however, the funds raised from this proposal would go toward reducing the deficit; last year, the revenue raised from the limitation was set aside for health care reform efforts.

Various media reports today have reported this provision as “dead on arrival” much due to our success so far from keeping this proposal out of any moving legislation.  That said, we do not take this fight for granted, and we fully expect this issue to be an on-going issue for us to fight as long as there is a deficit to reduce.  We will continue to work to ensure that this provision does not move forward. 

In addition to the itemized deduction cap, the President proposed several other “Upper-Income Tax Provisions” for those singles earning over $200,000 and couples earning over $250,000 including:

  • Higher marginal rates– The current 33% and 35% rates would be replaced with 36% and 39.6%. For those individuals under the above threshold but currently within the 33% bracket, would get taxed at the 28% level.

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  • Capital Gains/Dividends Rates – For those individuals over the above threshold, the capital gains and dividends rates would go from 15% to 20%.

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  • Itemized Deduction/Personal Exemption Limitations (“Pease and PEP limitations”) -  The budget would reinstate the personal exemption phase-out (not clear, but likely a 2 percent reduction of the exemption amount for each $2500 or fraction thereof by which AGI exceeded the threshold) and limitation on itemized deductions (reduction of 3% of amount AGI exceed statutory floors but not more than 80% of allowable deductions) for those over the above income thresholds. 

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  • Estate Tax -  The President again called for a permanent extension of the 2009 Estate Tax Levels – a 45% rate and $3.5 million per-spouse exemption. As you know, because Congress did not act on this issue last year, the current estate tax level is 0% and is scheduled to rise to 55% in 2011.

    • Additionally, the President mentioned in his budget the focus on spurring job creation, especially amongst small businesses.  His recently released jobs package includes a $5,000 tax credit for small businesses, including nonprofits, per each new employee hired in 2010.  The maximum benefit for any one employer would be $500,000.  This is a great recognition by the President of the importance of nonprofits to the economy. 

    Finally, the President included a $266 million increase for the Corporation for National and Community Service (CNCS), including an increase of $10 million over 2010 for the Social Innovation Fund, for a total of $1.416 billion for the CNCS.  The Obama Administration has touted the Social Innovation Fund as a key part of their support for the nonprofit community, though they have only recently released more of the details regarding the SIF. 

    ACR will be carefully monitoring these issues in the coming weeks.  While the President’s Budget proposal does not carry the force of law, it does provide a blueprint for Congress to consider when they put together their own budget in the next few months.  As always, we will continue to keep you posted on the latest developments. 

    If you are interested in seeing the full descriptions of the budget revenue proposals, you can access the Treasury “Green Book” at:  http://www.treasury.gov/offices/tax-policy/library/greenbk10.pdf


    If interested in accessing the entire budget, you can visit: http://www.whitehouse.gov/omb/budget/

     

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