27 February 2013

Charity Headed for that 28% Cap Again

Every year that President Obama has put forth his budget proposal, he has proposed limiting the value of itemized deductions to 28%. All signs are pointing to the same scenario this year. Unfortunately, with the recent tax rate hikes, the impact will be more harmful than previous proposals. Instead of individuals losing as much as 20% of their itemized deductions, they would now lose more, creating an even larger disincentive to give.

Comments by now confirmed Treasury Secretary Jack Lew underscore the belief that we are again facing a 28% limitation. In his new role, Lew is expected to be President Obama’s right-hand man on tax reform. His written responses to questions from members of the Finance Committee discussed the charitable deduction, and his responses nearly all but ensure the charitable deduction will be reduced under the Administration’s upcoming budget proposal.

Numerous reports show that a cap, cut or limit to the charitable deduction would, in turn, decrease giving. In fact, the charitable sector could witness a $5.6 billion decline in giving over merely one year. When asked specifically about these numbers by the Committee, Lew called the drop in giving “modest” and repeatedly supported the 28% cap. That “modest” number equals the entire annual budgets of the American Red Cross, Goodwill, YMCA, Habitat for Humanity, Boys & Girls Clubs, Catholic Charities, and the American Cancer Society combined. Any reduction to giving, even if it be “modest”, is the last thing anybody who benefits from charity needs right now. Lew referred to this proposal as an “even-handed approach” to cover itemized deductions. We argue that the charitable deduction is different from all other deductions because it encourages people to give their income away and should be treated as such.

Estimates suggest that for 2013, giving is estimated to essentially remain stagnant, but charities report the need for services has only increased. Why would Congress or the Administration continue to propose anything that would cap the deduction, and therefore end up reducing charitable services?

We must remember that it is not the donors who would be harmed by this 28% cap, but those who receive services from charity. In a time when so many need a helping hand, we cannot discourage individuals from giving. We must protect the charitable deduction in its current form to ensure private giving remains strong.