Federal Budget Proposal Reduces Charitable Deduction

Just when nonprofits thought the charitable deduction was safe from President Barack Obama’s plans, a budget that includes limiting the deduction is back in play.

The president’s proposal, released yesterday, would limit charitable deductions to 28 percent for families with more than $250,000 in annual income. It’s the fourth time the president has proposed limiting the charitable deduction, but his new budget also includes The “Buffett Rule,” which would raise taxes on millionaires and eliminate all deductions except the charitable deduction.

“The president is sending mixed messages to the charitable community. On one hand, he wants to limit the charitable deduction. On the other, he wants millionaires to continue to give to charity while also paying higher taxes,” said Sue Santa, senior vice president of the Philanthropy Roundtable. The Alliance for Charitable Reform (ARC), a project of the Philanthropy Roundtable, and others, fear the proposed Buffett Rule would impact an individual’s discretionary income and lead to less charitable giving.

Despite the fact that the White House had recently indicated that its tax reform proposals would not disincentivize large charitable gifts, William Daroff said the president’s budget is “disappointing for America’s charities.” Barely two weeks ago, Daroff, the vice president for public policy and director of the Washington, D.C., office of The Jewish Federations of North America, wrote to the White House applauding the administration for “acknowledging the importance of charitable giving incentives as an integral part of the ‘Blueprint for An America Built to Last,’ that was announced in the State of the Union speech.”

Daroff believes limiting the charitable deduction will result in the loss of billions of dollars annually in private support for nonprofits. “As in past years, we will work with members of Congress to defeat this misguided proposal,” he said.

Limiting the deduction rate to 28 percent — where it was at the end of the Reagan administration, according to the president’s budget — would reduce the deficit by $584 billion over 10 years.