Over 80% Of Charitable Contributions Unaffected By Obama’s Slight Change To Deductions

In order to responsibly fund far-reaching health reform, President Obama’s budget includes limiting to the 28% rate itemized deductions for the very richest Americans. This means that the very wealthiest taxpayers used to saving $350 in taxes per $1000 deduction would save only $280, the same as over 98% of American taxpayers with marginal tax rates at or below 28%.

There have been concerns that this proposal would adversely affect charitable contributions, which are deductible from taxes. But new numbers from the Tax Policy Center show that over 80% of individual charitable contributions are given by those at or below the 28% bracket, meaning they are totally unaffected by the proposal.

The remaining 18.2% or so would be subject to exactly the same tax benefits as those offered to over 98% of Americans.

A conservative estimate by the Center on Budget and Policy Priorities finds that this tax change would likely reduce projected charitable contributions by only 1.3%, but “help finance universal health coverage, which would greatly reduce burdens on the charitable sector to provide uncompensated health care to millions of Americans who lack insurance.”

In fact, because of the impending tax increase, Chad Alderman suggests we may see a spike in charitable giving over the next two years before the tax change kicks in, exactly the kind of counter-cyclical boost needed to get America’s charities through these tough economic times.

As Peter Orszag explains, “even to the extent that charitable contributions are affected by tax considerations, the budget contains other proposed changes (including retaining an estate tax) which will create stronger incentives for giving. Above all, though, the best way to boost charitable giving is to jumpstart the economy and raise incomes – and the purpose of the Recovery Act enacted earlier this month was to do precisely that.”