In every budget President Obama has sent to Congress, he has signaled to the American public that promoting private giving is not his priority: each year he has proposed a cut to the charitable deduction. He didn't let us down this year, again choosing to devalue charitable giving by proposing to limit the charitable deduction.
Under our current tax code, the charitable deduction is an important incentive for people to give and make charitable investments in their communities. Americans individually gave almost $235 billion in 2010 to fuel the work of charities with a wide variety of missions and purposes, satisfying both the diverse needs and spectrum of solutions to problems in our society. But it is not the only incentive, among which importantly are perceived need and the donors' own sense of their disposable income.
In this year's budget proposal, the president added a new twist to the narrative. He included his principles for tax reform in the budget. The "Buffett rule" was one of those principles, which would set a minimum tax of 30% and eliminate all deductions on anyone making $1 million or more, although under the Buffett Rule, the charitable deduction would be the only deduction preserved. The president is sending mixed messages to the charitable community. On one hand, he wants to scale back the charitable deduction for anybody making over $250,000, but on the other hand, he emphasizes its importance by leaving it as the only deduction for those subject to the Buffet rule.
After persistent outcries from the nonprofit community, President Obama chose to keep the charitable deduction as a part of the Buffett Rule as the only deduction allowed for those higher income earners. In this way, the president has tiptoed back from his earlier swipe at the charitable deduction and even elevated it above other deductions. Given the president's intention to raise marginal rates, this is a palliative step, though taken in context, charities would still have reason to be concerned because with this new tax, the wealthy will have less disposable income to give away.
President Obama seeks increased tax rates as a way to pay for new government spending. Limiting the charitable deduction and the goal of the Buffett Rule is to significantly raise taxes on many of the biggest donors in our country. Are we to believe that when forced to forfeit more of their income to the government, philanthropists will be oblivious or indifferent and continue unchanged their giving to their communities?
The president has popularized the idea of everyone "paying their fair share" and made it a central pillar of his re-election campaign. But perhaps the administration should consider some other numbers that speak to fairness: According to IRS data, the top 4% of taxpayers donated 40% of all philanthropic dollars in 2010. They ALSO paid over half of all federal income taxes. Furthermore, almost half of Americans pay no federal income tax at all. Does that seem fair?
It's clear that the Administration values government spending over private sector spending, and is only marginally concerned about the debilitating effect this will have on a charitable sector that is already trying to do more with less.
When people have less money in their own pocket than they did before, logically, they are going to voluntarily give less to the pockets of others. As Congress considers this budget for FY13, they should not only keep the charitable deduction intact, but should be looking at other ways to encourage a strong economy, the genesis of vibrant philanthropy at all levels.
Heather Higgins, President of the Independent Women's Voice, serves on various non-profit boards, and is a businesswoman and media commentator.