The apparent turnaround late last month by the Obama Administration recognizing the importance of tax incentives to bolster charitable giving is good news for the tens of millions of Americans who receive life-saving support from America's nonprofits such as Jewish Federations. We hope the upcoming fiscal year 2013 budget (scheduled to be released next week) also fully preserves the charitable deduction.
Demand for charity in America continues to grow while government resources for social service programs dwindle. America's generous citizens fill this void and their contributions should be incentivized by the tax law. The White House has no choice but to rein in the budget, but the Administration does have a choice about continuing the century-old tradition of providing tax incentives for charitable giving. We are grateful that the Administration now agrees that fundamental tax reform should not create disincentives to charitable giving by reducing the deductibility of charitable contributions.
In numerous proposals over the past three years, the Administration had suggested making changes to the limit the tax deductibility of charitable contributions. The notion of losing these incentives worried many of our nation's top charities because we know the significant impact this change in policy would have on the operating budgets of nonprofits serving the most vulnerable among us.
Americans give billions of dollars to charities each year. These donations are largely due to donors' generosity and concern for their fellow Americans in need. But there is no doubt that taxes play a part in the giving equation, often helping donors to assure that charities receive the maximum financial benefit from their gifts.
In previous proposals, the tax benefit of all itemized deductions, including charitable contributions, would be capped at 28 percent. This would increase the after-tax-cost of a $10,000 donation by almost $1,200, or about 30 percent, if the top statutory tax rate for charitable deductions returns to 39.6 percent. What this means for Americans in need is that there's a 30 percent greater incentive for donors to give under the Administration's revised approach.
That's why we are gratified with the change in the Administration's policy to now recognize the importance of the tax deductibility of charitable contributions as announced in their tax reform platform. Unlike other tax incentives (housing, child care, etc), the charitable deduction is unique because it promotes behavior that provides no direct benefit to the donor. Rather the real benefit from this policy flows to society--especially our neighbors in need. This has been true for more than 100 years and remains increasingly important during these times of economic recovery and government austerity.
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