Friday, February 27, 2009

The Obama Budget and Charitable Tax Deductions

President Obama's recently released 2010 budget has created some concern among the non-profit community. The budget scales back the tax deduction those earning more than $250,000 can take for their charitable giving from 33-35% to around 28% (See our Giving Calculator).

This could be unsettling news for charities who have already been hard hit due to the current economic conditions. Some believe that the drop in the tax deduction rate coupled with an increase in the top income tax bracket will ultimately lead to less charitable contributions. Others argue that the tax deduction is ultimately a small reason why many give to charity. And that even with the lowered tax deduction they will still give as they have in the past.

The data that we have seen over the years has shown a big spike in donations through our site during the last several days of the year, especially on December 31st which of course is the last day to make a qualified tax deductible charitable contribution (see our Tax Benefits of Giving article). This data indicates to us that the tax benefits really do motivate people to donate.

We would like to know your thoughts on how the change in tax benefits may lead to a change in your charitable contributions. Would the decrease in the tax benefits affect your giving?

21 comments :

profswitzer said...

Obama's numbers simply do not add up. He'll take in a third of what he claims he will. I've done the math: http://www.profswitzer.com/blog

Sandra Miniutti said...

CNN is interviewing Charity Navigator's president and CEO, Ken Berger, about this issue. The story will air on the Situation Room and/or AC360 tonight (Feb 27).

milt said...

This is beyond the impact on individual contributors and charities. The reality is that increased taxes on the wealthiest, coupled with a reduction in incentives to give, will clearly hurt charitable organizations. The bigger picture however, is the world view that the government should provide all needs. The speed at which the administration is pursuing left leaning policies is quite amazing. Depending on your world view and desire for America, you are either very happy or very frightened.

Ed said...

Personally (not to pat myself on the back) I give to my chosen charities because it is what Jesus commanded, not due to some earthly reward. It doesn't matter to me one way or another if they are tax deductible or not, I will give the same.

That said, I'm sure it will effect the giving of others adversely, but I don't think the overall affect will be that great.

Ed said...

Personally (not to pat myself on the back) I give to my chosen charities because it is what Jesus commanded, not due to some earthly reward. It doesn't matter to me one way or another if they are tax deductible or not, I will give the same.

That said, I'm sure it will effect the giving of others adversely, but I don't think the overall affect will be that great.

Scott Clous, chief Artist said...

Sure. People can only give money they have. Please think about it for a second. It's carrot and stick time, and while I read and heard the guy who said how unfair it was that the guy (Bill Gates) who gave to charity got a larger percentage off on his taxes, because of the way he was taxed, the response should have been, we are going to raise the rates for charitable giving for people making less than Bill Gates... instead, he's making it less useful for folks with the most to give to do so... makes no sense. I'd argue for 100% deduction for smallest donors, on up. Widow's mite, etc. but let's ask the more basic questions -- why do people give? For many reasons. But why does the tax code "reward" this behavior? Should it? I would argue yes, because people can use tools like Charity Navigator, etc. and more (far more) efficiently than the government give to causes they believe in, and see the results. I give thousands in my time and money to www.Pawswithacause.org and am learning how they spend their money on CEO salary, etc. but overall, that's not the issue, I've seen the finished product. Where the money is spent is many times far more important than how much -- is it being done effectively. The other tax question, naturally, is ... is it my money! Yes, it is. I'd go so far as to argue everyone who gives to charity should be able to deduct 100% Then the rules will be on the charities, not the folks giving. But as we know, there are many squirrelly ones out there...and so this is a bit much -- but perhaps 50% for everyone. Can you imagine? Carnegie Libraries, laptops for kids around the world, etc. all without government help, because people believe and can support those causes. There are always ways for the wealthy to move their money in to less taxable arenas. If the question is, is it a social good to encourage through the tax code, as much charitable giving as possible, and we can see that the Dec. numbers (because of taxes, not Xmas spirit, etc) are usually the highest, then what sense does it make to claim to care about people, and kill the goose that lays the golden eggs.

I'm only minimally rewarded for the dog (puppy) raising I do -- and for most folks the small difference the present deductions make will not move a dedicated person one way or another, but for myself, it does make the tipping point of a difference. I can smile at the doctors bill for the dog, because I know some percentage is deductible. When I have to clean the floors, feed her, emergency room for the dog visits, x-ray, etc. all for a dog I'll never see again... it's worth it. But then I also as one person wrote have a Christian motivation, with the (gasp) expectation of a reward later! For most people, it'd be nice to get it in the here and now. And as I've met younger folks, the idea of charitable work unrewarded, is completely foreign to them... a small nudge in the right direction is better than nothing.

Envy of those with wealth to give, and putting roadblocks in the way of their giving is the height of foolishness.

We the People said...

Once again the opponents of the current administration have distorted the proposed (after all it is still only a proposal)deduction on charitable contributions to scare the masses into thinking that ALL charitable contributions are going to be eliminated. As usual little attention is paid to the facts, which are that the proposed change would only apply to those earning in excess of $200,000 and would reduce the % of allowable deductions by only 2% (from 30% to 28%). Since the change would have no effect on the vast majority of citizens, This is much noise about little.

A more important core question should be (or could be) why is there a tax deduction at all when an individual chooses to donate to a charity? If that is the primary reason for giving then the ones that do are completely missing the point. Those with the higher incomes that choose to donate vary large amounts are unlikely to stop giving because of this proposed change so the various charities need not panic.

We the people need to stop buying into all the negatives about anything that is proposed or at least learn the facts before announcing that the sky is falling.

spa said...

We the people needs to tone down the condescending rhetoric and stick to the facts.

People who know the facts and like the current administration can still disagree with this change. Disagreement is hardly saying the sky is falling.

If you pay more in taxes you have less to give. Money not paid to the government is money that can be given elsewhere. I'd much rather give money to an efficient charity that directly impacts people than give it to the relatively inefficient government.

Those in higher tax brackets who give the most are penalized for their largess in this new budget. That is counterproductive. We need to be encouraging philanthropy, especially among the rich.

I'm with Scott Clous when he wrote "Envy of those with wealth to give, and putting roadblocks in the way of their giving is the height of foolishness." Using that envy among the populace to get away with bad policy compounds it.

Trevor said...

I don't think your "analysis of the data" is as analytical as you suggest. Based on the fact that people give to charities at the end of the year, you seem to derive that people give mostly or only for tax purposes. Your conclusion might be true, but it certainly isn't derived from the fact that most giving is done at the end of the calendar year. A more plausible explanation might be that the deadline for deductions influences the TIMING of donations, not the AMOUNT of donations. I would also note that the charitable deadline coincides with Christmas and the "Season of Giving". Again, your interpretation might be correct, but it is not derived from the data you present. I think perhaps you're presenting as fact what you would like to see in the data. In that case, I think you should collect better data.

Gary said...

I'm definitely not in any upper income tax bracket but I just have to say that if I was, under the new Obama plan, I would give less, if at all.

As for now, I have stopped altogether any charitable giving. I cannot afford to give. I may need help myself if things don't change soon.

Every time Obama opens his mouth, the market sinks lower and lower. When will he get it? His ideas are not working, nor will they. The only thing he is "stimulating" is the government coffers.

If charities do not address their concerns with the Obama administration, just wait until he and his fellow Democrats on the Hill usher in full fledged socialism.

Robert Meagher said...

The government should encourage charitable giving by allowing taxpayers a deduction for cash or in-kind donations. However, I think it is unfair that wealthy taxpayers' churches and charities get a much bigger government subsidy than low-income taxpayers' churches and charities.

Why should wealthy families get a 35% government subsidy for supporting Episcopalian churches, art museums, operas, and symphonies (all worthy causes), while average families get a 15% subsidy for supporting Baptist churches, school bands and sports programs, and community service organizations?

Why not pick a simple "revenue neutral" charitable deduction rate of perhaps 25% for families of ALL incomes? This way, the government would not be giving a disproportionate subsidy to charities more favored by the wealthy. The government would be matching $1 for every $3 that ANYONE chose to give to ANY charity, rather than matching $1 for every $6 an average family gave and $1 for every $2 a wealthy family gave.

Nick said...

We're talking about a deduction in a person's taxable income -- not a government subsidy. If a poor person's taxable income is decreased by $100 for a $100 donation, a wealthy person's taxable income should also be decreased by $100 for the same donation. The only reason this amounts to $35 in tax savings for a wealthy person and $10 in tax savings for a poor person is because the wealthy person is taxed at a higher rate. Yes, the wealthy person is saving more, but that's only because they're paying more as well.

Although I don't give to charity for the tax benefits, I may have to give less because I can't afford to give as much if my obligation to the government is increased. It's that simple. I do think this proposed change could have a direct, negative effect on charities, and I hope it gets re-evaluated.

Enigman said...

To "We the people" on this blog.

You continually insist that it is only "opponents of the current administration" who are the only people concerned about the current state of the economy and that only they "distort" the current situation and continually cry out. You then said "We the people need to stop buying into all the negatives about anything that is proposed or at least learn the facts before announcing that the sky is falling."

First, I have to say that you need to stop defending "this administration" and look at reality. The sky IS falling or haven't you noticed that? Every day the stock market tanks a little more. Is America going into another depression? I do not know and neither do you. No one does for sure. But every time "the current administration" spends more needless dollars, our dollars, or even proposes spending more of our dollars, the market tanks even more. Are you missing that? Open your mind before defending "the current aministration" every time someone here shows concern over the current situation.

Wall Street is sending "the current administration" a message. That message is they don't trust what "the current administration" is doing and what their methods are. Everything this administration is doing has been tried before and it does not work. Need proof? It's called "The Great Depression." It happened before and it can happen again.

If "We the people" chooses to bury their heads in the sand and think that what "the current administration" is doing is the answer, that is their prerogative. I, on the other hand, am smart enough to know that what "the current administration" is doing is crazy. The definition of "crazy" is doing the same thing over and over again and expecting a different outcome.

Wake up people. We need a real "change" in Washington, not what "the current administration" is doing.

Enigman said...

Hats off to, Scott Clous, chief Artist and Nick. You both hit it.

We the People said...

Enigman has given a thoughtful response to my first comment and I would like to answer it.

If it appeared I was defending the "current administration" because I believe in everything that is being proposed then that is an incorrect assumption. I have lived through the administrations of 12 Presidents (9 as an adult)and none of them have determined the results of my life in the positive or the negative. Whether Republican or Democrat I have always at least tried to support the efforts of our National leaders. There have always been "attacks" on whichever Party is in power. A major difference this time is that the projection of failure is so pronounced and has been even before this new administration even got into office. What I try to "defend" is the idea that statements made by either side should be factual and not purposely distorted to entice even more failure.

Of course I realize that "the sky is falling". The false wealth millions have trusted in for many years has disappeared from the books and balance sheets. Government has been a co-conspirator in all of this to be sure and has been for decades. I have been down in the hole of bad situations many times and never found that pessimism and constant criticism helped solve the problems. They help create the self-fulfilling prospect of total disaster. America cannot begin to climb out of the abyss until we begin to believe it is possible.

Yes, many of the "solutions" now being attempted have been tried before and yes, there are certainly no guarantees that any of it will work. Perhaps the alternative that all taxes should be eliminated and all Government spending should be eliminated is the best course of action. Perhaps there should not be any Government services (Federal or State)or assistance to anyone. Perhaps any and all Government revenue spending should be restricted to military defense because that is, after all, the only thing that is critical. The problem with deciding if other spending is "wasteful" or "prudent" is that it always will be a matter of opinion. So, to remove that important aspect from the equation, there should be absolutely no spending on anything or anyone, period and everyone should simply be on their own, right? It works for me because I've never gotten a bailout from anyone and no one else should either.

So keep pointing out all the things that are wrong or that failure for all of us is pretty much a certainty and soon enough the national effort to recover will be nothing more than a memory of a once proud country.

"we the People"

jrod56 said...

I hope you are all writing your Senators and Congressman and urging your friends to do the same - not just posting here.
People wanted "change" I say be careful what you ask for. It's time to get specific on what change you are hoping for and what change you do not want to see happen!

Linda Sprankle said...

I feel that since this change would apply only to those earning over $250,000 and would decrease the deductibility from 33-35% to 28%, it would have limited impact. I believe that those who give to charity primarily give for altruistic reasons.

Personally, my giving would remain unchanged. I believe that those who have more have a moral imperative to give more.

One last point is that as CN notes, there is a disheartening amount of waste at a number of these well regarded charitable organizations. Perhaps if their funds were lessened they would be forced to become more efficient.

Enigman said...

To "We the People"

Good comeback to my post. My hat's off to you.

Perhaps I came across a little overbearing. That was intentianal. Understand, We the People, I do not wish to engage you in a constant battle of the mind over the current and obvious issues this nation faces or whether this administration can solve our problems in a manner we can all agree upon. Yet, I enjoy the discussion.

I may heve errored in assuming that "We the People" supported and supports the current administration. Some of what you said convinced me that you did. I am glad to hear otherwise. Perhaps my reaction was also due to my own aggravation with this administration. I did not vote for Obama. Would McCain have been any better? I think, to some degree, yes. Would McCain have been my first choice? Certainly not.

I am a Conservative and therefore I have specific beliefs, from protecting the Second Amendment to the right to life to preserving the U.S. Constitution. As obscure as Obama was during the campaign on many issues, he made some things pretty clear. When I am forced to support either one of two possible outcomes or candidates, like any sensible person, I vote for the least of the two evils or the one that most meets my needs. Obama failed that test hands down.

My anger also has to do with "big government" another thing I dislike. I, like you, have never had a bailout nor do I ever want one. We all could use a little assistance once in a while and bad things do happen to good people and they require a helping hand. I am not against that. I am a Christian and I believe in charity for those who truly deserve it but only until they can fend for themselves once again. However, I do not need "big government" deciding to whom my charity shall go.

As I stated in my earlier post, what Obama and his ilk are doing is ludicrous. Their spending is totally out of hand and is causing further colapse of the economy. We Americans could wait forever and never see a positive result that maintains our capitalistic system as it was designed to be. All this government spending smacks too much of socialism. I will not live in socialism and socialism is where the current administration is taking America unchecked.
That, as we all know, has been tried too many times before and it always fails. It was even attempted right here in America in its early years, shortly after the pilgrams arrived. In its simplest form, it didn't work then, and it doesn't work in other countries today.

Socialism may look good on paper and will appear to work for a time, but eventually, it cannot support itself and colapses in on itself. Then anarchy takes over. In the meantime, we all suffer. Just ask Vladimir Putin. He just warned this administration of the negativity of socialism. That right there should tell the current administration something.

So while I agree that we Americans should support our government; that some government spending for some social programs are a necessity; that laws must be adheared to; I will not sit quietly by while an administration I did not support for obvious reasons takes total control of my life, gives away too much of my hard earned dollars, and makes unnecessary changes to our laws in the false name of a "living constitution" to suit their illogical means towards a socialistic country.

devine said...

donation deductions force taxpayers to give to charities that they don't like--i can explain if necessary--churches and charities should stand or fall on merit, without gov't props

The Chief Artist and Bottle Washer said...

Charities are more useful than government aid, I think even the most challenged have oversight and feedback from their donors, and naturally, I find this site very helpful. Since posting, we've had Haiti's Earthquake... who do you think will be most effective, people who were already there doing charitable work, knowing the language and culture, or people who fly in to rescue -- both are needed, but I preferred to give to someone who was already there... I don't have any hope that government spending will be as effective and knowledgeable, or as wisely spent. However, in that one instance, the chaos was terrible, and I think any aid was good.

On topic then, any thing that reduces the money going to charity is reducing the freedom of the donor, and limiting the most effective workers -- and ones that the market can correct if they are not effective.

The donor never had to give, and I have never met anyone who gave to get a tax deduction... that's silly.

Reducing the benefit, ie, taxing it, just removes money from the people who need it most.

Sam Gardner said...

In essence a tax deduction means that the government tops up your gift. Indeed, they will have to tax other people for the money they should normally get from the giver.

This means that the government spending on charity is not set by the congress, but by the one who gives to charity. Even more disturbingly, the charity of choice of the super-rich gets the most.

As governance goes, tax deduction might be fun for charities, but it is against all principles of good governance and budgeting. It leads to vicious incentives, like the World Vision T-shirts prove.