The Tuesday press conference in the East Room Tuesday night was laden with old stalwarts as well as many new faces. There were not many surprises and, in fact, the conference was well planned, allowing only certain reporters to ask questions. No one even dared to raise their hand. As a result, there was not much in the way of news. President Obama explained pieces of his policies in a manner that got many of the not-for-profit groups out in full force the next day.
The issue? A reduction in the percentage allowed for charitable deductions in the tax code. It is not exactly breaking news that the Obama administration is looking high and low for ways to meet its revenue projections. Its projected rate of overall growth of the economy differs from that of the Congressional Budget Office. President Obama had proposed to collect insurance payments from individual veterans’ private insurance for health care treatments that have in the past always been paid by the Veterans Administration. That did not go over well, and the president decided that was not political capital he was willing to spend. Other revenue measures such as reducing the mortgage deduction for the most wealthy will not get millions of protesters but reducing the charitable deduction created mass protest in Washington, D.C., this week.
The president said he did not think the deduction reduction would impact giving. He said it did not mean that someone would stop giving $100 to the homeless shelter down the street. He is correct, as most people who give $100 to the homeless shelter will not be impacted by the change in allowable deductions. The people who will be impacted give thousands and thousands of dollars. President Obama said instead of being allowed to write off 39 percent, they would be only able to write off 28 percent as do many in the lower income brackets. He doesn’t think it is fair, and he is right, but no one said the tax code is fair. Someone who works 40 hours a week and pays taxes in the 28 percent income bracket has to realize that someone else is paying a capital gains tax of only 15 percent. So, if you want fairness, the United States tax code is not your place. However, it is often helpful to understand the purpose of a particular provision in the tax code.
President Obama also said there was very little evidence that this would impact charitable giving and that the best thing he could do for charitable giving was to fix the economy. While that would be a great help to people who may be inclined to give, charities are going to be hurting from this proposed change and hurting big.
The Center for Philanthropy estimated that a change in the tax code would cut charitable contributions by about $3.9 billion in 2006, the last year that they have for which figures are available. That is a big number and translates into a loss of almost $78 million per state. The most vulnerable donations are in the area of the arts. People get sick and still donate to hospitals. Wealthy kids still need to get into college. The arts will be the first to suffer. A small state like Vermont which depends on tourism for a large part of its economy needs its theater and summer concerts. It relies heavily on donations which would most likely be cut by the Obama policy change.
While it is true that good economic times generate more giving than tax deductions, cutting back the allowable deduction will send some charities to the brink. It is a poorly thought out plan. It faces uncertainty in Congress (there was a sense of the Senate vote that narrowly lost) and is a bad way to raise revenue. It won’t hurt the rich who can choose to give less. The president pulled back on his veteran health proposal; he should pull back on this one as well.
