Rich Donors May Be Undeterred by Tax Caps on Charitable Gifts

March 4, 2009, Bloomberg — House Republican Leader John Boehner calls President Barack Obama’s proposal to limit high earners’ charitable tax deductions a “sharp blow to charities at a time when they are hurting during the economic downturn.”

Not necessarily, say tax and philanthropy experts. They say altruistic or religious motives outweigh tax-shelter considerations among such donors, and cite previous limitations placed on deductions for high earners that they say haven’t hurt donations.

The concern for nonprofit groups “is real, but it’s not absolute,” said Clinton Stretch, a principal in the Washington office of Deloitte & Touche LLP, where he advises clients on the federal budget and tax issues. “There are multiple ways people go about giving, and multiple reasons people go about deciding to do it.”

The budget plan Obama presented last week aims to raise $318 billion in revenue over the next decade by reducing the tax savings for top-earners’ itemized deductions -- including those for charitable donations -- by 30 percent. Most taxpayers who make charitable contributions wouldn’t be affected, though the wealthiest would get less of a tax benefit for their gifts.

Independent Sector, a Washington-based coalition of 600 nonprofit groups that opposes the measure, said it would be a further “disincentive” to giving in challenging economic times.

Church Donations
The proposal has drawn fire from Boehner and other Republicans for the effect it would have on religious donations. The measure would damp giving to the “faith-based organizations and groups” that “are the backbone of our communities,” Representative Roy Blunt, a Missouri Republican, said in a letter to House Speaker Nancy Pelosi on Feb. 27.

The White House has played down the potential impact, saying high-income donors still get a generous deduction.

“What drives charitable contributions is overall economic growth,” White House budget Director Peter Orszag told reporters Feb. 26. “It’s not done for a tax incentive but rather out of benevolence or some other related desire.”