Killing Charities: Obama plans to limit charitable tax deductions at worst possible time

Member Group : Lincoln Institute

President Barack Obama’s war on the wealthy took a dangerous turn in his recently presented national budget when he proposed placing limits on tax deductions to charities by high income earners. It is a proposal Maria Bartiromo of CNBC said would drive the nation’s nonprofit sector "off a cliff."

According to the Indiana University Center on Philanthropy the President’s plan to limit charitable deductions could cause giving to charities to drop by billions of dollars per year. Employing economic models, the center said had the Obama proposal been in effect this past year $3.9 billion less would have been given to charitable organizations.

America is, of course, in the throes of one of the most severe economic recessions in our history. Unemployment is up, and under-employment is rampant. This has caused demand for social services – many provided by nonprofit charitable organizations – to skyrocket. From food banks to homeless shelters to nonprofit day care centers demand is at or approaching record highs.

The organizations providing these services receive their income primarily from two sources: philanthropic grant making foundations and individual charitable contributors. Foundations earn most of their income from investments, and many have seen their endowments drop by 40% or more during the current recession. Now, the President would undermine charities’ other prime source of income by restricting deductions for individual givers.

Given the demand for services currently being placed on nonprofits, President Obama is proposing to hurt charities at their time of greatest financial need by reducing the tax incentives for wealthy Americans to give. Charitable organizations are an important part of our nation’s social safety net, and the President’s plan would leave that net in shreds.

The impact of this proposed policy change would not only be felt by those who receive services, but would also have a serious negative effect on the overall economy. According to the Pennsylvania Association of Nonprofit Organizations (PANO), nonprofits employ over 634,000 people in the Keystone state and contribute $21.1 billion in wages to the state’s economy. Joe Geiger, executive director of PANO points out that while nonprofits are in the business of doing good they are "still businesses in every other sense – they employ people, they take in revenues, they produce goods and services and contribute in significant ways to Pennsylvania’s economic stability and growth.

To make matters worse charitable giving is already on the decline. The Indiana University Center on Philanthropy notes that for every 100-point decline in the stock market charitable giving drops by $1.85 billion. Since President Obama was elected last November, the stock market has dropped by over 2,500 points. That translates into a loss of over $462 billion in giving. While the President is proposing capping charitable deductions, Patrick M. Rooney of the Indiana center says this would be a good time to provide additional incentives. Rooney said it would give "donors with the greatest capacity to give more reasons to do so."

But that would run counter to the Obama Administration’s political philosophy. The goal of the administration is to increase dependency on government, particularly the federal government. A healthy nonprofit sector with people giving voluntarily and taking care of themselves does not further the dependence society which the president seeks. By reducing the charitable tax deduction more money would be taken from the wealthy by the federal government which would then control the spending. Maintaining or increasing the charitable deduction leaves in the hands of individuals the freedom to decide for themselves how much and to whom they would give their own money.

In the wake of Hurricane Katrina we saw just how effective government at all levels is in providing services. The government response was an abject failure. And it wasn’t just the Republican Bush Administration; it was also the Democratically-controlled state governments in Louisiana and New Orleans. Neither party has a monopoly on ineptitude. The saving grace after the storm was the nonprofit, primarily faith-based organizations and ordinary Americans that rushed in to help their stricken countrymen.

It is that private infrastructure the Obama Administration seeks to destroy. If their plans to reduce charitable tax deductions are approved by Congress, it will have a dramatic impact on the nonprofit sector at a time when the services provided by charities have never been needed more.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is [email protected])

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