Experts Divided on Obama's Charitable Tax Deduction Proposal

WASHINGTON - Public policy and philanthropy experts are still wrestling with the implications of President Obama's proposal to reduce tax deduction on charitable donations - a move that has sparked uproar in the nonprofit sector.

Those opposed to the proposal argue that it would have a dire effect on charitable giving, pointing to one recent independent analysis, which suggested that contributions could drop as much as $3.87 billion for the already hurting nonprofit sector.

According to the Center on Philanthropy at Indiana University, overall giving would drop 2.1 percent, with a decrease by 4.8 percent, or $3.87 billion, among the highest-income households.

"Make no mistake. The impact of this plan is to starve churches and other nonprofits that actually help the poor and replace them with ineffective (and liberal) government programs," commented Tony Perkins, president of conservative Family Research Council, in a newsletter this week. "It's an idea so fundamentally un-American that each of us should be raising our voices in opposition."

The U.S. Senate has agreed with the assessment that the proposal would hurt the nonprofit sector and struck down the plan on Thursday.

According to the proposal, American households with incomes over $250,000 a year, and single individuals earning more than $200,000 a year, would see a decrease in their tax deduction for charitable giving. Instead of the current 35 percent from every dollar donated, the proposal seeks to reduce the deduction to 28 percent.

Research so far has shown that the proposal would affect about 1.4 percent of all U.S. households.

Proponents of the proposal, on the other hand, call on Americans to look at the big picture and not only at the direct effect on donations.

Under Obama's proposal, the revenue gained from reducing tax deduction on charitable contributions could help finance plans for universal healthcare in the United States. Proponents argue that the estimated $318 billion generated from the change would help finance a health-care overhaul that Obama says will cost at least $630 billion.

"Our assessment of the effect on the charitable sector - not that there won't be adverse impacts - but the overall effect on charitable sectors as a whole is actually positive not negative," contended Bob Greenstein, founder and executive director of the Center for Budgeter & Policy Priorities, during a teleconference on President Obama's proposed national budget on Wednesday.

Greenstein believes that the U.S. charitable sector with universal health coverage would "more than outweigh" the loss of less than two percent in contributions. He offered two main reasons, saying that the 45 million uninsured Americans put a great burden on the charitable sector and tens of thousands of small non-profits employees can now have affordable health care.

Previously, the policy expert said, these small non-profits, like small businesses, faced the unpleasant choices of not covering their workers or paying much higher premiums because of their small group.

"The most important point is that if one is concern about poverty, having the United States join the rest of the Western world in covering health insurance for all of its people, particularly including the tens of millions of well incomed Americans who are currently uninsured, would be a major policy step forward," Greenstein concluded during last week's teleconference, hosted by Sojourners.

Sojourners is a Christian social justice ministry that focuses particularly on anti-poverty campaigns in the United States.

Greenstein also noted during his argument for the proposal that there has been misunderstanding that it would take effect during the current recession when donations are already down.

Under the Obama proposal, he said, the cuts wouldn't take effect until 2011 and the White House has "clearly signaled" that if the economy is weak then "they would concur with the notion to defer the implementation of this provision."

According to Giving USA, Americans donate about $300 billion a year to nonprofit organizations.