White House budget cut to charitable deduction alarms philanthropists and non-profits

Gautham Nagesh Contributor
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The Obama administration’s fiscal 2011 budget proposes cutting the tax deduction for charitable donations, alarming both philanthropists and non-profits across the country.

The White House is expecting to collect an additional $291 billion over the next decade by reducing the write-off for families earning over $250,000 despite the fact Congress roundly rejected such a measure last year. While the administration is portraying this as a populist move, experts have said the end result will be a significant blow to charities and non-profits already reeling in the midst of the recession.

“It’s frankly surprising to see this proposal come back this year, it was very controversial last year,” said Tom Riley, vice president for communications at the Philanthropy Roundtable. “This of all times isn’t the time to take actions that would discourage charitable giving. The need for non-profits hasn’t been higher for a generation.”

Roberton Williams, a senior fellow at the Tax Policy Center said the rule change would make it about 10 percent more expensive for individuals affected to donate to charity. He estimated that would correspond to a $10 billion drop in donations out of the $300 billion Americans give annually.

“From the perspective of charities, they’re in a tough time right anyway,” Williams said. “Some charities have been seeing a drop-off in donations and charities themselves that have endowments are seeing a drop-off in return from investments. It’s a double whammy.”

Last year the Obama administration defended the move, claiming that the $100 million included in the Recovery Act for charities and non-profits would help cover the gap, along with the natural rise in donations following the economic recovery. Those arguments will be even tougher to make this year with the country still mired in double-digit unemployment and no second stimulus for charities in the works.

“I think that can be a naive view, that charities will be specifically helped by getting potential government dollars instead of private dollars they are getting right now,” Riley said. “The idea that private money will be replaced by growth that may or may not happen, government programs that may or may not happen, seems at best a risky bet.”

The cut is targeted to include families that are the largest donors to charitable organizations. Riley pointed out that many members of Congress united with the philanthropic community last year to defeat the measure and he expects a similar outcry this year. Among the most vocal critics on the Hill last year was Sen. John Thune, South Dakota Republican.  If the proposal fails, the Obama administration will be forced to look for other savings to avoid tacking another $300 billion onto the already multi-trillion dollar medium-term deficits.

“I think people in charitable world are going to be very alarmed to see this come back,” Riley said. “We thought this was a battle of ideas that had been won.”