Mr. Obama, Can You Spare a Dime (‘s Worth of Commonsense)?

Mr. Obama, Can You Spare a Dime (‘s Worth of Commonsense)?

Any second now some loon will say Mr. Obama’s push to limit charitable deductions is further proof that the president really is a Muslim. Why? Because while advocating tax law changes that might crimp contributions to churches in the U.S. (the largest recipient category, at 35% of total donations), he has forgotten that in 2009 he tried to bolster charitable donations in the Muslim community

O.K., it’s a stretch, and a ridiculous interpretation of President Obama’s proposal to reduce the deductibility of gifts made to nonprofits. But, really, the plan is so outlandish – especially given the president’s history as a community organizer and society’s desperate needs today – that it begs for irrational explanation.

Otherwise, what to make of Mr. Obama’s peculiar view of “fairness”? All things being equal, the more our top earners give to charity, the steeper their taxes will be. Is that fair?

Included in the Jobs Act is the president’s proposal to limit tax deductions for charitable giving available to high-income Americans. Specifically, the proposed legislation would reduce to 28% from 35% the amount of donations that someone earning more than $200,000 (or a family making better than $250,000) can deduct from his taxes.

This is not a new proposal from the Obama White House. The president suggested virtually the same plan in 2009 as part of his 2010 budget; then it was targeted at paying for health-care expenses. The nonprofit community mobilized to squash the measure, claiming it would cost charitable organizations billions of dollars at a time when nonprofits were already struggling because of the sinking stock market and a weak economy. Mr. Obama included an identical proposition once again in his 2012 budget.

For a president who came of age working in the not-for-profit sector, the continued assault on deductions for charitable giving is a mystery. But Obama got one thing right. He affirms on the White House web site that during these “tough times,” nonprofits are “the front-line responders to communities in need.”  It’s true: soup kitchens, organizations that help people find jobs, the Red Cross, the Salvation Army – they are overwhelmed by unprecedented demand for their services. Why would the government do anything that might drain their life blood?

Like most sectors, charities were hit hard by the recession.  According to Giving USA and the Center on Philanthropy at Indiana University, charitable contributions in 2008 and 2009 “saw the largest drops in giving in more than 40 years” – down more than 13%. Not only did individual giving fall -- business donations plunged as well.

In 2010, gifts to charity recovered slightly, up an estimated 2.1% adjusted for inflation, to $290.0 billion. Of that total, some $212 billion came from individuals and families. According to a study by the Center on Budget and Policy Priorities,  relying on data from the Tax Policy center, while only 1.4% of U.S. households fall into the top income brackets targeted by President Obama, those people account for 28% of all itemized contributions, which in turn represents 62% of charitable gifts. The conclusion reached is that only 17% of total charitable giving would be affected.

When the White House first unveiled this plan in 2009, the Center concluded that the change in tax policy could lead to a 2% drop in giving. The Center on Philanthropy at Indiana University suggested that proposed higher marginal tax rates (eliminating the Bush cuts) and lower deductibility combined might cause giving to decline by nearly 5%. 

Either way, what is the point? With the poverty rate in 2010 at the second-highest level since 1965, 24 million Americans without full-time jobs, and more people living without health insurance than ever before, why tinker with a system that year after year buttresses the most generous nation on earth? It has been demonstrated that changes in the tax laws governing giving do have an impact. In the wake of Hurricane Katrina in 2005, the government lifted the cap on giving cash to public charities and genertated some $11 billion in gifts.

Not only do we have great need today for the work done by nonprofits but the sector employs some 8% to 10% of all Americans. Even a small drop in funding could lead to layoffs. The Jobs Act is supposed to be about adding jobs, not demolishing them.

It may be that in this arena, as in most others (think student lending), President Obama believes the government can do a better job than the private sector. In 2009, while pushing the tax change threatening charitable revenues, he added yet another office to the bloated federal payroll, the White House Office of Social Innovation and Civic Participation. In his 2010 budget, he requested $50 million to seed a fund tasked with identifying “the most promising, results-oriented nonprofit programs and expanding their reach throughout the country.” 

People working for foundations and others who donate to charity might be excused for assuming that they were capable of making that assessment without the help of the White House.