Obama plan undermines independence

Published 6:45 pm Wednesday, March 11, 2009

By By Gary Palmer
President Obama’s latest revelation in his plan to “change” America came to light during hearings on his proposed tax increases. It is directed toward families with incomes over $250,000.
In testimony before the U.S. Senate Finance Committee, Treasury Secretary Timothy Geithner outlined Obama’s plan to reduce how much families with incomes over $250,000 can deduct for charitable contributions on federal income tax returns while also limiting the amount this group can claim for mortgage interest as well as state and local taxes. This policy will be implemented at the same time that the top income tax rate will rise from 35 percent to 39.5 percent.
The amount raised from the limits on deductions for charitable contributions alone is projected to be almost $180 billion over the next ten years. Given that charitable gifts come from disposable income, reducing disposable income through higher taxes will result into less money for charitable contributions.
The impact this “change” will have on charitable contributions has raised concern even among some liberal Democrats. Senate Finance Chairman Max Baucus and Rep. Charles Rangel, the chairman of the House Ways and Means Committee, have both expressed concern about the impact such limits would have on charitable giving. Charitable organizations and foundations are concerned as well and rightly so.
The Philanthropy Journal published a report documenting a 24.3 percent increase in charitable giving in 1982 (after Reagan’s 1981 income tax rate cuts went into effect.) After the 1993 tax hike pushed by the Clinton Administration and passed by the Democrat majorities in Congress, charitable giving declined by .42 percent. Keep in mind that Clinton’s tax increase did not limit the deductions for charitable contributions made by higher-income families. Charitable contributions remained relatively flat in the years following the Clinton income tax increase, only to shoot up 10.2 percent in 1997, following the cut in capital gains taxes passed by the Republican majority in Congress.
The point is this - the historical record shows that changes in tax rates impact charitable giving.
So who will Obama’s tax increase hurt the most? It will certainly hurt the workforce because higher taxes impact economic expansion and slow job growth. It definitely hurts those who benefit the most from private charities. It obviously hurts charitable organizations and non-profit groups that depend on the generosity of higher-income earners. And it hurts religious congregations which benefitted from over a third of all charitable contributions in 2007.
In the end, reducing our ability to support charitable organizations and non-profit groups will undermine our independence and increase the power and influence of government in our everyday lives.
Gary Palmer is president of the Alabama Policy Institute, a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families, which are indispensable to a prosperous society.

Sign up for our daily email newsletter

Get the latest news sent to your inbox