Proposed tax changes raise concern for charitable organizations

The administration proposes capping the tax rate for itemized deductions at $28,000 for families that make $250,000 or more. The budget suggests the additional tax revenues would be applied to boosting the government’s stake in proposed health-care reforms.

The Virginia-based Evangelical Council for Financial Accountability (ECFA) poses the following scenario:
“A couple that is in the 35 percent bracket gives $100,000 to charity. Under current law, (presuming they can deduct the entire $100,000 in the year of transfer under the charitable percentage limitation rules) they will reduce their income taxes by $35,000. The net cost of their gift will be $65,000.

Under the Obama plan, the couple will only be able to deduct their gift at the 28 percent rate, thereby reducing their taxes by $28,000. In essence, they will pay an additional $7,000 in tax for the privilege of making their gift thereby increasing the after-tax cost of their gift to $72,000-a 10.8 percent increase over current law.”

The proposal has generated concern among ECFA membership, said the organization’s president, Dan Busby.

“We’ve received quite a few calls the past few days that these proposed changes in the law might discourage some families to give in the future,” he said. “The good news is the President is already starting to take heat from members from within his own party over this.”

Busby also said large donors may be prompted to give less by exposure to the alternative minimum tax and the likely expiration of President Bush’s tax cuts for large income earners after 2010.

“If the (Bush) tax cuts expire in addition to this proposal, that would be a significant increase,” Busby said.

Less giving from wealthy Americans could have a big impact because of how dependent charities are on large lump-sum contributions.

“We are still at a point (in charitable giving) where 90 percent of the donations are coming from 10 percent of the donors,” Busby explained. “While it is true many charities get a lot of donations under $100, they also rely on those very large gifts to meet their goals.

“It seems to me putting a policy like this in place is counterproductive if the government gets charities to do what they want them to do, especially during a recession.”

Busby was encouraged by the fact that 72 percent of ECFA members exceeded, met or were within 10 percent of their goals during the rocky fourth quarter of 2008. He added that anecdotal evidence is that targets have been harder to reach in the first quarter of 2009.

The relative weakness of the dollar to other currencies has played a factor to Christian groups working overseas, too.

“The decline of the dollar has been a factor for some of our members,” he said. “Something that would have cost $1 a year ago might now cost about $1.50 because of the exchange rates. We’ve also seen some charities that have unfunded pension plans struggle much worse than before because of investments.”

Prayer is needed, Busby added.

“I think this is certainly a time to count our blessings and pray for our ministries and donors to continue to be successful,” he said.

Another fundraising executive who takes issue with the tax proposals is Ken Berger, president of charity umbrella and rating agency, Charity Navigator.

In an interview with CNN, Berger described the Obama plan as a “horrible idea” that would essentially punish the biggest donors for their contributions.

Berger expanded his views in his blog on Monday, saying that statements by the Office of Management and Budget that the increases will go well with a pullout of the recession by 2011 are too speculative.

He also argues that the loss of investment income by wealthy donors may impact their ability and willingness to donate more than at any time in the recent past.

“On top of all of the increased taxation mentioned above, most of us have seen a decline in our investments of 50% or so,” Berger wrote. “We are in uncharted waters here. Whereas historically, half of affluent givers may have said that tax deductions do not impact their giving decisions, that does not mean it will continue to be so.”

Links:

Ken Berger’s interview with CNN: http://www.youtube.com/watch?v=qE_2d6oxxmA

Ken Berger’s blog: http://www.kenscommentary.org

ECFA: http://www.ecfa.org/

 

 

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