In recent weeks, Congress has been putting the brakes on President Obama's plan to raise an additional $318 billion in taxes to pay for the 2010 federal budget. Aside from the federal budget's mind-blowing cost of $3.6 trillion, his proposed tax increases would effectively decrease income for charitable organizations — and that would have devastating consequences for America's many needy citizens.
Specifically, Obama's plan calls for significantly reducing tax deductions for charitable giving for the wealthiest taxpayers (couples making $250,000 a year, and individuals making $200,000 a year). The new revenue that might be garnered from such a plan would largely help pay for health insurance coverage. While the plan's ultimate goal may be worthy, its effect will be to discourage charitable donations from the very people who supply a large portion of charitable funding. Some economists estimate that charities may lose up to $6 billion in gifts.
Nonprofits that work in the areas of education and health care, researchers report, are two major beneficiaries of large donations, so those two areas are likely to be hurt the most under Obama's plan. The National Association of Evangelicals and other leading groups warned in a letter to Congress, "[T]he proposal to reduce the rate of tax deductibility for contributions is a recipe for disastrous displacements and cuts in much-needed non-profit sector institutions and services."
Strengthening Giving Incentives
There is a principle at stake here: Governments should expand incentives for Americans to give ever more generously to charitable groups. In addition, when charities deliver services, they get more bang for the buck than government programs. One dollar given to a charity is ...