The Obama Trillion-Dollar Tax Hike and America's Charitable Sector

/PRNewswire-USNewswire/ -- Americans for Tax Reform today took a look at the provisions in Obama's budget outline that affect charitable giving:

One of the most controversial aspects of the Obama trillion-dollar tax hike is the effect that it will have on America's charities. America is built on a concept of "civil society." We don't expect government institutions to be the primary provider of care for those in need. We expect charities to do that. The Obama tax hike takes aim directly at charities, just at a time when America needs them the most.

Where charities currently stand. In 2006 (the latest year for which the IRS has data), families donated $187 billion to charities. Corporations donated another $16 billion. Foundations, trusts, and estates contributed $131 billion more. Charitable contributions are tax-deductible, and face very few restrictions in current tax law. According to the Office of Management and Budget, all these charitable contributions cut federal taxes by $58 billion every year.

The Obama Trillion-Dollar Tax Hike's Double Assault on Charities

-- The Obama trillion-dollar tax hike brings back the itemized deduction phaseout (Pease) in 2011 for married couples making $250,000 and single people making $200,000. Nearly all itemized deductions will have to be reduced by 3% of the extent that income exceeds this level. So, a married couple making $1,000,000 will see their itemized deductions (including charitable contributions) reduced by ($1,000,000-$250,000)*.03, or $22,500. The Pease limit can only reduce itemized deductions by 80%.

-- The Obama trillion-dollar tax hike also creates a new limit above and beyond Pease. No matter what tax rate you fall into, your itemized deductions (including charitable contributions) cannot benefit you any more than if you found yourself in the 28 percent bracket. Returning to our $1,000,000 taxpayer, he finds himself in Obama's new, higher 39.6 percent bracket (up from today's 35 percent, incidentally). If he gives an additional $1000 to charity, it won't reduce his income tax burden by $396, as one might expect. Rather, his income taxes would only go down by $280.

How will this assault on charitable giving change things in America?

Suppose families decide, on the aggregate, that they will give one percent less to charity as a result of this limitation. For every 1 percent decline in household charitable giving, that's nearly $2 billion less given to charity. The impact could be much greater if families decide to keep more of their money, rather than give it away. That's $2 billion that's not available for churches, shelters, and other worthy causes.

And all this because Obama wanted to "spread the wealth." The true victims of this tax increase will be America's poor. Potentially, they could be left to choose between no help at all, and a bureaucratic government handout. This should be seen as part of the larger Obama-Pelosi-Reid plan to get rid of civil society and have all altruism funded by the government.

Americans for Tax Reform is a non-partisan coalition of taxpayers and taxpayer groups who oppose all tax increases.

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