Skip to content

What Motivates Charitable Giving?

March 26, 2009

The Obama administration’s proposal to reduce tax deductions for charitable giving and simultaneously increase income tax rates for households with income earnings greater than $250,000 will most definitely effect charitable contributions. The question is how much of a dent will it make charitable giving?

The Indiana University Center for Philanthropy website estimated that if these changes had been implemented in 2006, then it would have resulted in a decline of about 4.8% in charitable giving. This is not much. However, given the current state of our economy, the two policies which discourage giving can surely be expected to have a much bigger impact.

It is true that President Obama intends to increase public welfare dollars, but does it have to be at the cost of reduction in private sector giving? With this crowding out of private sector giving, increase in net social welfare is hard to fathom.

The South Asian community involved in philanthropy is in many cases in high income tax brackets and will be most definitely impacted. In my opinion, with a policy of lower tax deductions for charitable giving and higher income taxes we should be prepared to see declines in South Asian charitable giving. What are your thoughts?

– P

A quote from the Wall Street Journal:

Among those shocked by President Obama’s 2010 budget, the most surprising are the true-blue liberals who run most of America’s nonprofits, universities and charities. How dare he limit tax deductions for charitable giving! They’re afraid they’ll get fewer donations, but they should be more concerned that Mr. Obama’s policies will shove them aside in favor of the New Charity State.

What did these nonprofit liberals expect, anyway? Mr. Obama is proposing a vast expansion of the entitlement state, and he has to find some way to pay for it. So logically enough, one of his ideas for funding public welfare is to reduce the tax benefit for private charity. His budget proposes to raise the top personal income tax rate to 39.6% in 2011 from 35%, and the 33% rate to 36% while reducing the tax benefit from itemized deductions for the top two brackets to 28% from 35% and 33%, respectively. The White House estimates the deduction reduction will yield $318 billion in revenue over 10 years.

No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: