9/23/09
The Chronicle of Philanthropy
Suzanne Perry
Some Senate Finance Committee members have resurrected the idea of limiting tax breaks for charitable donations as a way to raise money to overhaul the health-care system.
In amendments proposed to the health-care bill unveiled last week by Sen. Max Baucus, the committee chairman, a handful of senators have proposed limiting to 35 percent the tax break that wealthy people can get for their itemized deductions, including gifts to charity.
That is less drastic than the 28-percent limit proposed by President Obama. But a coalition of nonprofit leaders this week sent a letter to Mr. Baucus opposing the amendments, saying they would create a disincentive for charity’s biggest donors during a “tough charitable giving environment.”
“Charitable organizations are dealing with enormous financial challenges stemming from the economic downturn,” says the September 21 letter, which was signed by representatives of 14 groups including the American Association of Museums, the Association of Fundraising Professionals, the Council on Foundations, Operation Smile, and United Jewish Communities.
Sen. Jay Rockefeller, Democrat of West Virginia, is the biggest advocate of the 35-percent limit, proposing it to pay for almost 20 amendments he offered to Mr. Baucus’s bill. But several other Democratic senators also offered it as a way to raise revenue, including Thomas Carper of Delaware, John Kerry of Massachusetts, Robert Menendez of New Jersey, and Charles Schumer of New York.
Mr. Obama has proposed limiting the tax breaks for charitable gifts — and other itemized deductions like mortgage interest and state and local taxes — to 28 percent of the dollars spent for couples earning more than $250,000 (individuals $200,000). The plan would take effect in 2011. The president has also proposed raising the highest income-tax bracket from 35 percent to 39.6 percent that year.
That means wealthy people would be paying more in taxes while getting less of a tax benefit for donating to charity.
Some in the nonprofit world are sympathetic to the president’s proposal, arguing it would create more fairness in the tax code (lower-income people get tax breaks of only 10 or 15 percent for itemized deductions) and help pay for changes that could bring down health-care costs for nonprofit employers. But it got a cool reception in Congress, especially among Republicans, and so far has not been included in any Congressional legislation.
Senator Baucus favors raising money in other ways, including an excise tax on insurance companies and insurance administrators for health plans with premiums above a certain dollar level.