Why Non Profits Should Care About the Obama Tax Plan
by William High

    I was sitting in my doctor’s office speaking with the receptionist.  Our talk wandered to the Obama tax plan and his plan to “tax the rich” and lower their itemized deductions.  Her comment was simply, “well, the rich deserve to be taxed.”  Now mind you, this lady represents much of the core population that would support the Christian non profit world.  Unfortunately, her comment reflects the lack of understanding of the implications of the Obama tax plan.

            Let me note up front that in times of economic duress it is easy to point to the rich as a source of our economic woes.  Historically, in times of duress, taxes go up.  We want the “rich” to pay.  Odd, however, that in times of prosperity that we praise the business owner for their innovation, their job creation, and their contributions to society.

            I digress, however.  What is the misnomer about the Obama tax plan?  Can we simply tax the rich and think that will end our economic woes?  Well, here’s what Indiana University reports:

• In 2006, there were 4 million tax returns filed with incomes of more than $200,000.
• Those returns, despite their lower percentage compared to overall number of returns, accounted for a whopping 43.5% of all charitable giving or $81 billion dollars.

In other words, Obama’s plan affects those who account for a significant amount of giving to non profit organizations across the country.  What does it mean in real dollar terms?

            Donors who used to deduct 35% of their donations would be able to deduct only 28%.  For a taxpayer in the highest bracket who gives $100,000 a year to charity, only 28% instead of 35% would be deductible.  This is a reduction of $7,000 of benefit—from $35,000 to $25,000. 

This reduction in benefit only tells half the story, however.  Remember that Obama’s plan seeks to increase the top rates for those his administration considers wealthy.  In other words, the “rich” get a double whammy:  more tax and less deductions.

The implications are obvious:  less charitable contributions.  While those in favor of this tax the rich policy are quick to point out that deduction should not drive giving, it ignores the fact that it is nonetheless a key incentive.  Moreover, if we recognize that charities drive much of the beneficial social work in our community—like feeding the poor, sheltering the homeless, etc.—we ought to be doing all that we can to encourage giving.  This truth is especially real in down economic times.

The Obama tax plan simply doesn’t make sense.  The charity world needs to make this recognition.

--William High is the President/General Counsel of the Servant Christian Community Foundation.

 

Back