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Obama’s Charitable Tax Deductions to Decrease

In his budget proposal, President Obama has included plans to cut the tax deduction from 35% to 29% for America’s wealthiest donors. This means that Americans making less than $250,000 annually will get the same tax break for charitable contributions that those making over $250,000 will get.

This seems fair, but will this decrease overall charitable giving? Some argue “yes,” and they’ve done the research. Others, including the President, say “Not really,” and instead blame the bad economy on any current or future decline in giving.

Let’s face it. There’s not a lot of money being made these days. Companies are going bankrupt, stores are shutting their doors, and more jobs are being lost every single day. Charitable organizations are clearly not immune from this downward spiral as they struggle to maintain their services. Though we all hope that needed charities don’t close their doors, it is clear that they, like businesses and individuals across the world, will have to do what they can with less.

So, given the economic state of the world, and the fact that its devastation began long before President Obama took office, can we really say that his planned 6% reduction in tax deductions for charitable giving is going to make or break any organization? He doesn’t think so, of course, and has commented recently, “If it’s really a charitable contribution, I’m assuming that shouldn’t be the determining factor as to whether you’re giving $100 to the homeless shelter down the street.”

Well, I have to agree with that statement. As a person who has spent my entire life trying to give all the time and money I can to help in my community, I certainly have never done so for a tax deduction. But, then again, those tax deductions do come in handy. So, are there donors in the wealthiest tax bracket, the ones affected by this charitable tax change that would stop giving simply because of the 6% reducation in the tax break they would receive?

According to The Center on Philanthropy at Indiana University, the answer to that question is worth $3.9 billion dollars. They estimate that the donors residing in America’s wealthiest households will indeed decrease giving by 4.8 percent. That 4.8 percent decline translates into a nearly $4 billion loss in charitable giving.

When charities are already facing financial hardships, how will they manage this potential loss? Well, no one knows yet exactly how it will play out. Research is one thing, but reality is something completely different. The director of The Center on Philanthropy, Patrick M. Rooney, admitted that, though this tax deduction decrease may have a negative effect on giving, “changes in personal income and wealth have a greater impact on charitable giving than do tax rate changes.”

There you have it. In the end, it’s the tragic economy that has had, and will continue to have the largest effect on charitable giving. Charitable organizations need to regroup and develop creative ways to attract more donors to their cause. They should examine every sponsorship, cause-marketing opportunity, and capital campaign tactic possible. Charities must find every way to run their organizations efficiently, and rely more heavily on a dedicated volunteer force. And, they must continue to make their constituents believe faithfully in their cause.

President Obama’s budget hasn’t even passed yet. And, even if it does pass with the charitable tax deduction clause, charities can’t be up in arms. This president and his staff is simply doing the best they can to manage a completely unmanageable economy. All sectors, including the non-profit, have faced, and will have to continue managing their day-day operations with less.

Read the President's message on his proposed budget.
Read the full budget proposal.

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