Penalize the rich…by discouraging their giving to charity???

I have to admit, I have been burned by so many tax proposals (i.e. taking the proposals too seriously and seeing most go by the wayside) that I typically ignore them until they are really close to passing.

Still, people are asking me about the most recent Jobs Bill (Sept. 2011 iteration) and the increased costs of charitable giving on the rich.  What is the proposal? How does it work? How can we (charities) use it to encourage more giving?

Firstly, it is so unlikely this particular issue will be in any passed legislation – ever.  This isn’t just politics, this is a stupid idea.  Congress passes on plenty of good ideas, so the really dumb ones are even less likely to get passed (toss in a Republican House that is already in campaign mode – we can probably write off any semblance of the President’s proposal, let alone this cheap shot at the rich that hurts charities more than anyone else).

So, what is this particular idea that hurts charities that is in the recent Jobs proposal?

Finally, I read an article or two on the proposal carefully this morning and it sounded very familiar.  Yes, this is the same idea that was in the President’s 2012 budget proposal!  And, I wrote about it then!! Horay – check out this previous post:

https://theplannedgivingblog.wordpress.com/2011/03/02/president-obama-proposes-to-tax-charitable-giving-by-the-wealthy/

The only difference between the March budget proposal and this Jobs version may be the highest tax bracket.  In March, the President was proposing both an increase to 39.6% highest income tax bracket and this double wammy reduction of tax benefits for charitable giving and other itemized deductions. Increasing the tax brackets now might just be too unpalatable with an upcoming election so we are left with the reduction of value on itemized deductions.

Apparently, the President has proposed similar reducing of the value of itemized deductions a few times.  My take is that every President (or one of their advisers) gets fixated on some downright idiotic idea and they just keep trying to slip it in.  This must be one of them. (Bush II was determined to eliminate the estate tax, give non-itemizers a charitable deduction – both silly ideas that came up over and over again)

Since I already explained how the idea works in my previous post, let’s clarify even more strongly why this idea really stinks.

A direct increase in tax on the rich might be a good idea – it might even encourage more charitable giving to offset the new increased tax bill!  No, I am not a Democrat or Liberal.  I am just saying that if the Government needs more money, and takes some more from the rich – who certainly can afford it more than from taking from the poor – that does address the problem.  Again, as politically challenged increasing taxes on the rich is, it could have a positive impact on the charitable sector – not that anyone in that sector will admit it in public.

But, what we have here is backdoor tax.  Maybe most Americans won’t catch it or understand it?   The repercussions though are big.  Most charities rely heavily on gifts from a small number of wealthier donors.  Statements like “80% of our donations come from 20% of our donors” are very common.  What if all or most of your 20% group (who give 80% of your fundraising dollars) all of a sudden have to adjust to a penalty on their giving?

Maybe the donors rush out and advance their giving ahead of the law?  Good for this year, bad for next year.

Worse, what if donors adjust their giving to take into account the costs imposed by the law on their charitable giving?  In fact, of all of the itemized deductions impacted by this proposal, charitable giving is the one that wealthy individuals would likely adjust to compensate for the new costs thrust upon them.

Who knows?  All we can say for certain is that this idea is a disincentive for charitable giving for the highest earners in America.  Not a good idea, not good for this country.  The rich will stay rich, but the poor (i.e. nonprofit community) will get poorer.

Can’t we come up with an idea that encourages increased giving to the nonprofit sector?  Isn’t that a distribution of wealth that make sense?

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