Obama Budget Calls for Charitable Deduction Cap

Nonprofit leaders are expressing disappointment that the Obama administration's budget for fiscal year 2016 once again calls for capping the charitable tax deduction at 28 percent.

The plan would "limit the value of most tax deductions and exclusions to 28 cents on the dollar, a limitation that would affect only couples with incomes over about $250,000 (singles with incomes over about $200,000)." The proposal also calls on Congress "to institute the Buffett Rule, requiring that wealthy millionaires pay no less than 30 percent of income — after charitable contributions — in taxes." Earners in the top tax bracket currently receive a deduction of 39.6 cents for every dollar they give to charity.

"This misguided proposal would cost our most vulnerable communities the most and see the loss of billions of dollars in charitable investment," Council on Foundations president and CEO Vicki Spruill said in a statement. "This approach directly impacts the ability of donors to support vital services and removes a crucial incentive to give. The charitable deduction is a powerful and proven way to strengthen communities, and the Council stands beside the entire nonprofit sector in opposition to any move to limit it. Capping it would have a cascading impact on nonprofits and philanthropic organizations across the country."

In a separate proposal announced in January, the administration called for an increase in the capital gains tax rate to 28 percent and for closing the so-called "trust-fund loophole," with an exemption for assets donated to charity. "As in previous years, the White House is sending mixed messages to the charitable community about the value of American generosity," Joanne Florino, senior vice president for public policy at the Philanthropy Roundtable, told the Chronicle of Philanthropy. "It leaves us wondering why the president would hold charitable donations harmless in some areas of the tax code but not in others."

The administration's budget is not expected to win support of the Republican-controlled Congress. House Republicans, in the meantime, are pushing for a vote to make permanent a set of temporary tax "extenders" for certain kinds of giving — gifts of land for conservation purposes, gifts of food to food banks and other charities, and gifts made by retirees from individual retirement accounts — and to simplify the foundation excise tax to a flat 1 percent; the administration's budget calls for a 1.35 percent excise tax.

"While we applaud the president for recommending a simplified private foundation excise tax, he has done so at a rate that will ultimately increase taxes on many grantmaking nonprofits," said Sandra Swirski, executive director of the Alliance for Charitable Reform, which was founded by the Philanthropy Roundtable. "We believe the tax needs to be streamlined at a flat 1 percent rate, such as the proposal that passed the House of Representatives last year."

"Fiscal Year 2016 Budget of the U.S. Government." White House Budget Proposal 02/02/2015. "President's Proposed Cap on the Charitable Deduction Will Hurt Communities." Council on Foundations Press Release 02/02/2015. Alex Daniels. "Obama Budget Again Calls for Limit to Charitable Deduction." Chronicle of Philanthropy 02/02/2015. "Mixed Signals From the President in Budget Proposal." Alliance for Charitable Reform 02/02/2015.