President's Budget Renews Call to Limit Charitable Deduction

The Obama administration's budget proposal for fiscal year 2013 once again includes a proposal to limit itemized deductions for gifts to charity, medical expenses, and mortgage costs for households earning more than $250,000, the Chronicle of Philanthropy reports.

Under the administration's proposed budget, itemized deductions would be limited to 28 percent for couples whose income exceeds $250,000 and for individuals with incomes of $200,000 or more. According to the White House, the cap would reduce the deficit by $584 billion over ten years. This is the fifth time the administration has offered some version of the proposal, including in its 2012 budget proposal. None has gotten very far, however, in part due to strong opposition from nonprofits and charities.

Charitable giving by wealthy donors could also be affected by another proposal in the administration's budget: households with more than $1 million in earnings annually would be required to pay at least 30 percent of their income in taxes — the so-called "Buffett rule," named after billionaire investor Warren Buffett, who has argued that it makes no sense for him to be subject to a lower marginal tax rate than his secretary. The provision would replace the alternative minimum tax, which originally was designed to prevent wealthy Americans from escaping taxation by taking advantage of loopholes in the tax code but today affects a growing number of middle-class Americans.

While the changes could dampen charitable giving if the administration's budget is passed, the president pledged to push reforms that would not "disadvantage individuals who make large charitable contributions."