Nonprofit Coalition Urges President to Reconsider Cap on Tax Deductions

In an open letter to President Obama, the Charitable Giving Coalition, a group of nonprofits and advocacy organizations working to preserve the charitable deduction in its current form, argues that the cap on deductions for the wealthy included in the administration's 2014 budget proposal "would spell disaster for the vital programs and services of thousands of charitable organizations and the millions of Americans who rely on them each day."

As expected, the budget plan released by the White House on Wednesday includes a 28 percent cap on the value of all itemized deductions — including the deduction for charitable giving — for taxpayers earning more than $200,000 a year ($250,000 for joint filers). While the president has been pushing for such a cap since 2009, Independent Sector noted in a statement issued in response to the proposal that it "seems at odds with the budget's Buffett Rule provision, which exempts the charitable deduction from the elimination of itemized deductions for taxpayers who earn more than $1 million." The so-called Buffett Rule proposes a minimum effective tax rate of 30 percent for joint filers earning more than $1 million.

In its statement, IS also noted that "limiting the charitable deduction imposes a sacrifice not on wealthy taxpayers, but rather on those in our society with the greatest need for a helping hand.... The fact is that decoupling a taxpayer's ability to deduct his or her charitable donations from the rate at which he or she is taxed will reduce annual charitable giving."

According to the Charitable Giving Coalition's letter, a 28 percent cap on the charitable deduction could reduce giving to charity by more than $5.6 billion a year — more than the combined annual operating budgets of the American Red Cross, Goodwill Industries International, Habitat for Humanity, the Boys & Girls Clubs of America, Catholic Charities USA, and the American Cancer Society.

"The charitable deduction...serves an invaluable economic purpose, supporting worthy causes and the nonprofit sector, which employs more than 13.5 million people, or 10 percent of America's workforce, and generates hundreds of billions of dollars in economic activity," the coalition said in a separate statement. "Make no mistake, the burden of unraveling the charitable deduction would be placed squarely on the backs of the middle class and the most vulnerable who rely on charitable giving and the vital community services it supports."

"Independent Sector Reacts to President Obama's FY 2014 Budget Proposal." Independent Sector Press Release 04/10/2013. "President's Budget Summary." Independent Sector Web Site 04/10/2013. "Charitable Deduction Not a 'Loophole' — It's a Lifeline." Charitable Giving Coalition Press Release 04/10/2013. "Letter to President Obama." Charitable Giving Coalition Press Release 04/10/2013.