Nonprofit groups criticized proposed limits to charitable deductions in President Barack Obama’s budget plan, saying they will be a blow to organizations already struggling with a steep drop-off in donations.
Under the plan, from 2011 taxpayers that now pay income tax at the 33% and 35% rates would only be able to claim deductions at a 28% rate, lowering their benefit reports the Wall Street Journal.
The proposed changes come as the nonprofit sector is trying to define its relationship with the new president. Many leaders of such groups have applauded the passage of Mr. Obama’s economic stimulus package. But these same leaders also fear policies that disparately affect the wealthy — like the proposed deduction cap — could undermine their efforts.
“I think that’s the wrong loophole to close if you’re going to close a loophole in these times,” said Clara Miller, chief executive of the Nonprofit Finance Fund, a consulting and financing group that supports nonprofits.
The reactions follow the announcement Thursday of Mr. Obama’s historic $3.6 trillion budget for the fiscal year beginning Oct. 1. Some $318 billion over the next decade is expected to come from capping the value of itemized deductions — including those for charitable contributions — for the wealthy.
The change could squeeze a large source of money for U.S. nonprofit organizations. Individual contributions are the third-largest source of nonprofit funds behind the government and fees for things such as tuition and ticket sales.
For 2006, about 41.4 million returns with itemized deductions reported charitable donations totaling $186.6 billion. The Obama plan “could be a disincentive to some donors who might further cap their gifts on account of the new limit,” said Diana Aviv, chief executive of the nonprofit consortium Independent Sector, in a statement.
Other reactions were more tempered: “It would deter some gifts, but the economy is probably the bigger deterrent,” said Elizabeth Boris, a director at the Urban Institute, a research group.
Read more here: Charities Say Tax Changes Add to Pain