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Budget proposal could impact charitable gifts
Steve DeVane, BR Managing Editor
March 05, 2009
5 MIN READ TIME

Budget proposal could impact charitable gifts

Budget proposal could impact charitable gifts
Steve DeVane, BR Managing Editor
March 05, 2009

Baptist organizations are trying to gauge the impact of a proposed change in the federal budget that could decrease the tax benefit for wealthy donors of their charitable gifts.

President Barack Obama’s proposed budget would decrease the tax benefit of deductions for a taxpayer making more than $250,000 from 35 percent to 28 percent. Someone in that tax bracket who gives a charity $1,000 would receive only a $280 tax benefit instead of the $350 they receive now.

The proposal would have to be passed by Congress to become law.

John Robertson, Campbell University’s vice president of marketing and enrollment management, said the school is following the issue, but it’s too early to start lobbying for changes to the proposal.

“Whenever there is a reduction in the tax benefit associated with charitable giving, it has the potential of impacting larger outright and estate gifts,” he said.

The question no one knows the answer to because it varies by individual is how much of a donor’s giving is motivated by the tax deduction?

Brenda Gray, executive vice president for development and communications at Baptist Children’s Homes of North Carolina, said BCH is grateful for donors who continue to give sacrificially because they want to make a difference in the lives of hurting children and families.

“Their motivation for giving to Baptist Children's Homes is their love for children, not the tax incentive,” she said. “However, saving taxes can help increase the size of the gift. Donors need encouragement during these hard economic times.”

John M. Tayloe, vice president for development at Chowan University, said school officials know they can continue to count on the love and support of Chowan’s generous community. The school's donors give first and foremost because they care for the University, and then because of tax advantages, he said.

"Current legislation proposed would have a definite impact on charitable giving across the board and limit the potential for securing transformational gifts," Tayloe said. "Chowan is a 'tuition driven' institution like most and charitable dollars make it possible for expansion of facilities and endowments. Given the state of the market, this legislation would have a compounding effect on charitable giving."

The Association of Fundraising Professionals reported on its web site that two of its members said the negative effects of the proposal would likely be moderate rather than severe.

“Before we begin writing the epitaph for major gifts from generous donors, let’s keep their motivation in mind,” said Sandy Macnab, president of Alexander Macnab & Co., a Chicago-based fundraising consulting firm. “People do not make charitable gifts because it makes them eligible for a tax deduction. Some give because they want to give back, some to search for a cure, some to support those in need and all because they want to help — personally and privately.”

Richard Barrett, president of Barrett Planned Giving Inc. in Washington, D.C., agreed that there is less cause for concern than initially thought.

“People give from the heart — the tax deduction is just icing on the cake,” he said.

The two men also said many wealthy donors wouldn’t be impacted because they are already subject to the Alternative Minimum Tax and its 28 percent tax rate.

Nevertheless, the president of the Association of Fundraising Professionals disagrees with Obama’s proposal.

“Not only do charities represent a significant portion of the American workforce, but in the current economic environment they are being asked to provide more services and programs to people in need,” V. Maehara said. “Limiting the deduction is a self-defeating policy that in the long run will hurt more than it will help.”

Maehara indicated that AFP would begin an aggressive education campaign to members of Congress and the White House about the importance of the tax deduction and the potential impact of a change.

Peter Orszag, director of the White House Office of Management and Budget, posted a blog Feb. 27 titled, “The Budget and Charitable Donations.” He said the changes would not go into effect until 2011 when the administration expects the economy to be recovering. Also, the money raised would go toward a $634 billion reserve fund to pay for health care reform.

“Reforming health care is essential to the long-term fiscal health of the country,” he said. “Indeed, bending the curve on health costs is the single most important thing we can do to get our country back on a sustainable long-term fiscal path.”

Orszag also said that while someone making $50,000 a year gets a $150 tax break from a $1,000 charitable gift deduction, a wealthy donor such as Warren Buffet or Bill Gates would get a $350 deduction from the same sized gift. Their gift has a higher deduction value because they are in a higher tax bracket.

“This proposal walks that difference back some of the way — it would limit the tax benefit for Buffet or Gates to $280,” he said. “In other words, we are not eliminating the deduction — just reducing it to 28 percent (or $280 on the hypothetical $1,000 contribution) for the 5 percent of families at the very top of the income distribution.”