President Obama on Monday proposed to limit the percentage of income that wealthy donors can write off for gifts to colleges and other charitable organizations as well as for other purposes, such as medical expenses and housing costs.
The plan, which is included in the president’s 2013 budget proposal, would limit the value of the itemized deduction to 28 percent for couples with incomes of $250,000 or more and individuals with incomes of $200,000 or more.
The White House says its proposed limits on itemized deductions would reduce the federal budget deficit by $584-billion over 10 years.
Repeated Efforts
Mr. Obama has made similar proposals four other times during his presidency, including in his proposed budget for 2012. The idea has never gotten very far, in part because of strong opposition from charities.
Giving by wealthy donors could also be affected by another proposal in the budget plan.
Under that proposal, every household with more than $1-million in earnings annually would be required to pay at least 30 percent of its income in taxes—a provision known as the “Buffett Rule” because of the complaint by the investor Warren Buffett that he pays less in taxes than his secretary does.
The increased taxes could reduce the amount that people who are millionaires and billionaires give to charity. President Obama said he wanted to be sure that did not happen, and he pledged to work to restructure the tax code in a way that would not “disadvantage individuals who make large charitable contributions.” He made a similar promise after his State of the Union address last month.
The Buffett Rule would replace the alternative minimum tax, which was originally designed to prevent wealthy Americans from escaping taxation by taking advantage of loopholes in the tax code but which now affects a growing number of middle-class Americans.
Lisa Chiu is a staff writer for The Chronicle of Philanthropy.