The recent "Jobs Bill" proposed by President Obama famously includes proposals to increase taxes on "the wealthy" - those earning over $1 million per year. Most news sources do not provide any more detail.
One proposal that it includes, one which Obama has pushed before, is to limit the deduction that may be taken for charitable contributions to 28%. Almost no news source mentions that this limitation would apply to those earning far less than $1 million. It would apply to individuals making over $200,000, couples making over $250,000. It would begin in the 2013 tax year.
As stated by Lisa Chiu in Obama's Job Bill Includes Plan to Limit Charitable Deductions for the Wealthy, The Chronicle of Philanthropy (September 12, 2011), the practical effect would be:
- A donor gives a public library a $1,000 gift.
- Under current law, the $1,000 is a deduction from taxable income
- The net effect is that he saves $350 on his taxes. The net cost of his gift is $650.
- Under the proposal, the savings would be limited to 28%, or $280. The net cost of his gift is $70 higher.
Charitable organizations, predictably, are opposed to this idea, because they are concerned that it will reduce the incentive to give.
A side note: We recently discussed the tax changes in Michigan with respect to the taxation of pension distributions. One other change made in Michigan, effective with the 2012 tax year, is the outright elimination of the credit for contributions made to several recipients, including public radio and TV stations and community food banks. If reduction of a deduction is considered likely to reduce contributions, the complete elimination of the tax credit will undoubtedly have a severe impact on those recipients.
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