Thursday, March 26, 2009

EJ Dionne on Obama's Charitable Deduction Plan

E.J. Dionne has a great piece in today's Washington Post (it's here) in which he explains the extreme difficulty of getting a tax increase -- any tax increase -- through Congress.

Dionne cites, as evidence for his point, the tremendous backlash against Obama's proposal to decrease the amount of the itemized deduction (from 35% to 28%) for charitable donations made by the highest earners:
"The most significant moment of President Obama's news conference on Tuesday was ... his defense of the least popular tax increase in his budget: limits on the benefits wealthier taxpayers get for their charitable contributions and mortgage payments. It has been a long time since a president was willing to defend raising taxes. You have to go back to Bill Clinton and his 1993 budget ... Obama himself is going only part of the way on tax increases. He is still arguing that he can fix things with hikes on just the top 5 percent of taxpayers."
Later in the article, Dionne explains the effect of Obama's proposed change. I found his illustration very helpful:
"Obama's proposal is based on a sound intuition: Do we really believe it's fair that when a married couple with a taxable income of $50,000 gives $1,000 to charity, they get a tax benefit of $150, while a couple earning $1 million making exactly the same contribution gets back $350? Is it fair that the higher-income couple also gets a bigger tax advantage on their mortgage payments?

The value of the deductions is currently worth more to the higher-income couple because they pay taxes at a higher rate. Obama wouldn't even close the whole gap. Applied to this example, his 28 percent cap would still let the wealthier couple deduct $280.

Yet even this modest effort to raise money to pay for health-care reform is falling under a hail of fire from those who say the president wants to hurt private charities."
My prediction is that the proposal to change the charitable deduction rate does not survive even the preliminary, committee-level stage of Congressional consideration.

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