Posted on 5th March 2009
Wealthy US donors could lose out on tax breaks due to a cap on tax deductions proposed in President Barack Obama’s 2010 Budget blueprint.
The proposal would cap deductions for taxpayers in the highest tax brackets at 28%, down from 33 or 35%. Currently, taxpayers earning more than $250,000 can make a deduction reflecting the rate of tax they pay, up to 35 cents per dollar.
“This change could be a disincentive to some donors who might further cap their gifts on account of the new limit. This could be a problem for many struggling nonprofits,” said a statement from Independent Sector, a US coalition of charities and foundations.
President Obama plans to produce more detailed plans in April 2009, and any changes would need to be approved by Congress. The limit would not come into effect until 2011 when the economy may have moved to a stronger position.
“What drives charitable contributions is overall economic growth, is other motivations … it’s not done for a tax incentive but rather out of benevolence or some other related desire,” said Peter Orszag, director of the US Office of Management and Budget, in his blog.
However President Obama is already meeting strong resistance from within his own party. The Wall Street Journal reported that Treasury Secretary Timothy Geithner appeared to suggest this week that the administration was willing to consider dropping or modifying the proposal. "We recognize there are other ways to do this," Geithner said during a Finance Committee hearing Wednesday. "We are willing to listen to all ideas that meet these broad principles."
Currently donors save the same percentage through itemised tax deductions as the income tax level they pay on any donations. The deductions can also be made for other expenses, such as college tuition and mortgage payments.
