Obama Budget Would Limit Deductions

In recent blogs posts we’ve noted that changes are in store for charitable organizations if the Administration and some in Congress have their way. The White House made its desires clear today when it released President Obama’s 2012 budget. Several proposals would directly impact non-profits. Of key note are a proposed limit on itemized deductions and a simplification of the excise tax imposed on private foundations

One proposal would limit the value of itemizeddeductions, including that for charitable contributions, available to taxpayers in the top two tax brackets. For joint return filers with income above $250,000, or single filers with income above $200,000, charitable deductions would be capped at 28 percent. According to the Chronicle of Philanthropy, this move would “eventually reduce the value of itemized deductions for [these taxpayers] by 30 percent.”

A second proposal floated in the budget would replace the current two excise tax rates on private foundations with a single excise tax of 1.35 percent of the foundation’s net investment income. Currently, private foundations pay an excise tax of 2 percent. That rate is reduced to 1 percent in years in which a foundation’s charitable distributions exceed the average level of such distributions over the prior five tax years.

Passage is uncertain. The Council on Foundations notes that, as an effective tax on the wealthy, the limit on deductions at first it would seem to have little chance of passage in the new Congress. When a similar proposal was suggested last year, the nonprofit advocacy and support group, Independent Sector, raised concerns that the move would result in the wealthy giving less to charity.

We will continue to monitor these developments. Later this week The Law Firm for Non-Profits‘ newsletter will discuss how charities can take matters into their own hands by lobbying and other advocacy. Subscribe today.