President Obama Responds to Question Regarding Charitable Deductions

President Obama Responds to Question Regarding Charitable Deductions

News story posted in Executive on 25 March 2009| 15 comments
audience: National Publication | last updated: 18 May 2011


During a Tuesday evening prime time press conference, President Obama responded to a question from Politico's Mike Allen, who asked if the President was reconsidering his plan to cut the interest rate deduction for mortgages and for charities contained in the administration's current budget proposals?


Mike Allen, Politico? Hi, Mike.

QUESTION: Mr. President, are you -- thank you. Thank you, Mr. President. Are you reconsidering your plan to cut the interest rate deduction for mortgages and for charities? And do you regret having proposed that in the first place?

OBAMA: No, I think it's -- I think it's the right thing to do, where we've got to make some difficult choices. Here's what we did with respect to tax policy.

What we said was that, over the last decade, the average worker, the average family have seen their wages and incomes flat. Even in times where supposedly we were in the middle of an economic boom, as a practical matter, their incomes didn't go up. And so, well, we said, "Let's give them a tax cut. Let's give them some relief, some help, 95 percent of American families."

Now, for the top 5 percent, they're the ones who typically saw huge gains in their income. I -- I fall in that category. And what we've said is, for those folks, let's not renew the Bush tax cuts, so let's go back to the rates that existed back in -- during the Clinton era, when wealthy people were still wealthy and doing just fine, and let's look at the -- the level at which people can itemize their deductions.

And what we've said is: Let's go back to the rate that existed under Ronald Reagan. People are still going to be able to make charitable contributions. It just means, if you give $100 and you're in this tax bracket, at a certain point, instead of being able to write off 36 percent or 39 percent, you're writing off 28 percent.

Now, if it's really a charitable contribution, I'm assuming that that shouldn't be the determining factor as to whether you're giving that $100 to the homeless shelter down the street.

And so this provision would affect about 1 percent of the American people. They would still get deductions. It's just that they wouldn't be able to write off 39 percent.

In that sense, what it would do is it would equalize -- when I give $100, I'd get the same amount of deduction as when some -- a bus driver who's making $50,000 a year, or $40,000 a year, gives that same $100. Right now, he gets 28 percent -- he gets to write off 28 percent. I get to write off 39 percent. I don't think that's fair.

So I think this was a good idea. I think it is a realistic way for us to raise some revenue from people who've benefited enormously over the last several years.

It's not going to cripple them. They'll still be well-to-do. And, you know, ultimately, if we're going to tackle the serious problems that we've got, then, in some cases, those who are more fortunate are going to have to pay a little bit more.

QUESTION: It's not the well-to-do people. It's the charities. Given what you've just said, are you confident the charities are wrong when they contend that this would discourage giving?

OBAMA: Yes, I am. I mean, if you look at the evidence, there's very little evidence that this has a significant impact on charitable giving.

I'll tell you what has a significant impact on charitable giving, is a financial crisis and an economy that's contracting. And so the most important thing that I can do for charitable giving is to fix the economy, to get banks lending again, to get businesses opening their doors again, to get people back to work again. Then I think charities will do just fine.

PGDC Comment:

Last week the Planned Giving Design Center conducted a survey of readers and asked how they believe the proposed itemized deduction rate reduction would affect donations from those making over $250,000. Click here to go to the survey. Revised results will be shown after you have voted.

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Math and Macro Picture

In Response to Michael Romero's math comment, let's compare apples to apples. If the $1,000 is spent on non-charitable items, it is net out-of-pocket $1,390, so the high income earner is still better off giving to charity (net cost $1,160) than spending the money elsewhere. As an experienced fundraiser, I think that President Obama is right about his assertion that the different rates will not materially effect the *number* of gifts from high-income donors. Unfortunately, he asked the wrong question. The isses is the *amount* of money donated to charity. I think a change on the deduction rules will significantly impact the amount and timing of gifts. I have never met a donor who is giving SOLELY for tax reasons. However, a majority look to the tax code to leverage and structure the gift. The proposed change will hurt charity by reducing the dollars that come in and by lengthening the timing of those gifts.

Charitable Tax Fairness and Subsidies

Let me start by saying that, working with wealthy taxpayers, the rate of tax and value of the deduction IS a factor on the total amount of contributions to charities. Is the deduction

"90% for renewable energy research"

How about 0% for renewable energy research because I don't agree that it is a worthy cause? How 150% for animal shelters because I think that they are more than a worthy cause? How about the government just stay out of dictating what people do with their money in that I have yet to see a government that could be trusted with 50 cents.

Obama's definition of parity

Joel M. Breitstein To me the question is, how do you define "parity?" The dictionary defines the word as, "equality, as in amount, status or value." Therefore, the first thing that should be done is to give the non-itemizer the same ability as the itemizer to deduct their charitable contributions. Secondly, parity is a relative term. If I am in the 39 1/2% tax bracket, it is only fair that my tax deductions be worth more than the taxpayer that is in the 28% or lower bracket. I certainly agree that charitable intent is paramount, because at the end of the day one still has more money in his or her poclket if no gift is made at all. However, we do not need to give donors more reasons not to give, even if that reason effects only a small number of individuals. Unfortunately, the largest gifts do not come from the bus drivers but from the people that own the busses, and taking that extra incentive away will not motivate them to give more.

Obama's Fantasy Land

"In that sense, what it would do is it would equalize -- when I give $100, I'd get the same amount of deduction as when some -- a bus driver who's making $50,000 a year, or $40,000 a year, gives that same $100. Right now, he gets 28 percent -- he gets to write off 28 percent. I get to write off 39 percent. I don't think that's fair." ??? Huh??? The last time I checked, making $40,000 or $50,000 a year would not put you anywhere near the 28% tax bracket. If we assume a single tax payer with $50,000 in AGI, standard deduction and nothing else, his tax would be approximately $6600 or 13.2%. That is worst case! Following this logic, what about the people who give and take the standard deduction? The get no "tax benefit" from the charitable contribution. So is it fair for the "rich" to even get 28%? The reality is that Obama and his ilk believe that they and the government are better able to serve as the "charity" than the charities themselves. As a result, the people who have come to rely on charities are now going to be reliant upon the government. Our tax dollars become "forced charitable contributions" for programs that we may not agree with and are spent irrationally and irresponsibly.

Limitation on Deduction for the Wealthy.

If the president is truly concerned about fairness and efficiency, it should be obvious to any sincere observer that most local public charities are better at serving their community needs of the unemployed, the poor, the sick, and so on. Therefore, we ought to encourage MORE giving to local charities to take care of many of the things governement feels it is ITS responsibility. The way to do this is with a credit against taxes of at least 50% to 100% of tax. It is fair to to the rich and poor the same. Each winds up with the same number of dollars back in their pocket. And to take it one step further, if the poor credit ends up resulting in a "refund", so be it. In the end, we help more people more efficiently.

Charitable Deduction

Call it what you may, "If it looks and walks like a duck, it's a duck." Plain and simple it is an increased tax on the, "Wealthy" for the purpose of spreading the wealth according to the wishes of government. Our donors are philanthropically motivated. Historically, the more they have, the more they give. Imposing a tax on a charitable gift means that the, "Wealthy" will have less to give. Will they give less, for some maybe, for others, no. The imposed tax will likely factor into the equation. It would be interesting to learn how many individuals who earn $200k or couples earning $250K really feel wealthy. And perception will be as much a factor as the loss of tax savings.

charitable deduction

I assume that the comments already recieved are from folks in the business, who have contact with potential donors. How is it that "charitable intent" was not mentioned in any of the comments? The expressed cynicism for the administration's bold efforts and the implied entitlement of the charitable giving "industry" is lamentable.

Charitable Deduction Limitation

Here is the real way to look at President Obama's propposal: If you earn $1,000 and give it to charity, you shouldn't be taxed on the money you gave away. However, under President Obama's proposal an affluent person who earns and gives away $1,000 to charity would be taxed $396 on that amount (in the 39.6% tax bracket) but would only be able to deduct $280. So in other words, an affluent person would have to pay $116 of taxes for the privilege of donating $1,000 to charity. How can anyone believe that this excise tax on charitable contributions won't discourage the level of philanthropic support from major donors?

Limitation on Deduction

To suggest someone is paying $116 to make a $1,000 contribution is just not an intellectually honest way of describing the charitable deduction. Whatever your disappointment with the change in rate, let's be honest about the analysis. If you keep your $1,000 earnings, you pay the full $396 tax freight. If you donate the $1,000, the government allows you the privilege of not only supporting your charity, but also getting back a $280 tax break for doing so. You're not paying to contribute, you're getting paid to do so. We seemed reasonably content with this reality just several years ago. It's never been a dollar for dollar relationship. Now that the rate has changed, let's not engage in the hyperbole of suggesting we have to pay to make contributions. We should discuss more rationally the merits of larger donors getting less now than they have recently gotten used to.

Faulty Math

Although I agree with the very last sentence about debating the merits, this discussion should focus on who is the most efficient provider of services: The government or charity? Speaking of intellectual honesty, I don't imagine anyone can make a case that the goverment is the best provider. To get back to the math referenced above, the issue is not the difference between keeping the $1,000 and paying tax verses giving the $1,000 and receiving less deduction. The point is that the donor is in fact making the contribution to charity. The donor is losing the ability to spend that $1,000 some other way. Under the current tax code when I give my $1,000 to charity, I get the itemize deduction reducting my gross income by $1,000. (I'm disregarding AGI and phase out rules to keep this simple). This is because I no longer have $1,000 to spend some other way. This is a recognition that it is good policy to support charity. Under the proposed plan, when I give my $1,000, I still get the itemized deduction and have lost the ability to spend those funds some other way. However, now, if I'm in the top tax bracket, I still have to pay the government $116 on the money I earned. Therefore, I have made a $1,000 contribution to chartiy and a $116 contribution to the government. My total out of pocket is $1,116 for a $1,000 gift. For high income earners that are contemplating major gifts, add a couple of zeros. A $100,000 donation will cause the donor to forego spending the $100,000 on something else and will cause the donor to also pay the government $11,600. The net effect is the donor is out $116,000 for a $100,000 gift. I understand the "privilege" afforded under our current tax code. However, is it better policy to not provide any charitable deduction on earned income and let the government be the provider of services? It is my understanding that this is how most European countries operate. There is no question that America is the most charitable country in the world. Let's keep it that way with a favorable tax code.

Limitation on Deduction

If we want to talk about intellectual dishonesty, we have to talk about President Obama's intellectual dishonesty. When I heard his remark about the wealthy man and the bus driver, I was enraged. He's a much smarter man to make the logical error that he made, and only because of his gift of speech was he able to make it seem fair and reasonable. The socialists want people who are productive and earn a high income to pay a higher tax bracket than everyone else. Then, when taxes are cut proportionately, they scream that the rich receive a disproportionate benefit, conveniently ignoring the truth that productive high-income earners pay taxes grossly disproporationately to everyone else. Now President Obama has taken the socialist intellectual dishonesty a step further, denying productive, job-creating high-income earners the same "progressive" tax rate on a charitable deduction that they must pay on the fruits of their hard labor. Taxes are like levers: Their leverage on the downside must equal their leverage on the upside. Socialists have a hard time with this simple math.

Saying it doesn't make it so.

I only caught the tail end of this answer so I appreciate the transcript. Like so much of what the Administration has been saying lately, this relies on people accepting their statement despite contrary opinions or positions--Orszag's statement that their projections are better than the CBO, while admitting that no one's projections out 10 years are that reliable. Just because the administration says the impact will be minimal doesn't make it so! Many of us with years and years of experience with donors understand the importance of the tax benefit on incremetal gifts--the tax benefit lowers the cost and may make the gift just a little larger or engender a better feeling in the donor. A cost of up to 11.6% will likely be a major impediment to a lot of donors and will dramatically impact charities. Roger Shumaker, Cleveland

Charitable Tax Deduction Limitation

There may be an element of truth when President Obama says that the current economy might be hurting charitable giving more than a limitation on the charitable deduction. However, to me, this seems to be short-sighted. I'm concerned about the public policy message that the President's proposal seems to be putting forth - that Washington seems to know better than all of the charities in the U.S. On a somewhat related point, what does his message portend for the upcoming elimination of the federal estate tax in 2010? Thoughts?

Obama's idea on charities

It is my opinion that the current admin believes they are better qualified to distribute money to those in need than our public charities....bottom line....thus their opinion money should go to the Fed government and not charities....all other conversation about evening tax rate is a distraction. Article good.

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