Punish the charitable

During the Tuesday night press conference, Politico’s Mike Allen and the president had this exchange:

Allen: 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?

President 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 at times where supposedly we were in the middle of an economic boom, as a practical matter their incomes didn’t go up. And so (what/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 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 hundred dollars to the homeless shelter down the street.

And so this provision would effect 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 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 hundred dollars. 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 benefit ted 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.

Allen: It’s not the well-to-do people; it’s the charities. Given what you’ve just said…

President Obama: Yeah.

Allen: …are you confident that charities are wrong when they contend that this would discourage giving?

President 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.

Columnist Paul Greenberg:

The president said his plan to reduce tax exemptions for charitable giving will have no effect on the donations that nonprofits depend on for their good works. Those who run philanthropies tend to have a different opinion. They also tend to know their business.

It’s not rocket science. If you have to give the government more of your money for taxes, then you will have less money to give to charity. How many people would prefer to give their money to charity than give it to the government?

Forget percentages for a moment and think in terms of dollars. Those taxpayers who are stuck in the higher tax brackets are precisely the ones who give the most to charity, and Obama is punishing them for it with his lower deductions for charitable donations. Does this seem counterproductive to you? Even moderates are balking at Obama’s proposal.

Moreover, the president’s numbers do not add up. Dave Switzer says the government will only take in one-third of what the Obama administration claims:

Office of Management and Budget Director Peter Orszag actually said this yesterday: ”Contained in the recovery act, there’s $100 million to support nonprofits and charities as we get through this period of economic difficulty,” he said. $100 million. That’s what they’ll get to compensate them for any reduction in private charitable contributions.

Is he serious? He’s actually saying that people who currently contribute $83 billion to charity annually would not reduce their charitable contributions by more than $100 million? That would be a .12% decrease. Do you think that wealthy people will cut their contributions by only .12% when their tax break is cut by 20%? For these people, the price of charitable contributions used to be $.65 per dollar of service purchased and now it’s going to rise to $.72 per dollar of service purchased, which is a 10.2% increase in the price of contributing to charity (using the midpoint formula). For you economics students, that’s a price elasticity of demand of -.012. NOTHING is that inelastic, not even crack cocaine. The only word I can think of for this: absurd.

So here are the facts. Obama won’t be able to collect all of this revenue through this tax change — he’ll get about a third of it if he’s lucky and charitable contributions by wealthy people are unaffected, but contributions will probably drop and he’ll get even less than that. Anybody looking at the magnitude of charitable contributions vs. the amount the Obama budget would give to charities would have to conclude that charities will be worse off. In a recession, when more people are losing their jobs and cutting back on spending, and more people can actually benefit from food banks and other charitable services, the administration proposes this? I just don’t understand it…

It is indeed difficult for anyone except a statist to understand. Instead of encouraging voluntary philanthropy, especially from those who can most afford to give (the evil rich), Obama and other statists want you to just pay more taxes and let the government take care of helping those in need. The difference, of course, is that you and government may not agree on which organization should disperse the funds. While you might prefer that your money go to, say, the Salvation Army, Obama’s government would be more likely to trust ACORN with the money.

So if you want to retain the freedom to choose how your charitable giving is spent, Obama wants you to pay a higher penalty for that liberty by cutting the deduction you can take for it. If Obama’s way is unacceptable to you, please share your opinion with your representatives in Washington.

– JP