A Small but Significant Effect

Proposed changes to charitable tax deductions and tax rates could have a negative effect that’s relatively small but still compounds the challenges faced by nonprofits.

The Obama Administration’s proposals to reduce the tax deduction that high-income taxpayers can take for charitable gifts and to increase the top personal income tax rate would likely have, by themselves, a relatively small negative effect on itemized charitable giving, according to research by the Center on Philanthropy at Indiana University. However, the cumulative effect of those changes and difficult economic conditions could compound the challenges faced by nonprofit organizations.

The Center looked at how giving would have been affected in 2006 (the latest year for which itemized deduction data is available) if the Administration’s proposals for charitable gift deduction rates and personal income tax rates for taxpayers with income above $250,000 had been in effect at that time. It estimates that the two changes combined would have reduced total itemized giving by the highest income households by 4.8 percent in 2006—a drop of $3.87 billion. Total itemized giving by all households would have dropped by 2.1 percent.

“Charities and the public need to understand that in the current economic environment, which is creating difficulty for some nonprofits and their constituents already, this public policy change is likely to have an additional negative effect. However, changes in personal income and wealth, both of which have declined in the past year, have a greater impact on charitable giving than do tax rate changes,” says Patrick M. Rooney, executive director of the Center on Philanthropy.

More Info

Read a press release and a white paper (PDF) by the Center.