President Obama’s plan to limit the tax deductions for charitable contributions by wealthy Americans is a clumsy way to reach a laudable goal. Clumsy, because it adds a new level of complexity and unfairness to a tax system that is already far too complex and inequitable. It will undoubtedly lead to some reduction in charitable donations by the very people who donate the most — which is why so many Jewish nonprofits are taking a rare stand in opposition to a president their constituents voted overwhelmingly to elect.
And yet, it is the right thing to do and, for the wealthy, the wrong thing to oppose.
The administration is, indeed, socking it to the rich. By allowing the Bush tax cuts to expire in 2011, the administration is effectively increasing the income tax on the wealthiest Americans from 35% to 39.6% — a level last seen when Bill Clinton was president. But instead of allowing those wealthy folks to take their full deductions when they contribute to charity, the new tax code will cap the deduction at 28% — a level last seen when Ronald Reagan was president.
That’s a one-two punch, and an inelegant one at that. It smacks of a certain unfairness — why a separate category for the rich? — and moves the American tax code even further away from the goals of simplicity and clarity.
But here, context is everything. If the tax burden for the wealthy will be higher than in the Reagan and Clinton years, well, it should be. The economic crisis facing this nation is far more severe than anything experienced then, and those who benefited from the inequities and excesses of the last eight years ought to be the first now to sacrifice for a greater cause. Especially when the revenues expected from the contributions cap are meant to pay for long overdue, much needed and, in the long run, fiscally responsible health care reform.
Leaders of nonprofits worried that the cap will cause their wealthy donors to shrink their giving have a legitimate concern. In the top bracket, a $10,000 donation now really costs only $6,500, because the contributor gets to deduct 35%, or $3,500, from his or her taxes. Under Obama’s plan, the same donation will cost $7,200. Will some give less as a result? Probably. But very likely the fall-off will be nowhere near the catastrophic predictions some suggest.
Truth is, people give for many reasons. Jews, who are especially philanthropic, give because to do so is a mitzvah, because donors believe in the cause and, yes, because of the access, prestige and psychic reward that often accompanies public acts of charity. Those powerful motivations remain, no matter what the tax deduction might be.
The Jewish nonprofit world has been socked by its own one-two punch — a nationwide recession on top of the damage wreaked by the Bernard Madoff scandal. These unprecedented challenges demand that organizations assess their strengths and priorities, collaborate when possible, eliminate duplication, reform the way they do business — and never abandon the values that have long led American Jews to support government policy that seeks a more equitable and just society.