Charity and Obama's "Progressive" Ideas

Rick Dunham

4/27/2009 4:17:08 PM - Rick Dunham

Democrats love to say that they are the party of compassion, but the words ring hollow when you consider the administration’s tax proposal winding its way through Congress.

President Obama wants to reduce the deduction for charitable giving by individuals making more than $200,000 a year or families making more than $250,000. This could end up further eroding the support of charities at a time when many of them already have been forced to lay off workers.

It would mean that when we desperately need the help of our charities, we would be turning to government, which helped create the economic mess we’re facing, to somehow deliver these services.

This proposal shows a thinly-veiled contempt for so-called “wealthy” Americans. Witness this recent statement by supporter Joel Berg, executive director of the New York City Coalition Against Hunger:

“Combined with other progressive Obama tax proposals, that change would not only start to redress the inequality gap that has engulfed America in recent decades but would also help pay for many effective domestic programs … [and] greatly reduce struggling families' need for charitable aid.’’

That’s incredibly prejudiced and naive.

The idea of an “inequality gap” can only mean that the 2.8 percent of households that earn more than $200,000, according to IRS figures, generate wealth they have not earned.

Certainly there have been scandalous abuses, but those are the exception, not the rule. The vast majority of these households are made up of honest, hardworking Americans, and generous ones too. According to the Center on Philanthropy, they earned 31.3 percent of the country’s income in 2006, but contributed 43.5 percent of all itemized charitable deductions on individual returns.

Embedded in these numbers are the 1.7 million small, privately owned partnerships and S corporations with $200,000 or more in taxable income reported on the owners’ personal returns. Supporters of Obama’s plan don’t understand that it will undermine these businesses, especially when you consider the plan proposes to also raise their tax rate.

And it’s clear that supporters of Obama’s plan don’t respect the entrepreneurial spirit of those who have risked their own money, sweated out cash-flow challenges and built the small businesses that account for 50 percent of our gross domestic product. We have to conclude that the administration looks at these companies as having added to the “inequality gap” by being successful.

If the Obama plan stays as is, the tax burden of an individual owning a small S corporation with taxable income of $250,000 (including personal income and corporate profit) would jump from 33 percent to 39.6 percent, or $16,500, which is 6.6 percent of the household income and close to the average of what these households now give to charity – $20,500.

To the plan’s supporters, this is only fair since they are in favor of redistribution of wealth … in this case, from successful and generous households, away from charity and to the government.

It is laughable to think that the government can do a better job of serving the poor than organizations like The Salvation Army or the myriad of other charities that do so much with so little.

So the Obama administration wants to decrease the charitable deduction for these households, limiting it to 28 instead of 33-35 percent while increasing their tax burden to 39.6 percent. That would be a perfect storm brewing for the undermining of the charitable sector … and the certain demise of some charities.

The Center on Philanthropy estimates that these moves would decrease charitable giving by about 2.1 percent, which would have meant a decrease of income to charities in 2006 (the last year for which we have data) of almost $3.9 billion. In other words, they would hinder the most generous Americans from doing what they should do – share generously with those in need through a charity that specializes in the service it provides.

None of this should surprise us from leaders who have never supported charities in the first place. From 2000-2004, President Obama gave less than 1 percent of his income to charity and only in the last few years has he given around 5 or 6 percent, according to IRS figures. Then there’s Vice President Joe Biden, who continued a decade-long trend in 2008 by giving less than 1 percent of his income to charity – he took a charitable deduction of just $1,885, including $550 for donating clothing to Goodwill Industries, on income of $269,000.

This tax plan shows contempt for those who have labored in good faith, believing they would reap the rewards of their hard work… the very men, women and families who form the backbone of charitable giving in America.