What is also not acknowledged is the fact that nearly 50 percent of these households are either sub-chapter S corporations or partnerships. Thus these policies will directly impact millions of small businesses.
So another way to look at the impact of these proposals is this: 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.
It’s clear the Obama administration doesn’t respect the enormous impact these households have on charitable institutions. To the plan’s supporters, this increased level of taxation and reduction in the charitable deduction is only fair since they are in favor of redistribution of wealth … in this case, from successful and generous households and away from charity… to the government.
In a report released late last year by Barclays Wealth (in partnership with Ledbury Research), charitable giving may be in for an even more difficult time than we think. It states,
“Throughout history, private charitable giving has undergone cycles of boom and bust. In each, the stimulus was wealth creation and business innovation by private individuals, both of which were turned towards solving the social problems of the day. …governments regularly intervened to provide much needed support, bringing the donor-led philanthropic age to an end.”
The report highlights that the last government intervention was “when Roosevelt expanded the role of government to fulfill charitable commitments.”
Today, the Obama administration is heading in the same direction. The proposed tax increases undermine wealth creation and business innovation that is desperately needed to spur philanthropy and provide the critical support of charitable institutions. Instead Obama and his administration are intervening through their increased taxation on the households so important to philanthropy and at the same time reducing the incentive to give by capping the charitable deduction at 28 percent.
This should sound an alarm to charities that their future is at risk. Just as when President Roosevelt expanded the role of government which led to a profound negative impact on charitable giving and therefore, charitable institutions, so we are now headed in that same direction should these tax increases and charitable deduction decreases be passed.
At a time when charities are struggling as people continue to pull back in their charitable support these proposals could accelerate the erosion of charitable institutions and their effectiveness just when these institutions are needed more than ever.
Many charities are in the fight for their lives. With Obama’s help some will face an early death.