Texas Insider Report: WASHINGTON D.C. The federal budget plan released by Senate Democrats Thursday calls for new
limits on how much taxpayers can deduct for their charitable donations. The proposal is
the latest attempt by 
Democrats to impose limits on tax deductions a policy that nonprofit leaders say would decimate private giving to charities.
President Obama has repeatedly proposed reducing the value of itemized deductions taken by the wealthiest taxpayers to 28 down from 39.6. Many expect the presidents 2014 budget to reflect that
same proposal.
That means people in the highest income-tax bracket of 39.6 can reduce their tax bill by $396 for a $1000 charitable donation. The gift then essentially costs the donor $604.
Under a 28 plan however the taxpayers $1000 gift would provide $280 in tax savings meaning the gift would cost $720 a 19 increase.
The Senate Democrats proposed budget and the White Houses plan could achieve nearly $1-trillion in new revenue because people and businesses that itemize deductions would pay more taxes on their income.
Four Options
The Senate Democrats plan lays out several approaches that could be taken to limit itemized deductions including those for mortgage-interest payments and state and local taxes.
One would be President Obamas option of a cap but the budget proposal does not specifically endorse the 28-percent
level. The president has failed repeatedly to pass that proposal.
Another would be a dollar cap on the amount of deductions an idea floated by Republican Gov. Mitt Romney during the 2012 presidential campaign. Charities fear this option most because taxpayers could max out on a cap with mortgage interest and local taxes and decide not to make charitable donations that had no tax benefit.
A third option proposed in 2010 by the National Commission on Fiscal Responsibility and Reform is to replace the deduction with a 12-percent tax credit that would be available only for amounts beyond 2 percent of a taxpayers adjusted gross income.
Geoffrey Plague Independent Sectors vice president for public policy said the budget proposal also includes
an idea endorsed this week in a Washington Post op-ed by Martin Feldstein a Harvard University economist. Mr. Feldstein supports a cap of 2 percent of adjusted gross income on the tax benefits derived from deductions but wrote that charitable donations should be excluded from such a limit because they benefit the clients of nonprofits more than taxpayers.
Mr. Plague said Independent Sector will be making that same argument in Congress as it tries again to protect charitable donations from such limits.
The negative impact of limiting the charitable deduction is felt by the people who benefit from the work of public charities" Mr. Plague said.
Nonprofit Opposition
The Alliance for Charitable Reform a leading group that lobbies against such limits immediately opposed the plan.
The charitable deduction must be preserved and protected in order to sustain the vital work of charities across the country" Sandra Swirski executive director of the alliance said in a statement.
We had hoped the Senate budget proposal would reflect most senators overwhelming defense of the charitable deduction that supports meals in food kitchens breakthrough medical research arts programs in inner cities and myriad other community services."
The Philanthropy Roundtable an association of donors that manages the alliance said a reduction in the value of the maximum deduction from 39.6 to 28 could result in a $5.6-billion decline in giving in one year.
The Charitable Giving Coalition an alliance of nonprofits on Thursday sent a letter to Democratic Sen. Patty Murray chairwoman of the Senate Budget Committee also warning of potential losses from ideas under consideration.
It said that charitable contributions would drop by $3-billion annually if the 2 cap on adjusted gross income included charitable gifts and $9.17 billion in donations would be lost under the 12 tax credit idea.
