Running the Numbers - Charity Deduction

The new administration has submitted an outline of its 2010 budget plan. One thing it includes is a restriction on charitable giving deductions.

Still, the charitable giving deduction reduction, which would limit deductions for couples making $250,000 or individuals making $200,000, provoked the most heat Thursday. Mr. Obama is counting on that provision to raise $179.8 billion over 10 years.

The budget also includes a new top marginal tax rate for higher incomes. To get a rough estimate of what this means, let's do some rough calculations. Let's say it raises $18 billion a year and let's assume a top tax rate of 40%. That means they expect that this will reduce the charitable giving deduction by $45 billion a year. I suspect that a large portion of that $45 billion will still be given to charities, but some portion won't. When asked about that problem, the reply was:

Asked about that, Office of Management and Budget Director Peter Orszag said Mr. Obama took care of that by giving charities government money to make up part of the difference.

"Contained in the recovery act, there's $100 million to support nonprofits and charities as we get through this period of economic difficulty," he said.

$100 million is 0.2% (two tenths of 1 percent) of $45 billion. Somehow I think that losing a tax deduction on $45 billion in charitable giving will reduce it by a bit more than two tenths of one percent.