The Giving Institute recently hosted an informative webinar on the proposed changes to the U.S. tax code and what it means for giving in our country. We wanted to share some of the valuable information presented in the webinar, led by Patrick Rooney, PhD, Executive Director of the Center on Philanthropy at Indiana University.
The webinar opened with a brief historical overview of how the top marginal tax rate (currently at 35%) has varied in the U.S., specifically since 1940, and has impacted the cost of a charitable gift to the donor. President Obama’s 2012 budget proposal, which includes two policy changes, was then outlined:
1.) Limit itemized deductions to 28% for taxpayers at the highest marginal income tax rate, which reduces the value of charitable deductions for those in the 35% tax bracket
2.) Increase the tax rate for highest marginal income tax bracket (households with an annual income of $200,000+) from 35% to 39.6%
Given these changes, the President’s proposal would impact giving in two ways:
1.) Reduce the cap on deductions to 28% which decreases the charitable giving incentive
2.) Raise the top marginal tax rate which reduces disposable income available for charitable giving
Based on the Center on Philanthropy’s research, as well as some other reputable related studies by the Congressional Research Service and the Tax Policy Center, the proposals will have a relatively modest negative impact on charitable giving. The Center estimates if both policy changes are passed, total itemized giving in the U.S. would decrease by 1.3%, and itemized giving by high net worth individuals (households with $200,000+ annual income) would be reduced by 2.4%. They also predict the tax rate increase policy would have a greater negative effect than a deduction cap.
While the President’s proposals may have a minimal impact on giving, we subscribe to the same premise that the Center on Philanthropy stated during the conclusion of the webinar: changes in household economic circumstances have greater impact than tax rates. Additionally, negative outlooks–perceived or realized–in the U.S. economy have a greater impact on giving than tax policy.
At The Curtis Group, we follow a few key economic indicators to help us predict the state of philanthropy in the U.S. including the S&P 500, consumer confidence index, GDP, and personal income and consumption numbers. We believe these are among the best measures that will affect our country’s giving numbers.
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