The Obama administration's proposals to reduce the charitable tax deduction for wealthy households and increase the marginal income tax rates they pay would have a modestly negative effect on itemized charitable giving, a new study from the Center on Philanthropy at Indiana University finds.
The study, which was sponsored by Campbell & Company, examined how itemized charitable giving would have been affected in 2009 and 2010 if the proposals to reduce the value of itemized charitable deductions from the current 35 percent to 28 percent for taxpayers with an adjusted gross income of more than $250,000 ($200,000 for individuals) and to raise the marginal income tax rate from 35 percent to 39.6 percent had been in place. The study estimates that itemized giving would have totaled $0.82 billion less in the first year and $2.43 billion less in the second year, when both changes would have been in effect.
Looking only at the impact on giving by households with $200,000 or more in income, the study estimated that itemized giving would have been 1.6 percent lower in 2009 and 2.4 percent lower in 2010. The study also found that the higher marginal tax rate, which would go into effect in the second year, would have a more significant effect on giving than would capping the charitable deduction at 28 percent.
"Ultimately, changes in household economic circumstances have a greater impact on charitable giving than do tax rate changes," said Patrick Rooney, executive director of the Center on Philanthropy. "Regardless of tax policy improving the economy is critical to increasing charitable giving."