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Exploring philanthropy, non-profits and socially motivated business, from the Gates Foundation to your donation. A fresh look at the economy of good intentions.

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February 27, 2009 10:01 AM

Will lowering tax deductions for charity discourage donors?

Posted by Kristi Heim

A controversy is brewing over the Obama administration's proposal to limit tax deductions for charitable gifts in the new budget to Congress.

Whether people are giving for the sake of giving or to reduce their tax burden doesn't matter -- charities will feel the impact, some contend.

Under the proposal, taxpayers earning more than $250,000 will have potential deductions for charitable contributions reduced to 28 percent from 35 percent now, according to an analysis in this New York Times story. That means a 28-cent deduction for every dollar donated.

How this affects donors here in the "Compassion Corridor" remains to be seen. If you have any thoughts, please share them.

While several studies show donors are not greatly affected by tax changes in terms of their giving, "in these times, every dollar given to a non-profit, just like a small business, is key to their survival," notes Jule Meyer, principal at Parkman Foundation Services, which helps people start and manage foundations.

One survey by Bank of America, for example, found that half of donors would continue giving the same amount to charity even if deductions were essentially eliminated. But nearly 40 percent said their giving would decline.

"If we dis-incentivize any stimulus to our economy (such as penalizing generosity among higher donors), it can't be good for the non-profit community," says Meyer. "In this community, solutions that deliver are rewarded by donors--so I don't consider it good economics to take from the fragile non-profit community via donors. Non-profits are for the most part, improving our world, not damaging it."

The change could apply to families selling businesses, since they can often save capital gains taxes by starting a private family foundation.

"This is a line item in the Stimulus Package that I would certainly reconsider," says William Pearsall, a Bellevue intermediary who connects businesses for sale with buyers.
In fact, he suggests the deduction should be 40 percent "to reduce reliance on the government to fund some small but critical social service programs."

Philanthropy Northwest CEO Carol Lewis said she had not heard yet from local charities and guessed "our members will divide up around this based on whether or not they are Obama supporters generally."

"I think they have larger questions beyond the question of charitable incentive that will dictate their response," she said. "My members are generally giving because they believe in giving."

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