Should the arts community worry, again, about U.S. tax policy? Seems that way. In his 2013 budget proposal, released this week, President Obama again took a swack at the tax deduction for charitable contributions — and that will hurt the arts.
The issue is all bundled in with whether or not the rich pay enough in taxes. The President’s plan would limit the total of all itemized deductions for charity, medical expenses and mortgage interest to 28% of income for couples earning more than $250,000 a year  and singles who earn more than $200,000 a year.
This is the fifth time this administration has offered this proposal, and it has failed to get far each time. But charities and other non-profits have had to wage opposition campaigns. And they may have to do it again, given the pressure to lower the deficit in an election year. According to Philanthropy News Digest, “the cap would reduce the deficit by $584 billion over ten years.” PND also says:
Charitable giving by wealthy donors could also be affected by another proposal in the administration’s budget: households with more than $1 million in earnings annually would be required to pay at least 30 percent of their income in taxes — the so-called “Buffett rule,” named after billionaire investor Warren Buffett, who has argued that it makes no sense for him to be subject to a lower marginal tax rate than his secretary. The provision would replace the alternative minimum tax, which originally was designed to prevent wealthy Americans from escaping taxation by taking advantage of loopholes in the tax code but today affects a growing number of middle-class Americans.
Why Obama continues to press this point seems to be a matter of politics. PND noted, “the president pledged to push reforms that would not ‘disadvantage individuals who make large charitable contributions.’ ” How he would do that is very unclear.
Last year, The Chronicle of Philanthropy weighed in on the subject (several times). Citing two different studies, it pegged the amount of giving that would be lost under the proposed rule at between $1.7 billion to $3.2 billion a year in one study by the Tax Policy Center and alternately at $2.9 billion to $5.6 billion a year, according to a study by Joseph Cordes, an economics professor at George Washington University.
I have not yet seen a study accessing which kind of charitable deduction would suffer most, but I have heard some talk that as the wealthiest households tend to donate most to the arts, earning social capital in return, the arts might suffer most.
Photo Credit: Courtesy of MainStreet.com