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Odd Social Policy

The president’s plan to limit charitable donations from high income earners is getting some flak:

Nonprofit groups criticized proposed limits to charitable deductions in President Barack Obama’s budget plan, saying they will be a blow to organizations already struggling with a steep drop-off in donations.

Under the plan, from 2011 taxpayers that now pay income tax at the 33% and 35% rates would only be able to claim deductions at a 28% rate, lowering their benefit.

The proposed changes come as the nonprofit sector is trying to define its relationship with the new president. Many leaders of such groups have applauded the passage of Mr. Obama’s economic stimulus package. But these same leaders also fear policies that disparately affect the wealthy — like the proposed deduction cap — could undermine their efforts.

“I think that’s the wrong loophole to close if you’re going to close a loophole in these times,” said Clara Miller, chief executive of the Nonprofit Finance Fund, a consulting and financing group that supports nonprofits.

OMB chief Peter Orszag had a predictable rebuttal on Sunday: Bill Gates can afford it. Sigh. This of course is the refuge of most proponents of “tax the rich” schemes. But the vast majority of high-income earners aren’t Gates and do react to significant tax changes. And the result here is especially pernicious, given the state of many charitable institutions that are overwhelmed with demand and already feeling the pinch from donors who are cutting back due to their own hard economic times.

It will be interesting to see how this part of the president’s budget progresses and, if it is dumped, what substitute, if any, the president will come up with. There are only so many places to squeeze the rich without going straight for the marginal tax rates, something the Obama administration was reluctant to do before the Bush tax-cuts expire. After all, it’d be nuts to raise taxes in a recession, right?



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