Right now, America faces a series of critical fiscal choices that will affect the economy for years to come. One of the most critical steps we can take is to reduce the deficit in a balanced way in order to lay the foundation for long-term middle-class job growth. But we need to do that in a way that’s consistent with our values.
As part of his balanced approach to reduce the deficit by $ 4 trillion, President Obama proposes to raise $ 1.6 trillion in new revenue over 10 years for deficit reduction, including $ 1 trillion from the expiration of the Bush high-income and estate tax cuts. The President’s plan asks the wealthy to pay their fair share by raising tax rates for the wealthiest 2% to the level they were at under President Clinton—39.6%—which was a time when we created 23 million new jobs. It also prevents an income tax increase for 98% of Americans and 97% of small businesses.
Some have suggested that, rather than raising tax rates for the most fortunate, policymakers should make up the revenue by cutting high-income tax benefits – in particular, by imposing a dollar cap on itemized deductions, including charitable contributions.
But what is clear is that proposals that take tax rates off the table would threaten donations to universities, non-profit hospitals, social services providers, arts and cultural institutions and other nonprofit organizations. This is because – to make the math work – these proposals rely on hundreds of billions of dollars of revenue that would result from drastically cutting or eliminating the charitable deduction as we now know it.
Currently, the tax code encourages gifts to charity by allowing taxpayers to claim itemized deductions for charitable giving. But – as a new report by the National Economic Council (NEC) shows, the most prominent dollar cap proposals would effectively eliminate the charitable deduction for up to 13 million households and for as much as 60 percent of currently deductible giving.
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