House Health-Care Surtax Plan Would Affect Charitable Deductions

When House Democrats issued a plan for overhauling the health-care system this week, they proposed a new surtax on wealthy people as a way to pay for expanded insurance coverage.

While that tax takes a different form than President Obama’s proposal to limit the value of itemized deductions, including those for charitable donations, its impact would be somewhat similar, according to an analysis by CQ Politics.

The reason: The surtax would apply to adjusted gross income, not taxable income — which means itemized deductions could not be used to bring down the tax bill. (In theory, that could dampen the incentive for donating to charity.)

The Democrats have proposed that the surtax start at 1 percent on income above $280,000 for individuals and $350,000 for married couples; rise to 1.5 percent for income above $400,000 (couples $500,000); and to 5.4 percent for income above $800,000 (couples $1-million).

President Obama has not yet commented on the surtax proposal. He has never wavered publicly from his own proposal to limit the tax breaks for itemized deductions to 28 cents for every dollar spent for couples earning more than $250,000 (individuals $200,000) — down from the current high of 35 cents.

That proposal has been controversial because of its potential to depress charitable giving, although many charities support it because they believe they will benefit from lower health-care costs.

Senate Democrats are cool to the surtax idea, CQ reports.