White House Official Defends Deduction Proposal

An Obama administration official last month advised charities not to worry about the White House’s plan to limit charity tax breaks for the wealthy and to keep in mind the “broader context” of President Obama’s plan. Under the proposal, which has drawn fire for its potential to damage charitable giving, the tax break for itemized deductions would be limited to 28 cents for every dollar spent by couples who earn more than $250,000 (or individuals earning $200,000), starting in 2011.

Under the current system, taxpayers in the highest tax brackets can write off the same percentage as their tax bracket, or up to 35 percent.

The administration says the itemizeddeduction limits would raise $267-billion over 10 years to help pay to overhaul the country’s health-care system.

“To a large extent this proposal has been perceived among the nonprofit community that’s reliant on charitable giving as really piling on,” Jeffrey Liebman, chief economist at the White House Office of Management and Budget, said in remarks to members of the District of Columbia Bar. With the recession taking its toll, he said, “the folks who charities try to assist have probably greater needs than they’ve had at any time in recent decades. And how in the world could we be doing something that might discourage charitable giving among some of the high-income folks that charities like to target for donations?”

But Mr. Liebman said charities need to keep in mind that changes to the health-care system should reduce costs for charities that currently help the uninsured, and should drive down health-care expenses for small organizations.

What’s more, he said, scholarly research shows that a rising stock market encourages Americans to make charitable contributions. “If our general economic strategy works, and health-care reform is an important part of the economy being strong in the medium to the long term, basically everything is going to be fine for charitable giving,” Mr. Liebman said. “And if it doesn’t, it doesn’t matter what our tax policy is — things are still going to be crummy.”

He concluded: “The broader point here is, getting the economy going, doing health-care reform, are good things that, if they work, everyone in the country is going to be in good shape, including people who may have to pay a little more taxes with these provisions.”