Despite popularity, reconsideration of limit on charitable deductions

Posted on: December 18, 2012

In Saturday’s (12/15) New York Times, James B. Stewart writes that proposals to limit itemized deductions to a fixed dollar amount have “attracted a surprising amount of bipartisan support, given its origins in conservative Republican circles. … Martin Feldstein, a Harvard economist and the chairman of the Council of Economic Advisers under President Reagan, is widely credited with the idea for an across-the-board cap on itemized deductions as a way to help lower the deficit. … Despite its bipartisan support and seemingly neutral approach, it didn’t take long for the nonprofit sector to figure out that a fixed dollar cap on itemized deductions is a stake aimed at the heart of the charitable deduction. That’s because of the three largest itemized deductions—state and local taxes, mortgage interest and charitable contributions—only charitable contributions are entirely discretionary. … ‘No one wants to say, “Let’s kill the charitable deduction,” but across-the-board limits would hit charitable deduction the hardest,’ Eugene Steuerle, co-director of the Tax Policy Center at the Urban Institute and Brookings Institution, told me this week. ‘And it’s a big mistake to think that only the wealthy would be affected.’ … Even proponents of a limit on deductions have suggested some modifications. Since the election, Professor Feldstein has renewed his proposal for a cap at 2 percent of adjusted gross income, but now excludes from the cap charitable donations, untaxed health care benefits and untaxed municipal bond interest.”

Posted December 18, 2012