The “rich” are going to be taxed at higher rates, either directly through higher marginal rates as Obama insists, or through closing “loopholes” and/or limiting deductions. Or both.
Of course, many of these people do not consider themselves rich. The professional couple or small business owner making $300-$500,000 in a large urban area, who receives no financial aid for their children’s college tuitions, who already has lost most credits and deductions, and who subsidizes others in a myriad of ways, don’t think they are taking advantage of anyone. Yet they are the target of Democrats.
I have speculated that restrictions on charitable deductions for the “rich” may hurt left-leaning political-oriented organizations the worst, which may not be such a bad thing.
Regardless, the charitable industry is fully aware of the implications even of limiting deductions, and it is instructive to see the damaging math which is relevant not just to charities, Do the Math: Abolishing the Charitable Deduction Will Cost Charities Billions (h/t PolitiJim)(emphasis mine):
To understand why the affluent think this way [cutting back on donatios], consider what it costs a donor to make a $10,000 gift today. If she is in the 35-percent tax bracket, her after-tax out-of-pocket cost is $6,500.If Congress abolishes the charitable deduction, the new cost is not just the $10,000 the donor gives but also the approximately $5,400 in increased taxes on the $15,400 she will have to shoulder to earn enough to make the $10,000 gift.And if federal tax rates go up at the same time, that means an even higher after-tax cost of everything, not just charitable gifts. Even the wealthiest Americans have limits on how much they feel they can afford to give, and a sharp rise in the cost of charitable donations and the burden of new tax increases could reasonably cause many to give less.If every donor of $10,000 feels the after-tax cost of giving go up (by as much as 50 percent for high-income donors), then many Americans, no matter how well intentioned, are no doubt going to give less.Another way to think about this is that the federal government would essentially be asking charities to forgo a portion of the gifts they receive from individuals to help close the federal budget gap.
Attacking the “rich” through higher taxation, which is the heart and soul of Obama’s politics, attacks the charitable base the hardest, as the article notes:
To minimize the impact of any limits on deductions, the White House has repeatedly suggested limiting the charitable deduction for people who make more than $200,000 a year.Unfortunately, that would hit hardest the very people who give the most.In 2010, the most recent year for which data are available from the IRS, people with incomes over $200,000 made 41 percent of all gifts people deducted on their itemized returns.Newly released IRS data show that it is those people who decreased their giving the most during the worst of the recession.
Demonizing and isolating the “rich” has trickle down pain. But it will be emotionally satisfying to the Democratic base.
Update: I think I failed to fully appreciate why charities’ pain is Obama’s gain. As a reader just e-mailed:
I think that what you are missing (or maybe not, you might have posted on the subject and I missed it) is that a cutback on charitable giving will be considered a feature not a bug by the big government types.Who will those in need turn to if the private sector doesn’t come through?Big government
And SoccerDad added on Twitter:
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