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Article posted on wsj.com Wealth Report, by Robert Frank 13 September 2011
The aim of philanthropy — as stated by John D. Rockefeller — is for the wealthy to step in and provide services that government won’t. The two were supposed to act in concert, not in competition.
The Obama jobs bill, however, creates a new battle between the charity world and government.
The main source of funding for his $447 billion jobs bill is a limit on the deductions for those individuals making $200,000 a year or more (apparently, $200,000 is the new $250,000 when it comes to defining “wealthy.”).
Specifically, the proposal would limit the value of itemized deductions to 28 cents for each dollar of income deducted. Currently, the value of deductions for high-income earners is 35 cents on the dollar if they’re in the top 35% tax bracket.
The argument for the limit is that the top earners are getting a bigger tax break for deductions than those in lower brackets. Why should someone earning $1 million a year, in other words, deduct 35 cents for every dollar of giving while someone making $40,000 a year could only deduct 25 cents.
Yet the limits would likely reduce charitable giving because deductions are a big reason the rich give (despite the fact that the wealthy say they give out of kindness not tax breaks). And if they can deduct less, they’ll give less.
“Limiting the itemized deduction would certainly lead to a significant decrease in charitable contributions. If charities have less resources, they’ll be forced to choose between laying off employees or cutting needed services,” William C. Daroff, vice president for Public Policy at the Jewish Federations of North America told the Chronicle of Philanthropy.
Cutting philanthropy to fund the jobs program may, in fact, reduce overall jobs and services for the needy, some say.
The program is “exactly the wrong direction to go in,” Sandra Swirski, executive director of the Alliance for Charitable Reform told the Chronicle.
Charities, of course, may be just as inefficient as government when it comes to creating jobs. And they will cry foul for anything that threatens their own budgets.
What’s more, this idea was floated in 2009 and quickly rejected — in part because of fierce lobbying from non-profits.
Yet funding a jobs program by reducing charitable gifts does seem to be a strange way to improve the economy.
Who do you think is better at creating jobs: charities or government?
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