Officials: Proposed tax hike could hurt donations

Generous donations from high income earners might be decreasing in the near future if federal tax amendments are put into effect, according to the Center on Philanthropy at IU.

President Barack Obama has proposed an increase in tax rates for the highest income households and a decrease in charitable deduction rates to help pay for the U.S. health care system, according to a Center on Philanthropy press release.

For those earning more than $250,000 a year, the tax rate might increase from 33 and 35 percent to 36 and 39.6 percent, respectively. The rate for itemized tax deductions might decrease to 28 percent, meaning donors would only save 28 cents instead of the current 33 or 35 cents, according to an article in The Chronicle of Philanthropy.
The change is planned to take effect in 2011.

Eugene Tempel, president and CEO of the IU Foundation, said the proposed tax code change would leave people with less money and would have a negative impact on giving.

“The key thing is that it’s not the right time to create a disincentive on giving,” Tempel said.

Patrick Rooney, the interim executive director at the Center on Philanthropy, said the White House Office of Management and Budget believes the code will not have a negative effect because by then, the country will be out of the recession.

“But there’s a great deal of concern that we’ll still be in a recession,” Rooney said.
Even though taxes are not the main reason people give, he said, people still respond to changes in tax rates.

“Colleges and universities are even more affected because a vast majority of high net worth giving goes to education,” Rooney said. “It will have a deleterious impact on philanthropy.”

He said when $1 million worth of charitable gifts were tracked, about 45 percent of the money went toward higher education. So if the tax code went into effect, it could translate into less money for educational institutions such as IU.

A detrimental effect

Lawyer, entrepreneur and IU alumnus Michael Maurer said he wanted to give back to the most important place he could.

Along with his wife Janie, Maurer contributed $35 million in 2008 to the newly eponymous School of Law in Bloomington, according to the IU Foundation Web site.

“I hope that the money will be efficiently used to provide scholarships to students in order that the (law) school will attract the very best students from around the country and Indiana,” Michael Maurer said.

Incentives that promote giving are needed now, Rooney said in a press release, so that donors who are able to give – high income earners such as the Maurers and the late Coxes – have more reasons to do so.

Research conducted at IU-Purdue University Indianapolis used elements of the proposed tax change to illustrate the projected outcomes by using data from 2006, the latest year from which itemized giving numbers are available.

The research, released by the Center on Philanthropy, concluded a total reduction of $3.87 billion in giving – $1.63 billion less when implementing the decrease to 28 percent and $2.24 billion less when implementing the tax increase to 39.6 percent.

The donors and receivers are losing on both sides of the equation, Rooney said, but the tax rate will not affect how people donate.

“For some households, they’re going to give regardless of tax benefits,” he said.

“They begin to adjust giving and getting used to new rate,” Tempel said, “and eventually, people work around these changes.”

Although Michael Maurer said he believes the change might result in an unfavorable effect, it will not hurt charitable organizations dramatically. He said he plans to give again in the future because it is the vision he shares with the law school, not tax deductions, that motivates him.

“The most important factor,” Rooney said, “is to get the economy working again.”