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Originally published Wednesday, March 10, 2010 at 3:49 PM

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Rethink capping itemized charitable deductions

Capping itemized charitable deductions combined with the overall downturn in the economy could have serious consequences for support of education and a variety of worthy causes.

EDUCATIONAL institutions and a variety of charitable organizations are understandably anxious about a proposal by the Obama administration to reduce the charitable gift deduction.

The fear is that lowering the tax-deductible value of those donations in an already down economy will have a significant impact on charitable giving.

Donors are motivated by more than the IRS code in writing checks to support a broad range of philanthropy, but the deduction is certainly an incentive.

Depending on their tax bracket, donors currently receive 33 cents to 35 cents of tax benefit for every dollar given. The proposed rule would drop that to 28 cents.

The administration and Congress want to capture the increased revenue collected and use it to offset the cost of proposed health-insurance reforms.

Expert review of the cap on itemized deductions, such as the Center on Philanthropy at Indiana University, concluded the cap itself would have a modest impact, but the combined effect with other changes in marginal tax rates and a weak economy would be felt.

The center's estimate is a 4.8-percent reduction in charitable donations. That is 4.8 percent of a very large number, or a $3.87 billion reduction in itemized giving by affected households.

That sum equals the combined budgets of very large charitable agencies, amounts of money unlikely to be made up in supplemental government spending.

Proceed cautiously. Rough cuts in one area can create unintended consequences in the good work accomplished by others.

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