The charitable deduction, which dates to 1917, would cost the government about $250 billion over the next five years, and proposals for reform vary. President Barack Obama has suggested limiting all deductions to a rate of 28 percent, which the Tax Policy Center has estimated would reduce overall giving about 2 percent, or $9 billion.
Others want a hard cap on all deductions — say $25,000 or $50,000, but possibly excluding charitable contributions. The Bowles-Simpson deficit commission has proposed almost the opposite approach: a floor, where the tax benefits kick in only after a certain amount of giving. That could do less to discourage philanthropy from the well-off.
In the Indiana survey of wealthy families, half said they would maintain their giving even if the deduction disappeared, while about 40 percent said it would decline and 10 percent said it would decline substantially. Economic models, meanwhile, have made varying predictions for how the different proposals might affect giving.
Duke University economist Charles Clotfelter is among those whose research leads him to conclude curtailing the deduction would have a substantial effect, and says colleges are right to be worried. Tax breaks aren’t the main reason people donate, but he said seemingly small changes on the margins could have a big effect.
‘‘The people that are giving the big gifts to universities are very sophisticated,’’ he said. ‘‘They’re having talks with their accountants and tax lawyers. They know what the effect is going to be.’’
Others, however, prefer to emphasize evidence that tax breaks are well down the list of philanthropic motives. One study found people already donate about twice as much as they can deduct (many wealthy families already hit deduction caps through the Alternative Minimum Tax). There are also countless billions given in charity — remittances abroad, gifts in kind, cash contributions — that aren’t even eligible for deduction. That suggests taxes are a relatively small part of the equation.
There’s also history. Tax law changes, like the 1986 reforms, clearly affected giving temporarily. But the generally upward trend has usually returned. Paul Schervish, director of the Center on Wealth and Philanthropy Boston College, notes top marginal tax rates have mostly fallen over recent decades, from 90 percent to the current 35 percent. That would seem to predict decreased giving, as the wealthy were allowed to keep more of their money without having to choose between Uncle Sam and alma mater. But philanthropy has grown, and when it was interrupted, the cause was the recession, not tax incentives.
‘‘The best thing for charity is economic growth,’’ Schervish said.
‘‘There will be giving without this deduction,’’ he added. ‘‘It will be less. But when there’s a sufficient need communicated, people will give.’’
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