The War on Philanthropy

by Benjamin Domenech on 9:47 am February 27, 2009

It is therefore our business carefully to cultivate in our minds, to rear to the most perfect vigour and maturity, every sort of generous and honest feeling that belongs in our nature. To bring the dispositions that are lovely in private life into the service and conduct of the commonwealth; so to be patriots, as not to forget we are gentlemen. -Edmund Burke

The policy steps President Barack Obama has taken thus far are, for the most part, the predictable decisions of a center-left administration. A few of his cabinet choices have offered surprises — as much for the White House staff, it appears, as for the populace – and a few of his positions on national security have ruffled the feathers of those who expected the lost presidency of George McGovern. But other than that, his first month in office has much in common with Clinton: high partisanship, high expectations, a rocky start but some success. The government spending has been greater in volume, and continues to rise at a startling rate, and Obama’s health care policy (which many observers even in his own party still can’t quite grasp) is an open question — but this is not a president who seems eager to seek out extremes. Instead, he wants to demonstrate that his government is in touch, open, and transparent before the American people.

What’s more, if there has been one consistent theme of Barack Obama’s young presidency, it is an unending call to give — and not just to his campaign coffers. It’s a call he reiterated in his non-State of the Union address, to engage in acts of self-sacrifice small and large. His entire message on class and the country is predicated on it. To be sure, his economic policies demand wealthier Americans be more generous to others through the redistributing mechanism of government, but it’s not just that — there’s a genuine call to service that ran through his campaign’s rhetoric that has continued in a slick new Ad Council campaign.

While President Bush talked a good game on volunteerism in his early days as part of his compassionate conservatism message, his call to service was hardly unique or uniquely successful — whereas if Obama can persuade even a portion of his most enthusiastic young supporters to take up the cause of volunteerism, he could make a massive and lasting impact.

So the question is: why, in a time of such economic need, in a time that calls for generosity and charity, has Barack Obama decided to use his budget to actively declare war on philanthropy?

I asked the president of a prominent international non-profit to comment on Obama’s new policies, and he was convinced there was no question as to the White House’s motivation. “This is a frontal assault on the non-profit sector aimed at undermining alternatives to government provision of social services. Nobody likes competition, and that goes for those who think government is the answer to all our problems.”

The Wall Street Journal describes it in fairly simple terms:

The tax increase is a new proposal from Mr. Obama, and would limit deductions for filers in the 33% and 35% tax brackets.

Under current law, taxpayers who itemize calculate their deductions based on their income tax bracket. A taxpayer who pays a 35% rate on his income may deduct 35% of various expenses — such as mortgage interest or charitable contributions — from his taxable income.

Under the Obama proposal, these deductions would be limited to a maximum of 28%, even for taxpayers paying higher tax rates.

Essentially, Obama removes any tax incentive for individuals to give at the levels they have in recent years, an effective declaration of war on every major nonprofit in the country that survives primarily on individual giving — particularly thinktanks and private academic institutions. Foundation giving is already ravaged thanks to the poor economy (and if history is a guide, it’ll get worse before it gets better) — Jewish philanthropy in particular is hurting thanks to Bernie Madoff — now this new policy would wreck the tax incentive for charitable giving as well.

The good people at the Chronicle of Philanthropy were stunned by the news:

“It seems like unusual public policy to try, as the President announced to the Congress this week, to return the United States to world leadership in access to higher education and then make it more difficult for extraordinary donors to contribute great gifts to colleges and universities,” Mr. Flessner said. “Likewise, it seems like unusual public policy to penalize the great medical centers that contribute so much to scientific breakthroughs by making it more difficult for donors to make the six-, seven-, eight-, and nine-figure gifts.”

The ridiculous nature of this policy is that it would strike a blow against those who were generous — those who give nothing to charity will experience no tax increase whatsoever. And while it’s true that many people support philanthropic causes without considering the net cost after the charitable deduction, giving people a reason not to give in a time of crisis is almost always a bad idea.

We all knew that Obama’s enormous spending intentions would need an offset in the form of a tax hike — and most of us assumed the majority of that cost would come in the form of a tax hike on the rich. But why in the world would you place a tax hike on the money the rich were planning to give away? It’s a decision that at the very least, President Obama must explain.

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