Tax Lawyer's Blog

The Washington Post in an article titled Obama Defends Push to Cut Tax Deductions for Charitable Gifts reports that,

President Obama defends his proposal to cut the tax deductions that wealthy Americans can claim for their charitable donations by arguing that the shift would not have an adverse effect on giving, but two independent analyses concluded that the proposal could result in a drop of as much as $3.87 billion for the already reeling nonprofit sector.

Even if the downward effect on charitable giving is relatively small, the reduction will be felt, says Diana Aviv, president of Indepedendent Sector, a national coalition of charities:

[A]ny decrease in charitable giving caused by Obama’s proposal, no matter how small, would be “seen as a stake in the heart.”

“With all other means of income down, the idea that there will be another potential cut to the income of those nonprofit organizations feels catastrophic. It is utterly unacceptable.

The proposal is garnering criticism from both Democrats and Republicans and the chances of its passage seem nil: 

In Congress, members of both parties have spoken out against Obama’s proposal since it was introduced last month. House  Majority Leader Steny H. Hoyer (D-Md.), in an interview on MSNBC, said: “That’s going to be controversial. And, obviously, charitable institutions will be — have great concern. Clearly, one of their greatest concerns will be very, very large-income donors who make very substantial contributions to very worthwhile enterprises.”

Amazingly, Obama said in his press conference Tuesday night that the charitable deduction isn’t the primary reason people donate to charities and that his proposal would not deter giving:

Now, if it’s really a charitable contribution, I’m assuming that that shouldn’t be a determining factor as to whether you’re giving that $100 to the homeless shelter down the street.

It is an ecomonic axiom that when you increase the cost of a specific act you reduce the incidence of that act.

That Mr. Obama doesn’t get this is stunning.

And he’s the guy we’ve entrusted to save our economy!

If the President doesn’t understand this rudimentary principle of economics (and human nature), can we really expect him to successfully address the infinitely more complex issues of derivatives and credit default swaps?

Well, I guess that’s what Timmy is for.

By the way, the economic principle with which Obama seems to be wholly unfamiliar is called “elasticity.”

Here is a good working definition:

The degree to which a demand or supply curve reacts to a change in price is the curve’s elasticity.

Elasticity varies among products because some products may be more essential to the consumer.

Products that are necessities are more insensitive to price changes because consumers would continue buying these products despite price increases. Conversely, a price increase of a good or service that is considered less of a necessity will deter more consumers because the opportunity cost of buying the product will become too high.

Charitable giving is highly elastic because it’s not a necessity.

Read Also:

The Price Elasticity of Charitable Giving (PDF)

Related Posts:

Obama and His Merry Men Favor Public Spending Over Private Charity

Obama Supports Reduction in Charitable Deduction Allowance . . . AGAIN

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