Impact of deficit reduction proposals

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A webinar presentation by Geoffrey Plague, Independent Sector, to the chief development officers from National Health Council member organizations. October 3, 2011

A webinar presentation by Geoffrey Plague, Independent Sector, to the chief development officers from National Health Council member organizations. October 3, 2011

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  • Deficit / Debt / Tax Reform Charitable deduction on the table in variety of contexts Deficit reduction Long-term debt Debt ceiling debate Tax reform
  • Deficit / Debt / Tax Reform Charitable deduction on the table in variety of contexts Deficit reduction Long-term debt Debt ceiling debate Tax reform
  • President’s Proposal to Cap Itemized Deductions President’s FY 2010, FY 2011, FY 2012 federal budgets proposed to limit itemized deductions for high-income taxpayers 28% cap on deductions for individuals earning over $200,000 per year; families earning over $250,000 Revenue-raiser for health care reform (FY 10), deficit reduction (FY 11), and a three-year AMT patch (FY 12). Remains a priority for the President in recent deficit/debt negotiations
  • Recent Developments: Debt-ceiling and Deficit reduction Congress must raise the statutory debt ceiling (currently $14.3 trillion) by August 2 to avoid defaulting on the nation’s financial obligations. Debt-ceiling debate has re-ignited deficit reduction conversations. Republicans want spending decreases equal to any increase in the debt limit and no tax increases. White House and Congressional Democrats favor a debt limit increase paired with deficit reduction that mixes spending cuts with revenue increases President Obama has repeatedly called out capping itemized deductions for high-income taxpayers.
  • Recent Developments: Debt-ceiling and Deficit reduction Congress must raise the statutory debt ceiling (currently $14.3 trillion) by August 2 to avoid defaulting on the nation’s financial obligations. Debt-ceiling debate has re-ignited deficit reduction conversations. Republicans want spending decreases equal to any increase in the debt limit and no tax increases. White House and Congressional Democrats favor a debt limit increase paired with deficit reduction that mixes spending cuts with revenue increases President Obama has repeatedly called out capping itemized deductions for high-income taxpayers.
  • Recent Developments: Debt-ceiling and Deficit reduction Congress must raise the statutory debt ceiling (currently $14.3 trillion) by August 2 to avoid defaulting on the nation’s financial obligations. Debt-ceiling debate has re-ignited deficit reduction conversations. Republicans want spending decreases equal to any increase in the debt limit and no tax increases. White House and Congressional Democrats favor a debt limit increase paired with deficit reduction that mixes spending cuts with revenue increases President Obama has repeatedly called out capping itemized deductions for high-income taxpayers.
  • Recent Developments: Debt-ceiling and Deficit reduction Congress must raise the statutory debt ceiling (currently $14.3 trillion) by August 2 to avoid defaulting on the nation’s financial obligations. Debt-ceiling debate has re-ignited deficit reduction conversations. Republicans want spending decreases equal to any increase in the debt limit and no tax increases. White House and Congressional Democrats favor a debt limit increase paired with deficit reduction that mixes spending cuts with revenue increases President Obama has repeatedly called out capping itemized deductions for high-income taxpayers.
  • Recent Developments: Debt-ceiling and Deficit reduction Congress must raise the statutory debt ceiling (currently $14.3 trillion) by August 2 to avoid defaulting on the nation’s financial obligations. Debt-ceiling debate has re-ignited deficit reduction conversations. Republicans want spending decreases equal to any increase in the debt limit and no tax increases. White House and Congressional Democrats favor a debt limit increase paired with deficit reduction that mixes spending cuts with revenue increases President Obama has repeatedly called out capping itemized deductions for high-income taxpayers.
  • Deficit / Debt / Tax Reform Charitable deduction on the table in variety of contexts Deficit reduction Long-term debt Debt ceiling debate Tax reform
  • Deficit / Debt / Tax Reform Charitable deduction on the table in variety of contexts Deficit reduction Long-term debt Debt ceiling debate Tax reform

Transcript

  • 1.
    • Impact of Deficit Reduction Proposals on Income Development
    • Geoffrey Plague
    • Director of Government Relations
  • 2.
    • Charitable giving incentives are now under review by policymakers in a number of contexts
      • President’s jobs proposal (American Jobs Act)
      • Joint Select Committee on Deficit Reduction
      • Expiring tax provisions (“Tax Extenders”)
      • Broader tax reform efforts
  • 3.
    • A common theme in these discussions will be deficit reduction
    • Fiscal Year 2010 deficit was $1.294 trillion.
    • The federal debt is nearly $14.7 trillion.
    • By 2025, federal revenue will cover only Social Security, Medicare, Medicaid and interest on the debt.
    • By 2055, revenue won’t even cover interest costs.
  • 4. Impact of continued deficit spending
  • 5. A Potential Source of Revenue Top 10 Individual Tax Expenditures
  • 6.
    • Proposals to Change the Charitable Deduction
      • Obama Administration
        • 28% cap on deductions for individuals earning over $200,000 per year; families earning over $250,000
        • Estimated to reduce charitable giving by as much as $7 billion per year
      • Bowles-Simpson (National Deficit Reduction Commission)
        • Replace with a 12% tax credit for taxpayers who donate at least 2% of AGI to charity
      • Rivlin – Domenici Debt Reduction Task Force
        • 15% tax credit to nonprofit organizations
      • Demos, Economic Policy Institute, and Century Foundation
        • Replace with 25% tax credit for all taxpayers
  • 7. President’s Jobs Proposal Title IV, Subtitle A – Limitation on Certain Deductions and Exclusions Limit the tax value of otherwise allowable deductions and exclusions – including the deduction for charitable contributions – for individual taxpayers with adjusted gross income over $200,000 ($125,000 for married filing separately, $225,000 for head of household and $250,000 for married couples filing jointly) to 28 percent. Estimated Revenue: $410 billion over 10 years
  • 8.
    • Joint Select Committee on Deficit Reduction
    • Bipartisan, bicameral 12 member committee created in August as part of the agreement to increase the statutory debt limit.
    • Committee is charged with recommending to Congress a minimum of $1.2 trillion deficit reduction by November 23.
    • Discretionary spending cuts, changes to entitlement programs and revenue measures are all fair game for consideration.
    • If committee recommendations are not enacted by January 12, 2012, $1.2 trillion in automatic federal spending cuts over 10 years will be enforced beginning January 2, 2013. The cuts would:
      • Be split evenly between defense and non-defense spending.
      • Exempt most programs intended to serve low-income Americans and seniors, including Social Security.
      • Reduce payments to Medicare providers by up to 2%.
    • The President’s recommendations to the Committee include his proposed 28% cap on individual tax deductions.
  • 9. Expiring Tax Provisions
    • “ Tax Extenders” bill (expires December 31, 2011)
    • Tax-free distributions from IRAs for charitable purposes
    • Contributions of real property for conservation purposes
    • Enhanced deduction for contributions of food inventory
    • Enhanced deduction for contributions of book inventories to public schools
    • Enhanced deduction for contributions of computer inventory for educational purposes
    • Estate Tax (expires December 21, 2012)
    • With no Congressional action, current parameters ($5 million exemption, 35% rate) will revert to 2001 levels (55% rate, $1 million exemption).
  • 10.
    • Tax Reform
    • Principles:
    • - Corporate and Individual tax reform
      • Lower marginal rates and broaden the base
      • Increase equity in the tax system
      • Eliminate many tax expenditures
      • Increase revenue
      • Simplify the code
    • The House Ways and Means and Senate Finance Committees have already held more than a dozen hearings on tax reform.
    • Senate Finance Committee may hold a hearing later this month on the charitable deduction.
    • Enactment of comprehensive tax reform not expected until 2013 at the earliest.
  • 11. Tax Reform “ Look, for example, at the charitable deduction. Only families who itemize their tax returns are able to take advantage of this deduction, and only one-third of taxpayers itemize their returns. That leaves two-thirds of all Americans unable to receive a tax benefit for charitable deductions. Among those who do receive the deduction there is also a disparity. A taxpayer with a 35 percent tax rate saves 35 cents in taxes for every dollar given to charity, while a taxpayer with a 10 percent tax rate only saves 10 cents for every dollar they give. Take, for example, two taxpayers making $1,000 donations for the Alabama tornado relief efforts. This donation would cost a taxpayer with $35,000 in income $1,000 after taxes because they almost certainly would not itemize. But this same donation would cost a taxpayer with $435,000 in income much less; $650 after the benefit.” - Finance Committee Chairman Max Baucus (D-MT); May 3, 2011
  • 12.  
  • 13. Charitable Deduction Talking Points
    • The Charitable Deduction Is…
      • Fair
      • Cost-Effective
      • A Powerful Incentive to Give
      • Supported by a Majority of Americans
  • 14.
    • The Charitable Deduction Is Fair
    • Unlike other tax incentives, the charitable deduction encourages behavior for which taxpayers receive no personal tangible benefit
    • This deduction is a means of enriching communities, rather than individual taxpayers
    • Limiting the deduction would not make the tax code more equitable
  • 15.
    • The Charitable Deduction Is
    • Cost-Effective
    • When an individual in the highest tax bracket donates $1,000 to charity, the government foregoes $350 in tax revenue, but communities benefit from the entire $1,000 gift
    • The government is unlikely to find another vehicle that can leverage private spending for community services on a nearly 3-to-1 ratio
  • 16.
    • Itemizing households accounted for 70% of the $229 billion in charitable donations in 2008; the 2% of taxpayers in the top bracket were responsible for 33% of all charitable giving that year.
    • The power of the incentive can be seen in the timing of charitable giving, with more than 20% of annual online charitable donations made on December 30 and 31.
    • It has been estimated that, with no deduction for charitable gifts, annual giving would drop by 25 to 36 percent, and the proposed cap could cost charities as much as $7 billion a year in contributions.
    The Charitable Deduction Is a Powerful Incentive to Give While Americans give to charitable organizations for many reasons, studies have shown that tax policy greatly shapes the size and number of charitable donations made by taxpayers.
  • 17.
    • The Charitable Deduction Is Supported by a Majority of Americans
    • An April 2011 Gallup poll found that 7 in 10 Americans oppose eliminating the charitable deduction, regardless of whether the savings would be used to lower their taxes or reduce the deficit.
    • Even among those Americans who do not claim the deduction, 62 percent are opposed to its elimination.
  • 18.
    • Q & A with
    • Geoffrey Plague
    • Director of Government Relations
  • 19.
    • Impact of Deficit Reduction Proposals on Income Development
    • Geoffrey Plague
    • Director of Government Relations