"Obama's budget proposal came as a slap in the face to many nonprofits, which had thought they had a friend in him because of his early work as a community organizer."
This is in the course of a completely gullible story in The New York Times by Stephanie Strom, about nonprofits complaining mostly about the proposal to cap charitable deductions. David Brooks fell for this one too, in his recent "moderate manifesto": "The U.S. has always had vibrant neighborhood associations. But in its very first budget, the Obama administration raises the cost of charitable giving. It punishes civic activism."
As the Center on Budget and Policy Priorities notes, this cap would apply only to the wealthiest donors; taxpayers who don't itemize (who make up the bulk of contributors to "vibrant neighborhood associations") and don't get any deduction now; and the whole thing is estimated to reduce charitable giving by 1.3%. In return, it would fund universal health coverage, which would dramatically reduce the burden on many charities. Strom does not mention any of these facts.
Strom quotes OMB Director Peter Orszag arguing that the cap on deductions is fair because a $1,000 donation is worth only $150 to a teacher but $350 to Bill Gates or Warren Buffett. But then Strom snidely dismisses Orszag by noting that Buffett has said that his average tax rate is only 17%.
This is wrong for several reasons: First, the relevant tax rate for valuing the deduction is Buffett's marginal rate (the rate he pays on his last dollar), not his average rate. Second, the administration's budget proposes to cut the very tax breaks -- preferential rates for capital gains and dividends -- that allow Buffett to pay so little tax. Third -- as Orszag should have said -- if the teacher paying at a 15% tax rate takes the standard deduction rather than itemizing, which is likely, the charitable deduction is of no value at all to her. (Update: I was curious about this, so I looked at the IRS statistics: For taxpayers with income $50,000 or below, only 17% itemize deductions. Between $40,000 and $50,000, just under 40% itemize.)
Nonprofits (of which The American Prospect is one) will certainly play a central role in the next economic era, and it is thrilling that the president, Michelle Obama, and many members of the administration have a stronger sense of their role, diversity, and importance than we have ever seen in the White House. But if nonprofits behave like another special interest, concerned mainly with protecting a corner of their own tax break, they can hardly expect to be treated as partners in the public interest.
-- Mark Schmitt
