After he unveiled his latest proposal to spur economic growth, President Obama told us how he proposed to pay for it— by increasing tax revenue . At first glance, this makes no sense, unless all you want to do is pull money out of the economy in one sector and put it into the economy in another. That’s not “stimulus,” that’s just “redistribution” or picking “winners.”
But of course it’s not that simple. The President wants to pump the money into the economy now and take it out in taxes over ten years. Beginning in 2013, conveniently after November, 2012.
So he wants to have it both ways: he wants to engage in Keynesian pump-priming and redirect money from the places where we want to spend it to the places where he wants to spend it.
Now, the largest portion of the new tax revenue —about $400 billion over ten years—is supposed to come from limiting the deductions for charitable contributions—and other things—for individuals with over $200,000 in taxable income and couples with over $250,000. They would be able to deduct only 28%, rather than 35%, of their charitable contributions.
The numbers are simple enough to understand. In 2010, individuals gave almost $212 billion to charity. Reducing the deductibility from 35%^ to 28% nets the government almost $16 billion in new revenues each year.
Now, I don’t think that the result will be $16 billion per year less to charities. If you feel called to tithe, for example, you’re likely going to tithe, regardless of the deductibility of the contribution. But if you feel like you have roughly 20% less to give, something’s got to give, or rather not get. When in 2009 the Obama Administration floated a similar proposal as a way of paying for its healthcare reform, scholars estimated that the proposal could cost philanthropies several billion dollars.
So, in the unlikely event that President Obama’s funding proposals passed, government would grow larger and the nongovernmental organizations that provided for the needs of our communities would grow smaller. I guess I should be glad that this funding proposal is probably only a cynical electioneering ploy .
But then there’s the consistency with which the President proposes the same thing over and over again. Government needs more money, and one of the places to get it is to reduce the incentives individuals have to give to charities, thereby reducing the funds available to charities, thereby increasing our dependence on government largesse.
UPDATE: You can download and read the 2009 study of the earlier version of President Obama’s proposal here. And thanks to David Nickol for straightening out my math, which I have corrected from an earlier version of this post.