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Note to reader: Preston Neal is a principal consultant for the Herring Consulting Network. He is guest-authoring this week’s blog post.
The amount of the charitable deduction allowance in the Federal tax code for high-income taxpayers has been the subject of much debate in recent months. At the crux of the debate is a conflict of two competing Jewish values: empowerment of the individual and encouraging tzedakah (righteous giving).
For those who are unfamiliar with the issue, when President Obama introduced his American Jobs Act in September, he proposed paying for the measure, in part, with a 28% cap on itemized deductions, including the charitable deduction, for taxpayers earning over $200,000. The lower cap on the charitable deduction has already met stiff opposition in congress, but the so-called “Super Committee” of 12 congressmen tasked with reducing the budget deficit may yet decide to include the cap in its recommendations to Congress and the President scheduled for the end of this month.
Even if the cap were to pass Congress and be signed into law (which looks unlikely), does that necessarily mean that there would be a negative impact on giving? Not necessarily. According to a survey of 502 American donors by Fidelity Charitable, “Two-thirds of donors (64 percent)…agree that charitable tax deductions have no impact on their giving.”
Yet philanthropic organizations, including Jewish ones, are staunchly opposed to the capping of the charitable deduction tax at 28% for the fear that it will negatively impact their missions.
Thus, we have a competition of different Jewish values in this debate. On the one hand, the mitzvah (commandment) of tzedakah is of great importance in our tradition. On the other hand, the commandment of tzedakah comes from the Torah, which does not say anything about needing tax incentives from the IRS. Furthermore, the president proposed this cap on the charitable deduction to help pay for his jobs plan, which also includes tax incentives for non-profits who hire long-term unemployed individuals and veterans. Surely, job creation and the empowering of the individual is a value upheld in our tradition as well.
What do you think about the proposed cap on the charitable deduction? Should Jewish organizations support the cap for its potential to help create jobs or oppose it for its potential to negatively impact tzedakah in our philanthropic institutions? Please share your thoughts in the comments.