Deficit Commission Plan Would Revamp Tax Deductions for Charitable Gifts

The chairmen of President Obama’s special committee for reducing the federal government’s debt issued a proposal that would radically change the way the tax code treats charitable gifts.

Their proposal would essentially eliminate the charitable tax deduction and replace it with a 12% tax credit. However, only people who donated more than 2% of their adjusted gross income would be eligible for it and it would be “nonrefundable,” meaning only people who actually owed income tax could claim it.

This plan is part of a broader effort to simplify the tax code, reduce the deficit, and lower individual and corporate income tax rates. This plan would end all itemized deductions and create three new individual tax brackets, ranging from 12 to 28%.

By applying the same percentages across the board, this plan supposedly treats taxpayers more equally than the current system which favors the wealthy because they are more likely to itemize and earn a bigger tax break than people in lower tax brackets. However, imposing the 2% minimum would disqualify many smaller donors.

Although 11 of the 18 committee members voted to approve the plan, this fell short of the14 members endorsement required for the legislative package to go to Congress for a vote. This is because the majority of members on the committee are also members of Congress and the plan’s proposals affect politically sensitive issues like Social Security payments and the mortgage deduction.