Like much else about President Clinton’s economic plan, its impact on Jewish philanthropy is unclear.
Raising the top income tax bracket from 31 percent to an effective 39.6 percent may increase contributions to Jewish causes, since donors will get a larger deduction for their donation.
Conversely, it could hurt fund-raising efforts, since, deduction or not, America’s richest individuals — and biggest givers — will have less money in their pockets at the end of the year.
“The relationship between the top tax rate and charitable giving is unclear,” said Donald Kent, director of planned giving and foundation relations for the Council of Jewish Federations.
“As the rate has gone down over the last 20 years, charitable gifts from individuals have continued to go up.”
Besides, said Kent, “the charitable deduction is not the primary reason people give the gift they give.”
But Bob Smucker thinks the higher rates will mean higher giving Smucker is director of governmental relations for the Independent Sector, an organization of 850 voluntary associations, foundations and corporate giving offices.
“Research shows that as the marginal tax rate increases, people give more,” said Smucker, “especially very wealthy people.”
And while Clinton, in his Wednesday night address announcing the plan, minimized the number of Americans to be affected by the income tax increases, the same wealthy minority whose tax rates will go up constitutes the financial backbone of federation and other charitable campaigns.
According to the 1990 National Jewish Population Study, the median annual income of Jews was $39,000 — a figure that means half of American Jews will feel any bite from the Clinton plan at the gas pump, rather than on their tax returns.
But the 1.7 percent of Jewish households earning $200,000 or more, who will see their top tax rates rise to 36 or 39.6 percent, are the backbone of Jewish communal institutions.
They represented half of those responding to a 1991 survey of CJF board members and lay presidents of local federations. They constituted a third of a broader strata of local Jewish leadership surveyed by the American Jewish Committee.
And they are basically the 1.6 percent of all federation donors who in 1987 gave $10,000 or more, representing 57 percent of the campaign.
NOT ALL BAD NEWS FOR WEALTHY
The news for their taxes under the Clinton plan, however, is not all bad.
According to Kent and Smucker, Clinton’s proposal restores a tax break for donors that was eliminated in the 1986 tax reform under President Ronald Reagan, partially restored under President George Bush in 1990 and then allowed to expire last summer.
At issue was the tax deduction for appreciated property donated to charity, such as real estate or stock. Until 1986, the appreciated value could be deducted from income. But under the current rules, taxpayers subject to the Alternative Minimum Tax can only deduct the price they paid for the item they donate, not its present value.
“We know of several specific major gifts that have been delayed because of this issue,” said Kent. “We’re talking a significant difference in the amount they can leverage gifts.”
The deduction is “very important for the Jewish community,” said Smucker, “because the lead gift in almost any capital campaign would be a gift of stock.”
Kent cautioned donors — and not just the wealthy — that hand in hand with this provision will come a demand for better record keeping.
Under a compromise worked out between the non-profit community and the Treasury Department last year, and expected to be part of the current package, charitable deductions over a certain limit, perhaps as low as $100, can only be taken with a receipt. This is to curb the practice of donors improperly deducting benefits received in exchange for their donations, such as the meals served at benefit dinners.
The Treasury estimates that such deductions cost $1 billion or more in lost tax revenue annually. Under the compromise, benefits would be listed on the receipt as subtractions from the total donation.
One area where the Clinton plan holds bad news for philanthropies is the “3 percent floor.” This provision eliminates deductions, including charitable ones, equal to 3 percent of adjusted income above $100,000.
For someone with an adjusted income of $150,000, the result would be to disqualify $1,500 worth of deductions. For residents of New York and other high-tax states, that might not mean much. But in states with low taxes, “that has clearly and directly had an effect on charitable giving,” said Kent.
Smucker agreed, saying that the current floor, which is due to expire in 1995 but Clinton would make permanent, paves the way to eliminating the charitable deduction altogether.
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