Excise Tax
President’s Budget Calls for Sharp Reduction in the Charitable Deduction Again
In his Fiscal Year 2012 budget proposal, President Obama again included a cap on the charitable deduction for upper-income taxpayers. The provision proposes to “limit the rate at which high-income taxpayers can take itemized deductions to a maximum of 28 percent, affecting only married taxpayers filing a joint return with income over $250,000 (at 2009 levels) and single taxpayers with income over $200,000,” and it would take effect January 1, 2012. It’s worth noting that the charitable deduction was NOT singled out. Like last year, the cap is on ALL itemized deductions, including the charitable deduction.
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Update
As of June 30, 2011 - Senator Charles Schumer (D-NY) introduced legislation that would reduce and streamline the private foundation excise tax on investment income to a flat 1.39%. Last week, it was reported that Representative Erik Paulsen (R-MN) introduced companion legislation in the House. While neither bill is expected to be brought up while the debt limit and deficit reduction are dominating discussions on Capitol Hill, Rep. Paulsen’s bill indicates an understanding of the importance of the philanthropic sector and how the government can better stimulate grantmaking.
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Charitable tax deduction is back on the chopping block
The President released his FY 2011 Budget this morning. As part of this new budget, as we expected, President Obama again proposed to limit the itemized deduction, including the charitable deduction. The proposal would limit those who earn over $200,000 (singles) and $250,000 (couples) annually to a 28% itemized deduction cap (versus the 33% and 35% rates currently applied to these taxpayers). Unlike last year, however, the funds raised from this proposal would go toward reducing the deficit; last year, the revenue raised from the limitation was set aside for health care reform efforts.
ACR will be carefully monitoring these issues in the coming weeks. While the President’s Budget proposal does not carry the force of law, it does provide a blueprint for Congress to consider when they put together their own budget in the next few months.
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Ways & Means Committee introduces legislation to create a flat 1.32 % excise tax for private foundations
Late Tuesday night (November 17), members of the House introduced private foundation excise tax simplification legislation HR 4090 (see attached). This bill would remove the current two-tiered excise tax imposed on private foundations and replace it with a single rate of 1.32 percent that would apply to five taxable years beginning after December 31, 2009.
The difference between this bill and the Senate version introduced earlier this year (S. 676) by Senator Chuck Schumer (D-NY, Co-Chair of Senate Philanthropy Caucus) is that the 1.32 percent rate would be a temporary provision set to expire in 2015. Additionally, the House bill calls for a study by the Treasury Department by 2013 to examine the effect of the rate change on grant making by private foundations.
ACR believes this legislation is a positive step forward. However, debate lingers on whether both of these bills would be considered “revenue neutral” by the official congressional cost estimators, the Joint Committee on Taxation. If not, the flat rate could increase beyond 1.32 percent which is a point of concern for many foundations as this would actually represent an increase in the excise tax.
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Further Reading
