President Obama has waged a war on charity. Well, at least that is what some who oppose a controversial portion of his 2010 budget proposal would have us believe. According to the LA Times

Under the president’s plan, itemized tax deductions for charitable giving and mortgages would be capped for those earning more than $250,000 a year. Changes would be phased in gradually over the next few years. So in 2010, instead of getting a 33% or 35% deduction for charitable donations, Americans in the top income brackets, according to a Wall Street Journal analysis, would get somewhere in the neighborhood of 28%.

The president proposes using the generated tax revenue to extend health benefits to the uninsured. The question of what impact, if any, a change in the write-off rate for the wealthy will have on charity is an interesting one, and not necessarily straightforward. In particular, two questions come to mind.

  1. What percentage of total giving comes from households of greater than $250,000?
  2. What causes do households of greater than $250,000 give to?

I ask the first question because even if the wealthy did give less, that doesn’t necessarily mean it would have a disruptive effect on charitable giving. The second question goes to the heart of the moral high-ground opponents of Obama’s proposal have taken. Implicit in their argument is that charitable giving helps the poor and less fortunate. If Obama decreases charitable giving, he hurts the disadvantaged. However, this is not necessarily the case as only a fraction of charitable giving is about social services, health, and education for people in need.

A 2007 report by The Center on Philanthropy at Indiana University and Google looked at how much, and to what types of charities, Americans give to by income bracket. The report

finds that less than one-third of the money individuals gave to nonprofits in 2005 was focused on the needs of the economically disadvantaged. Of the $250 billion in donations, less than $78 billion explicitly targeted those in need.

Furthermore, programs targeted directly at people in the poorest neighborhoods tend to be funded by government, not charitable, dollars, as evidenced by

…a more recent study of youth-serving organizations [where], Galaskiewicz et al. found that organizations in low-income neighborhoods had a high percentage of government funding and almost no philanthropic support

In total, the report finds only 9% of giving going to “Basic Needs,” with households under $200,000 a year donating about 13% of their charitable contributions toward basic needs, versus just about 6% for wealthy households. Wealthy households tend to give more to arts and private education, with donors making under $200,000 per year giving to basic needs and religious causes. So even if the wealthy give less because of the lower write-off rate (not a forgone conclusion mind-you) it would likely have more of an impact on arts and private education than basic needs and the poor.

The only fundamental need disproportionately funded by the wealthy is health, who collectively give more than donors making under $200,000 a year. So at worst the only ‘harm’ Obama’s plan could inflict on the needy is a deduction in charitable giving to health related causes. But even if wealthy donors give less to health causes, Obama plans to use the money raised by the reduction in the write-off rate to fund an expansion of health insurance benefits to the uninsured, meaning spending on health either has no net change or increases.

The characterization of Obama’s plan as “uncharitable” is flatly wrong. Expanding health benefits is necessary for our country, and his team found a funding stream toward that end. Since the wealthy give generously to health charities, it is obviously an issue that means a lot to them. Their interests as philanthropists are better served by an administration that joins them in their efforts to provide health care to all Americans.