The American Enterprise Institute argues the Obama Administration’s proposed limits on the benefit for high-income households from itemized deductions such as charitable donations, mortgage interest, and state and local taxes will reduce charitable donations,  make housing more expensive and make state and local taxes more burdensome.

Beginning in 2011, high income taxpayers could get at most a $28 federal tax benefit for a $100 charitable contribution rather than the $39.60 deduction that would apply under current law.

“However, capping the deduction makes state and local taxes more burdensome, increases the cost of housing, and reduces the incentive to donate to charities. These impacts affect high-income taxpayers everywhere, but the impact is likely the greatest in Democratic-leaning states since these tend to have the highest state tax rates, the most expensive houses, and the greatest concentrations of upper-income households that make large donations to charity.

According to projections from the nonpartisan Tax Policy Center, $50 billion in charitable donations will be made by taxpayers that would be affected by the Obama proposal if it was enacted. Recent economic research finds that among higher-income taxpayers, a 1 percent increase in the after-tax cost of a charitable donation reduces contributions by about 1 percent. This means that the Obama proposal would reduce charitable donations by roughly $10 billion in 2011 and by $125 billion over ten years.  To put that in context, $10 billion is the combined annual private support to The United Way, Salvation Army, American Cancer Society, Food for the Poor, YMCA of the USA, and Feed the Children.”

We agree with the assertion that the effects of these limits to deductions will be felt more in democratic (liberal leaning) states for the reasons stated in the article.  However, it should be noted that conservatives give much more to charity than liberals.    Thus, the tax increase will hurt conservative causes and conservative givers more. In fact, one might almost believe that was the intended result…

President Obama obviously won’t change his giving as a result of his new tax since, looking at his tax returns,  it won’t affect him…