On November 29, Treasury Secretary Timothy Geithner met with Congressional leaders of both parties. He submitted a proposal that summarized most of the familiar White House tax recommendations. The two top rates increase to 36% and 39.6%, capital gains tax increases to 20%, the estate tax exemption is reduced to $3.5 million with a tax rate of 45% and itemized deduction tax savings are effectively limited to a 28% bracket for upper-income taxpayers.

Geithner also suggested that the White House would prefer to extend the 2% payroll tax cut and add $50 billion in new stimulus funds. The total proposed tax increases are $1.6 trillion.

Republican leaders were not pleased with the presentation. Speaker of the House John Boehner (R-OH) stated, "I'm disappointed in where we are. Going over the fiscal cliff is serious business and I am here seriously trying to resolve it. And I would hope the White House would get serious, as well." Boehner expressed a hope that the White House would add detail on potential spending cuts and entitlement reforms to the $1.6 trillion in proposed tax increases.

House Ways and Means Committee Chair Dave Camp (R-MI) echoed the concerns of Boehner. He stated, "The President has called for a balanced approach, and the President needs to come forward with what that is." Camp was referring to the reluctance of Secretary Geithner to discuss specific spending cuts or entitlement reforms.

At a press conference of Democratic leaders, Sen. Charles Schumer (D-NY) responded, "We don't expect the Republicans to be enthusiastic and start cheerleading about a deal that includes higher rates on the wealthiest Americans. They're not going to openly concede on this point this far out from the deadline, but they see the handwriting on the wall."

Editor's Note: Secretary Geithner is officially stating the initial bargaining position of the White House. The proposed $1.6 trillion in new taxes includes nearly every increase that has been discussed in the past year. The Republican position has changed in that most Senate and House leaders are acknowledging the need for greater revenue for the federal government. Several Republican leaders are now suggesting that a cap on deductions would be preferable to higher rates. While President Obama and Speaker Boehner are still far apart, there is some hope for a grand bargain. The tax increases on upper-income individuals would be combined with new limits on the growth of federal spending. Both parties are still hopeful for a deal by Christmas, but the clock is moving more rapidly than the negotiations are proceeding.

Protect Giving-D.C. Days

On December 4 and 5, nonprofit leaders from throughout the nation will converge on Washington. The Charitable Giving Coalition has encouraged all friends of philanthropy to meet with Senators and Representatives during these two days.

In a press release, the Coalition stated, "As Congress takes up tax reform and deficit reduction in the upcoming lame duck session, the Coalition, a group of more than 50 charitable organizations, nonprofits and associations, is strongly opposed to any limits or caps on tax incentives that encourage charitable giving."

The Coalition is particularly concerned with the White House proposal to limit the benefit of charitable gifts and other itemized deductions to 28%, even though the top tax rate is now 35%. Similarly, there is concern that a cap on itemized deductions, such as the $50,000 cap that has been proposed by several Republican members of Congress, would significantly impact major gifts.

Independent Sector (IS) published a letter signed by many charities. It expressed those concerns to Members of Congress. The letter states, "We are deeply troubled by reports that an aggregate cap, whether a dollar-limit or percentage, on the value of the charitable deduction is under consideration as a potential short-term revenue solution during the lame duck session." Research by Independent Sector indicated that a cap on the charitable deduction could reduce giving by $7 billion per year.

Independent Sector offers three primary justifications for the charitable deduction.

1. Fairness

The fairness claim emphasizes that charitable deductions are available to everyone. IS notes, "The current tax code treats every taxpayer who claims the deduction equitably; regardless of the rate at which their income is taxed, individuals are not required to pay taxes on the portion of their earnings donated to charity." This deduction is fair because the funds given to charity should not require additional tax to be paid by the donor.

2. Effectiveness

Charitable organizations assist "families in need, alleviate poverty and suffering at home and abroad, assist victims of disaster, enhance the cultural and spiritual development of individuals and communities, and foster worldwide appreciation for the democratic values of justice and individual liberty that are part of the American character." The IS research suggests that a $1 tax benefit produces approximately $3 in effective public assistance through charitable organizations. The volunteer support and effectiveness of the charitable organizations is greater than that of other methods of providing similar service.

3. Altruistic

Finally, the government should encourage Americans to continue in a very traditional role of generosity and helpfulness to others. IS notes, "Charitable giving is not a path to amassing greater personal wealth or accumulating tangible personal assets." Rather, charitable giving is an effective way for donors to assist all Americans who are in need. This principle should be encouraged by the government through its tax policy.

Editor's Note: Protect Giving-D.C. Days is a very important event. There is growing Congressional support for a cap on itemized deductions. One possible compromise is a combination of slightly higher rates on the top two brackets and a $50,000 deduction cap with charitable giving excluded. Charitable deductions are already capped at 50% of adjusted gross income (AGI) for gifts of cash and 30% for gifts of stock. This effort to meet with key Senators and Representatives is very helpful for potentially preserving the charitable deduction.