Yesterday, President Obama reaffirmed his belief in increasing taxes on Americans who are already facing higher marginal tax rates than communist China or Cuba: “I put forward what I thought was the best proposal, which was to limit the deductions, the itemized deductions, for the wealthiest Americans.” Obama’s proposal is to limit the value of itemized deductions to 28 percent for the top two brackets. The tax increase raises an estimated $267 billion over ten years.
Itemized deductions on mortgage interest and charitable donations are used by taxpayers to reduce taxable income. Itemized deductions incentivize taxpayers to purchase a home or assist the less fortunate. Obama’s higher taxes discourage charitable giving and home ownership. An ideal tax system would have lower marginal rates and a broader tax base, but that is not what this debate is about.
Taxing charitable giving will decrease donations to charity organizations helping individuals below the poverty line. Obama claims that health care reform will adequately compensate the poor for a decrease in charitable giving. The truth is, Mr. President, health care might not be the first concern of those below the poverty line. Food, shelter, and clothing are basic services that charity organizations provide. Additionally, charity clinics and charity hospitals provide health care. By reducing the quantity of charitable donations, Obama’s plan presumptuously assumes poverty-stricken families need government health care more than other basic necessity provided by charity.
Obama’s plan reduces demand for new homes by restricting itemized deductions for mortgage payments. More costly mortgage payments mean that fewer Americans can afford to pursue the American dream. Discouraging home ownership slows economic growth within the construction industry, an important employer for millions. If Obama wants real economic recovery, he must allow economic growth to resume without throwing wrenches in the recovery process.
Obama promised he won’t raise taxes on Americans making less than $250,000 a year. But his philanthropy and home ownership tax threatens the charity opportunities and jobs of America’s poorest.