White House Seeks to Extend Charitable Tax Incentives

In the budget plan for 2009 that President Bush submitted to Congress, he proposed making permanent several temporary

incentives for charitable giving.

He also proposed eliminating the two-tier structure of taxes that private foundations must pay on their investment income, replacing it with a flat rate of 1 percent.

Following are the tax breaks that expired on December 31 that Mr. Bush asked Congress to extend in perpetuity:

• People who are 70 or older would be able to give up to $100,000 to charity from their individual retirement accounts tax-free.

• Grocery stores, restaurants, farmers, and other small businesses would be able to claim an “enhanced tax deduction” for donating excess food to charity. Usually, groups can deduct only the production costs of goods, but the enhancement allows them to deduct production costs plus some of the difference between production costs and fair market value.

• Companies that donate computers, computer hardware, and software to schools and libraries would qualify for an enhanced charitable deduction similar to the food deduction.

• People could write off their donations of “conservation easements” — or a partial interest in a piece of land or development rights that goes to an environmental-protection group.

President Bush had proposed making all of these deductions permanent in last year’s budget as well.

Foundation Earnings

In addition, the administration proposed a flat tax of 1 percent on all private foundations’ net investment income. Currently, private foundations pay 2 percent on such income unless their charitable giving for the year exceeds their average giving for the past five years. When foundations give away such a high amount, they pay only 1 percent tax on their investment earnings.

The administration argues that a single tax rate would eliminate the threat that a foundation would have to pay the higher tax rate in the future if it greatly increased giving one year to meet demand, since the one-year increase would also increase their five-year average. The flat rate could also make more money available for donations and would simplify planning for taxes, the White House said.

If all the proposals to spur charitable giving were adopted, the administration predicted that the federal government would lose $4.1-billion over five years (through 2013) and $8.9-billion over 10 years (through 2018). The largest treasury losses would come from the individual retirement account provision, which would result in a loss of $1.8-billion over five years and $3.3-billion over 10 years.

The Bush administration’s 2009 budget is available online.