Monday, November 26, 2012

Obamacare’s Tax on Charity

Amidst the debate over tax policy associated with the fiscal cliff, the Washington Post ran a column yesterday calling the deduction for charitable contributions “indispensable,” because it encourages private giving, “an economic benefit we can’t afford to mess with.”

Problem is, Obamacare already DID mess with the charitable deduction – because for “high-income” individuals, charitable contributions will be taxed, beginning January 1.  Per Section 1402 of the reconciliation bill amending Obamacare, the law’s new 3.8% tax on “high-income” individuals is assessed on filers’ adjusted gross income – that’s income BEFORE deductions like those for charitable contributions are taken into account.  Individuals subject to the 3.8% tax will pay the tax on all income they receive, regardless of whether or not they donate that income to charity.  For instance, a lottery winner who wanted to donate half of his $500,000 winnings to charity would pay $9,500 ($250,000 times 3.8%) for the “privilege” of doing so.

What’s worse, this tax will hit more and more individuals over time – because the “high-income” thresholds are not indexed for inflation.  The Medicare actuary has predicted that the tax will hit only 3 percent of filers when it goes into effect next year, but nearly 80 percent of filers in the long term.

So rather than encouraging charitable contributions, Obamacare actively works to discourage them – perhaps because liberals can’t stand the thought of entities other than government engaging in service for the public good.  It’s enough to put a “Bah, humbug!” into anyone’s holiday spirit.