VIDEO: Congressman Bill Cassidy’s Plan to Cap Charitable Deductions Would Mean Tax Hikes for Louisiana’s Middle-Class Families
Cassidy Continues to Fumble on Tax Policy
BATON ROUGE — Congressman Bill Cassidy is still fumbling on tax policy, and at a January 2014 town hall in Walker, La., he suggested capping popular deductions that middle-class families claim, including for charitable contributions, home mortgage interest and college tuition, which would mean a tax hike on many Louisiana families.
“Congressman Cassidy’s suggestion to cap popular tax deductions is just another example of how he wants to raise taxes on Louisiana’s middle-class families,” said Stephen Handwerk, executive director of the Louisiana Democratic Party. “His idea of ‘tax reform’ is not only wrong for Louisiana, but it will ultimately increase the cost of health care, a college education and home ownership.”
If Congressman Cassidy’s plan to cap deductions were enacted, higher education groups believe it would stifle giving and result in higher tuition rates for students. In addition, the cost of homeownership would rise if the home mortgage interest deduction were capped. Groups like the United Way oppose capping the charitable contribution deduction because of its potential negative impact on their fundraising efforts.
Cassidy’s proposals to raise taxes on middle-class families have also included a European-style Value Added Tax (VAT), which he backed at a 2010 town hall. A VAT would increase the prices of items that Louisianians purchase every day, like milk and butter. If implemented here, a VAT would be levied on top of any state or local sales taxes that Louisianians already pay. Louisiana’s average combined sales tax rate of 8.89 percent ranks third-worst in the nation, according to the Tax Foundation.
Additionally, last year Congressman Cassidy signed on to a pledge that would abolish the Internal Revenue Service (IRS) and implement a flat tax, eventually raising taxes on middle-class Louisianians.
“Congressman Cassidy has shown when it comes to tax policy, he is willing to recite any talking point his party elders hand him,” said Handwerk. “The congressman would be wise to do some research, so he could learn how much his proposals would raise taxes on Louisiana’s middle-class families.”
During The 2012 Election, Mitt Romney Proposed A Similar Cap On Deductions. “Pressed during Wednesday’s presidential debate to explain how he would pay for the huge income tax cut he has proposed, Mitt Romney said he would consider a cap on the amount of charitable donations, home mortgage interest, state and local tax payments, and other expenses taxpayers can claim on their returns. ‘Make up a number, $25,000, $50,000. Anybody can have deductions up to that amount,’ he said.” [Boston Globe, 10/4/12]
Tax Analysts Said That The Deduction Cap “Would Increase The Tax Burden On Many Middle-Class Taxpayers.” “The Romney campaign has characterized a limit on deductions as just one of the options Romney might pursue if he is elected. Tax analysts said it is difficult to evaluate the idea, since Romney has provided few details and has tossed out several dollar figures as a potential cap. But critics say such a cap could be problematic in two significant ways: It would increase the tax burden on many middle-class taxpayers and it would not make up for the roughly $5 trillion in federal revenue over 10 years that would be lost in Romney’s plan.” [Boston Globe, 10/4/12]
The American Enterprise Institute Estimated Any Charitable Deduction Cap Would Result In A Significant Decline In Charitable Giving. “Individual giving to charities would drop by more than 4 percent overall if the charitable deduction were capped at 28 percent for the nation’s highest earners, but secular giving would dip by more than 7 percent as a result. The American Enterprise Institute (AEI) estimated the effects of capping the charitable deduction in a study released today, ‘Give til it hurts?: The Great Recession, tax policy, and the future of charity in America.’ The 4.35 percent dip in giving would equate to a decline of $9.4 billion in the first year, based on Giving USA’s estimate of $218 billion in individual giving in 2011. The top 1 percent of earners would reduce giving by 24 percent while taxpayers who itemize would reduce giving by 9.3 percent. Religious giving would see the smallest effect, a drop of 0.95 percent, but secular giving would dip by 7.02 percent.” [The NonProfit Times, 12/3/13]
The United Way Strongly Opposes Any Charitable Deduction Cap. “First, as the tax reform debate unfolds during the next two years, we want to ensure that revenue proposals do not inadvertently harm the people at the bottom of the income spectrum: the families and individuals who rely most on services provided by charities. We recognize that our nation continues to face daunting challenges, including an obvious need to reduce the deficit. However, new limitations on the deductibility of charitable donations are effectively a tax on charities and would lead to a significant reduction in services to the poor. Conversely, the additional revenue to the government would be insignificant compared to the impact on reducing the deficit. I urge you to refrain from limiting charitable giving incentives contained in the tax code as a source of revenue for deficit reduction, at the expense of the poor who need our help the most right now.” [United Way, 1/4/11]
Higher Education Groups Said They Were “Deeply Concerned” By A Charitable Contribution Cap And Said They Might Have To Raise Tuition. “Colleges have particular reason for concern. Compared to charities such as religious or social service organizations, education gets a hugely disproportionate share of contributions from the well-off. It’s wealthier taxpayers who itemize and benefit most from deductions — the higher your marginal tax rate, the bigger the ‘discount’ you get on your taxes for giving to charity. So incentives for the wealthy to donate less could particularly affect education. ‘We’re deeply concerned they’ll do something very quickly before the end of the year that they don’t really understand the consequences for giving,’ said Steven Bloom, director of federal relations at the American Council on Education, which has written to the White House and Congressional leaders on behalf of 16 higher education groups opposing caps. If colleges raise less from private donations, they might have to raise more from tuition, he said.” [Associated Press, 12/3/12]
The American Benefits Council Found Capping Health Plan Tax Exclusion Would Erode Retiree Health Coverage. “Retiree health coverage has decreased in recent years, but many retirees (and their surviving spouses) still receive health coverage through former employers. For example, in 2011, over 37% of large employers offered health coverage to pre-65 retirees (EBRI 2012). The coverage provided by those former employers is excluded from taxable income for the retiree. Because retirees are older and use more health care services than an average employee, the retiree group would be much more likely to incur higher taxes under any cap on the health plan exclusion. If, on the other hand, the employer combined the more expensive retiree group with its active work force in valuing the health plan benefits, then the active workers might experience a larger tax increase because the retirees were covered. Either way, the employer’s incentive to continue to maintain retiree health coverage of any kind would be reduced. And this is just one example of the complexity and potential unintended consequences that come with any proposal to cap the health plan exclusion.” [American Benefits Council, 4/17/14]
The American Benefits Council Found Capping Health Plan Tax Exclusion Would Result In “Substantial Middle-Class Tax Increase.” “Employees in more expensive health plans are not necessarily richer. A recent analysis of a proposal to cap the health plan exclusion at the 75th percentile of 2013 average health plan costs found that the taxpayers that would experience a tax increase were spread across all income levels (Clemans-Cope, Zuckerman, Resnick, 2013). Overall, 20% of taxpayers would see an average estimated tax increase of $633 in 2013 and $1,133 in 2023. Affected taxpayers in the middle income quintile (those with 2012 income between $48,516 and $78,595) would see an average tax increase of $914 in 2023.” [American Benefits Council, 4/17/14]
The Congressional Budget Office Studied A Proposal To Cap Health Care Tax Deductions And Found It Would Raise $500 Billion In Taxes And Would Result In 6 Million Fewer People Insured By Their Employers By 2019. “The second alternative would eliminate the excise tax and instead impose a limit on the extent to which employer-paid health insurance premiums and contributions to FSAs, HRAs, and HSAs could be excluded from income and payroll taxation. Specifically, starting in 2015, any contributions that employers or workers made for health insurance and for health care costs (through FSAs, HRAs, and HSAs) that together exceeded $6,420 a year for individual coverage and $15,620 for family coverage would be included in employees’ taxable income for both income and payroll taxes. Those limits, which are based on the estimated 50th percentile for health insurance premiums paid by or through employers in 2015, would be indexed in subsequent years for inflation using the CPI-U. The same limits would apply to the deduction for health insurance available to self-employed people. Capping the tax exclusions at lower thresholds than the ones scheduled to take effect for the excise tax would reduce federal tax subsidies. For example, in 2019, the caps for individual and family coverage under that alternative would be $7,000 and $17,000, respectively, whereas the current-law thresholds for the excise tax would be $10,550 and $28,400, respectively, in that year. That alternative would decrease federal deficits by $537 billion between 2015 and 2023, JCT and CBO estimate. The reduction in the tax subsidy for employment-based health insurance would cause about 6 million fewer people to have employment-based coverage in 2019 than under current law. In that year, about 4 million more people would buy coverage through the exchanges, about half a million more people would enroll in Medicaid or the Children’s Health Insurance Program (CHIP), and an additional one and a half million people would be uninsured.” [CBO, 11/13/13]