Obama Tax Plan Could Cost Israel Over $12 Million

A provision in the new U.S. federal budget proposal may force Jewish Federations to cut their charity to Israel.

The State of Israel stands to lose as much as $12 million in transfers from North American Jewish Federations, and untold millions more from U.S. charitable funds, if a proposal by the Obama administration to tax charitable giving is approved, according to senior public policy officials.

"I am worried," says William Daroff, vice president for public policy and director of the Washington Office of the Jewish Federations of North America. "We've talked to members of Congress, and we continue to talk to them and to members of the administration to push back on this proposal."

U.S. President Barack Obama

According to a provision in the U.S. federal budget proposal for fiscal year 2013, taxpayers earning more than $250,000 would be required to deduct contributions to charities at a rate of 28 percent instead of the current rate of 35 percent.

An estimated $200 million flows annually from Jewish Federations to Israel, according to figures provided to Haaretz by a Federation source.

"Studies indicate that reducing the tax deductibility of charitable contributions would result in a decrease in donations of fout to six percent," the official said. "Thus, the decrease in the total pool of funds available to Federations could result in a decrease of funds flowing to Israel in the range of $8-12 million."

That figure does not include millions of dollars in U.S. funds that flow into Israel each year via not-for-profit organizations, including "Friends of" Israeli bodies such as hospitals, universities and a spectrum of other organizations, including the Jewish National Fund.

"If the president's proposal were adopted, it would impact charitable donations to Israeli institutions the same way as it would impact donations here - it would reduce the incentive for giving," says Nathan Diament, executive director of public policy for the Union of Orthodox Jewish Congregations of America.

Like the Jewish Federations of North America, the Union of Orthodox Jewish Congregations of America condemned the proposed legislation in a recent statement. It predicts the rate change could potentially reduce donations to U.S. charities by $4 billion annually.

According to Daroff, who says the Jewish Federations of North America has "beaten back" similar legislation by the administration in each of the last four years, top-tier Federation donors who give gifts of up to seven figures "tend to be very tax-code sensitive."

"Ninety percent of the funds raised by any Federation come from the top 10 percent [of] givers," Daroff says. "Any change in the tax code has a significant impact on their charitable giving."

Though Daroff is confident that bipartisan Congressional opposition to the measure will render the proposed legislation "dead on arrival," he predicts the issue will most likely come up for discussion following the November election, during what is considered Congress' "lame duck session." At that time, he says, larger tax reform issues will be addressed; among them will likely be the contentious issue of itemized deductions.

"We realize that once there's blood in the water, the budgetary sharks will keep looking for it," says Daroff. "So what we do is continue to be vigilant and continue to ensure that policy-makers understand - particularly during these times of economic distress - the incredible role charities play in helping those who are in need."