In the 1990’s limits on tax-deductions known as PEP and Pease were part of a budget deal. Specifically, they limited the percentage of charitable giving and other deductions that could be itemized on your tax return. PEP and Pease were in effect for a decade before being eliminated in 2001 tax cuts.
With the “fiscal cliff” deal, Pease is back in 2013, at least for higher income people. So if you make $250,000 per year (singles) or $300,000 (married couples) there will be a cap on how much of your charitable giving can be itemized and deducted on your tax return. Here is a quick explanation and example of how it works.
…the Pease limitation reduces a household’s itemized deductions by 3% of the amount over the threshold. The reduction can’t exceed 80% of the total deductions.
A couple with income of $400,000 average about $50,000 in itemized deductions, according to IRS statistics. Because their income would exceed the $300,000 threshold by $100,000, their allowed deductions would be reduced by about $3,000 to $47,000—potentially boosting their tax bill by about $1,000.
(from Deduction Limits Will Affect Many by John D. McKinnon in The Wall Street Journal, January 2, 2013).
The return of Pease will give some opportunity to rail against tax increases. Others will give thanks that taxes have increased, especially on people many consider wealthy. Still others will fret about the effect Pease might have on charitable giving. Some may even vow to stop their charitable giving. While I have little interest in the politics of all this, I am very interested in people of faith taking opportunity to examine our motivation for giving, particularly to church, but other charitable giving as well.
Back in the 80’s a friend of mine named Dennis told me that he did not itemize his church contributions. He explained that he did not feel right about benefiting from what he was giving to God. We looked at passages like Malachi 1 in which the prophet rebuked the people of God for giving God blemished sacrifices. Dennis asked, “What kind of ‘giving’ is it when we give God what costs us nothing?” After we finished our conversation, Dennis decided the best approach would be to itemize his church contributions, calculate how much that deduction benefited him, and donate the refund amount generated by the itemized deduction. I appreciate his intentions.
So as political rhetoric rages, I want to encourage people of God to give their first fruits to God as they have been prospered, give generously to those in need, and to do it all to worship Almighty God, not for a tax break.