Treasury Secretary Timothy Geithner told lawmakers that he was open to finding other ways to close the budget deficit besides limiting tax deductions for charitable contributions and mortgage interest for high-income taxpayers.

Testifying before the Senate Finance Committee on Wednesday, Geithner said, “We recognize there are other ways to do this.”

The Obama administration's budget proposal envisions raising taxes on individuals who earn more than $200,000 per year and married couples making over $250,000. It would also limit the deductions that high-income taxpayers could take on charitable contributions, mortgage interest payments, and state and local taxes. Taxpayers in high-income brackets have been able to get up to a 35 percent deduction for charitable contributions, for example, but would only be able to claim a 28 percent deduction starting in 2011.

Several lawmakers questioned whether the limits on charitable contributions might harm nonprofits that have already been hard hit by the recession. House Ways and Means Committee Chairman Charles Rangel, D-N.Y., said, “I would never want to adversely affect anything that is charitable or good,” according to the Associated Press.

“There are people with the means to help,” said Rep. Thaddeus McCotter, R-Mich., chairman of the House Republican Policy Committee. “Why would you make it harder for them to do it?”

Geithner noted that the charitable contribution limits would return to the same levels of the Reagan administration, but that failed to sway many lawmakers.

“The second bit of bad news is that there is a new hidden marginal rate increase embedded in the budget,” said Finance Committee ranking member Sen. Charles Grassley, R-Iowa. “It is a proposal to place a ceiling of 28 percent on deductions for mortgage interest, charities, and state and local taxes.”

Charities are concerned about the deduction proposals.  The Association of Fundraising Professionals and the Association for Healthcare Philanthropy said that they oppose the proposal that would impose new limits on charitable tax deductions.

“In these challenging economic times, charities and nonprofits already are finding it difficult to fulfill their altruistic missions because of reduced donations and resources,” the two organizations said in a statement. “Yet, in times of economic trouble, it is charities and nonprofits that do much to augment the work of the federal, state and local government in meeting the needs of the American public through their vital programs and services. In fact, charities currently are being asked to provide even greater levels of assistance. The federal government, therefore, should seek ways to bolster charitable giving — as opposed to requiring charities to do more with less.”

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