In today’s Washington Post, in a column that was also printed elsewhere, Harvard economics professor Martin Feldstein theorized that “President Obama’s proposal to limit the tax deductibility of charitable contributions would effectively transfer more than $7 billion a year from the nation’s charitable institutions to the federal government.”  He repeated the concern among some that decreasing the deductible amount of philanthropic contributions by higher income tax payers would cause them to decrease their giving.

It’s a complicated argument, but he explains it this way:

Suppose someone would give $10,000 to a university if that amount were deductible at 35 percent. That deduction would reduce the individual’s tax bill by $3,500. Limiting the deduction to 28 percent would lower the individual’s tax saving on a $10,000 gift to $2,800.

This is where things get interesting: If the 10 percent increase in the cost of giving caused the person to reduce his gift by 10 percent, to $9,000, his tax savings would be 28 percent of $9,000, or $2,520. The government’s revenue loss would be reduced by $980 (from $3,500 to $2,520). The person’s gift to the university would be reduced by $1,000, almost the same amount. Since this high-income person would pay $980 more in taxes but give away $1,000 less, he would end up with an extra $20 for personal consumption.

While Feldstein does admit that this is a “hypothetical example,” and that “no one makes a charitable contribution [solely] to get a tax deduction,” he also refers to a “substantial body of economic research [that] shows that, on average, each 10 percent reduction in the cost of giving raises the amount that a person gives by about 10 percent,” implying that while the desire to financially support an organization, the amount of the gift may change based on the resulting tax break.

It remains to be seen if this will have a significant result in the major gifts arena.