Charitable Deduction Debate Heats Up

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The Chartiable Giving Coalition continues to be a strong voice for preserving the charitable deduction.

The U.S. charitable giving tax deduction is working and should not be changed. That was the message MCF delivered to members of Minnesota’s Congressional delegation at Foundations on the Hill meetings in Washington, D.C. last month.

We learned in those meetings that the creation of the federal budget for 2014 will be linked to landmark tax reform and long-term deficit reduction. While most of the work of reconciling White House, Senate and House budgets will be done behind the scenes, we did watch part of the process unfold as the House budget plan was debated on muted television monitors as we moved from office to office.

Cap on Charitable Contributions

Last week the volume on the budget debate got turned up as President Obama released his plan. His proposal to limit the growth of entitlement programs captured the headlines, but what caught our eye was the recommendation to cap charitable contributions.

This is not a new idea from the Obama Administration. For the fifth year in a row, the White House has proposed capping the value of charitable gifts at 28% for higher income taxpayers.

What is new is the context. Congress and the Administration are much more likely to act this year, fundamentally altering the tax treatment of charitable giving.

The Charitable Giving Coalition responded strongly to the President’s plan. The group challenged the policy that lumps the charitable giving deduction with other tax expenditures and the Administration’s general characterization that these are all loopholes that “allow folks who are already well off and well connected to game the system.”

Why Charitable Giving is Different

The Coalition encouraged lawmakers to take a closer look at how the charitable deduction is different from other itemized deductions in that “it encourages individuals to give away a portion of their income to benefit others, not themselves.”

The response from the Independent Sector sounded less of an alarm, but no less concern. It pointed out how the President’s budget is at cross purposes. While its goal is to increase revenue to avoid cuts in federal services for individuals and communities in need, capping the giving deduction would effectively reduce dollars donated for these same community needs.

Independent Sector also challenged the perception that bigger donors favor the arts and universities by citing a Center on Philanthropy at Indiana University study showing that most giving from high-net-worth households supports basic needs.

Analysis by the Urban Institute and Tax Policy Center (PDF) also shows that a cap is likely to have the net effect of reducing overall revenue for charitable causes compared to the amount of increased tax revenue it produces.

Participate in the Debate
Now that the Senate, House and the President have all announced their budgets, the real work will happen in deliberations taking place outside of the headlines. Some of the most important conversations will take place in Congressional districts around the country as nonprofit and grantmaking representatives explain the impact of their work to members of Congress.

You can participate in these conversations. MCF and Minnesota Council of Nonprofits, with support from Greater Twin Cities United Way United Ways of Minnesota, are hosting Coffee with Congress events in communities around the state.

The next event will be with U.S. Rep. Betty McCollum on April 29. You can also connect with Minnesota’s Congressional delegation and the White House through the Council on Foundations — Action Center.

- Bob Tracy, MCF director of government relations and public policy

One Response to Charitable Deduction Debate Heats Up

  1. Dan says:

    The IU study does not show that “most giving from high-net-worth households supports basic needs” at all. Look at the study (pages 15-20), look at the median and average gifts by category. Check the amounts. More cherry-picking to support the preservation of the status quo, rather than innovative thinking about the tax deduction and the role of philanthropy in society. And in this case, the cherry-picking isn’t even true.

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