Charitable Giving Deduction: No Change for Minnesota, But Debate Continues in U.S. Congress

May 16, 2013

As in past years, Minnesotans will be able to claim a deduction for charitable gifts when filing their state income taxes next year.

The committee of Minnesota lawmakers who iron out the details of the tax plan to raise state revenue has dropped consideration of a House proposal that would have changed the tax deduction to a credit. The Minnesota Council on Foundations (MCF), along with other nonprofit organizations, opposed the proposed change.

As explained by MINNPOST, changing the state’s charitable giving tax deduction would have produced significant revenue for the state, but it posed a worrisome risk to an important revenue stream for charitable organizations.

MCF worked with other nonprofit advocates to ensure the Governor and Senate held fast in opposition to the House proposal. In addition to lobbying at the Capitol, the effort included a guest editorial in the Star Tribune.

But What of U.S. Tax Reform?
While the push for potentially harmful changes to charitable giving law seems to have waned in Minnesota, tax reform proposals are just gaining steam in the U.S. Congress.

The U.S. House Committee on Ways and Means continues to contemplate various tax reform proposals that impact the charitable sector.  Last week the committee issued a report proposing a variety of options, including changes to the federal charitable giving deduction.

MCF, in partnership with the  Charitable Giving Coalition, issued an immediate response to the report. We are particularly concerned about options that would unravel the charitable deduction and hurt our communities. We explained our concerns in a joint letter to all members of the U.S. House of Representatives.

Contact Your U.S. House Member
MCF is now contacting Minnesota’s Congressional representatives in Washington to explain concerns about the ideas in the working group report and to ask them to oppose changes in the federal charitable giving tax deduction. We encourage MCF members to also contact Minnesota’s members in the House of Representatives to express support for the current charitable giving tax deduction and reject proposed changes.

Do you have questions about state or federal tax reforms affecting the charitable giving deduction? Contact me at MCF.

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

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Charitable Giving Tax Deduction Challenged by Minnesota House

April 30, 2013

capitol1aThe Minnesota House of Representatives adopted a tax bill that replaces the state’s charitable giving income tax deduction with a tax credit. Neither the Governor nor the Senate has embraced this idea in their tax plans, but MCF is working with nonprofit advocates to oppose the House proposal.

Deduction vs. Credit

Currently, Minnesota taxpayers can reduce their taxable income by deducting charitable contributions. Those who itemize on their federal taxes can deduct all of their contributions, while non-itemizers can deduct 50%.

The House plan replaces the deduction with a credit. Rather than reducing taxable income, the credit would be subtracted from the tax bill after it is calculated. Under the House proposal, taxpayers who contribute $400 or more or who give 2% of their adjusted gross income could claim the credit. The proposed changes are in Article 6 of HF677. *

Advocates for the House plan suggest the bill is a win-win: The credit would create more resources for nonprofits, while also adding $40 million in revenue to the state through tax expenditure savings.

Their theory is that tax expenditures should be used to incentivize new investment, and not to reward people for what they might do anyway, without beneficial tax treatment. It assumes that — because donors donate a similar amount to the same beneficiaries each year — the credit would encourage them to increase their giving.

Unfortunately, the House plan is not supported by any projections that giving would, indeed, increase.

Investment in Civil Society

Supporters of the House plan fail to recognize that some tax deductions exist as an expression of public values, while others are designed to promote economic activity. Alexander Reid, former counsel for the Congressional Joint Committee on Taxation, suggests the charitable giving tax deduction serves to acknowledge that investment in civil society is an essential, core value in democratic society. Therefore, the economic test for the charitable giving tax expenditure’s worth may simply not apply.

MCF and our nonprofit allies oppose the proposed shift from a deduction to a credit because it raises fundamental and substantial policy questions about what makes democratic society work and whether charitable giving should be taxed.

More Conversation Needed

While first floated as an idea in 2009, the House proposal to change charitable giving pretty much came from out of the blue (many think it got added to the tax bill simply to help meet revenue projections). This change affects the revenue stream of nonprofits, which make up 10% of the state’s economy and are essential to creating vital, livable communities. It merits much more deliberative analysis and conversation.

It appears Senate leaders and the Dayton administration do not have much of a political appetite to enact the House charitable giving reforms this year. But the House action clearly points to a need for partners in the state’s independent sector to lead communities in conversations about the role and future of charitable giving in Minnesota.

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

* The language in HF677 states that contributions through trusts and estates would not be eligible for the credit. MCF brought this to the bill author’s attention, and she stated this was not her intent. Should the House’s reform advance, the author intends to make contributions through trusts and estates eligible for the credit in conference committee.

This post has been updated to reflect the current location of the repeal of the charitable deduction and establishment of a tax credit in HF677.

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Charitable Deduction Debate Heats Up

April 18, 2013
cgc

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

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Community Partnerships Key to Education Reform

March 28, 2013

TPT_P-Head_mediumCommunity partnerships that include grantmakers are the path to retooling Minnesota’s education for the future. That was a key observation during the discussion about public policy and education at the first event in MCF’s public policy discussion series Redesigning Minnesota: Policy Choices for Our Future, co-presented with Twin Cities Public Television.

Heads nodded in agreement as participants watched the tpt-produced video, A Lesson in Change. In it, the Search Institute’s Kent Pekel observed that election cycles are the biggest barrier to achieving strategic policy reforms. While lawmakers are well-briefed on the looming challenges of achievement disparities, dwindling resources, and barriers to innovation, political realities have proven to be a formidable barrier to change.

“The dramatic turnovers in legislative leadership we’ve seen in recent years has made it hard for the legislature to act,” observed education lobbyist, Valerie Dosland of Ewald Consulting. She sees a path for school reform in opening more options for innovation by local school districts, superintendents and classroom teachers.

Diversity in Minnesota’s communities and schools is also central to the issue. Danna Elling, researcher for the Minnesota Senate’s E-12 Education Committee, addressed it head on. She observed that Minnesota had many more new citizens in the early part of the 20th century and found ways to make education work for them.

Elling noted the difference today is that most of Minnesota’s new citizens are black or brown. In the video, Hector Garcia from the Chicano Latino Affairs Council explained that resistance to recognizing the state’s diversity as a strength is holding back education reform.

It seems the state’s elected officials are stuck when it comes to tackling the big challenges of improving Minnesota’s schools. But participants in MCF’s “A Lesson in Change” discussion saw hope in community partnerships, citing the steadily growing influence and impact of nonprofit, business, education and grantmaking partners who have championed early childhood education.

To learn more about the task of redesigning Minnesota’s education systems view the A Lesson in Change video. Then join the ongoing  conversation by visiting the  Bush Foundation or tpt websites.

Also, if you are looking for information about how decisions at the Capitol in St. Paul might affect your grantmaking choices, follow Valerie Dosland’s and Danna Elling’s advice and call staff of Minnesota House or Senate Research, legislative committees , or the Legislative Library.

On April 8, the next event in the Redesigning Minnesota: Policy Choices for Our Future series will focus on transportation challenges. It will feature the tpt-produced video ”Road Work Ahead” and a conversation with former Minnesota House of Representatives Speaker Margaret Anderson Kelliher. Grantmakers can register now.

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

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Member Post: Why the Charitable Deduction Matters

March 27, 2013

hill1Last week, leaders from several Minnesota grantmakers, along with MCF President Bill King and Director of Government Relations and Public Policy Bob Tracy, traveled to Washington, D.C. for Foundations on the Hill.

This annual event is a special chance for grantmakers to engage federal policy makers on the field of philanthropy and what it means to the country and to local communities. This year, the charitable deduction was an especially hot subject.

Sherry Ristau, president and CEO of Southwest Initiative Foundation, shares with us here her experience at Foundations on the Hill and the importance of the charitable deduction.

For more on the importance of the charitable deduction to Minnesota, download this MCF infographic that we used on the trip.

“Will a new Congress change philanthropy?”

That’s one of the big questions facing community foundations and other philanthropic leaders as we look to the future. It was also a topic of critical conversation during my time at last week’s Foundations on the Hill.

The event, organized by the Forum of Regional Associations of Grantmakers, Council on Foundations and Philanthropy Roundtable – Alliance for Charitable Reform, brought leaders from the foundation sector to Washington, D.C. to help tell the story of giving and grantmaking throughout the country.

As I learned more about proposed policy changes, it became clear that there certainly could be big changes—and that the charitable deduction benefit is in jeopardy. As I visited one-to-one with key Congressional offices, it is clear we could lose this important incentive encouraging Americans to give. I am truly afraid of the unintended consequences of how our government is looking at the charitable deduction.

Many might question if it really matters — after all, there is a common misperception that the charitable deduction benefits only the wealthy. That’s just not the case. Let me be clear, the charitable deduction is not a loophole, it is a lifeline for the beneficiaries of our charitable giving including children, elderly, veterans, schools, homeless, those who have lost jobs, food shelves, those in the midst of a natural disasters and many more…including our rural communities.

According the Minnesota Council on Foundations, about one-third of Minnesota residents — at every income level — reported making contributions. Here’s the breakdown of giving by income levels:

  • 61 percent had income less than $50,000 and gave $346.6 million
  • 36 percent had income of $50,000-$200,000 and gave $1.6 billion
  • 3 percent had income more than $200,000 and gave $1.1 billion

But, I think the more important question we should be asking is, “Who’s really going to be hurt by these changes?”

If limits are placed on the charitable deduction, a national survey in 2012 by United Way Worldwide showed charities and the millions of people they serve could lose up to $5.6 billion. That would equal the entire budgets of The American Red Cross, Goodwill Industries International, Inc., YMCA of the USA, Habitat for Humanity, Boys & Girls Clubs of America, Catholic Charities USA and American Cancer Society.

These seven organizations serve more than 50 million people combined — and ALL of them serve people in our southwest Minnesota regional community.

So, what can we as leaders do? I encourage us all to contact our Representatives and Senators in Congress and share why the charitable deduction is important to ALL of us and needs to be protected. If you’d like more information, visit www.foundationsonthehill.org.

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