October 11, 2011
Itemized deductions, provided by Federal tax law, encourage tax payers to give to charitable organizations. In an effort to reduce the Federal budget, lawmakers in Washington are determining whether entitlement reforms, spending cuts and changes to the tax code will be implemented to help fix the country’s economic woes. The White House, Senators and various committees all have different perspectives on what is best for moving forward on these issues but all plans on the table will impact the charitable giving incentive in some capacity.
According to an October 11, article in massnonprofit.org, President Obama’s plan to reduce the value of itemized deductions for charitable contributions has been removed from the White House’s job bill, but there is the possibility it may be used to reduce the federal deficit.
Jon Bakija, professor of economics at Williams College, reported that “peoples’ decisions about how much to donate to charity are influenced significantly by tax incentives.” He added, however, that determining how donors may respond to future changes in taxation is inconclusive
In response to possible threats to the charitable giving incentive, the National Council for Nonprofits is launching a nation-wide grassroots campaign to protect the charitable giving incentive. The Council is calling for 10,000 + nonprofits from across the country to sign a letter that would support that the work of the sector is respected and protected in this major policy debate.
More info From the National Council of Nonprofits:
Why it Matters to Nonprofits
Nonprofit organizations throughout the United States are dedicated to the public good; their work improves lives, strengthens communities and the economy, and lightens the burdens of government, taxpayers, and society as a whole. Maintaining the value of the charitable deduction is essential to the ongoing work of nonprofit organizations in delivering essential services, enhancing quality of life, and uplifting the spirit of faith, innovation, and inspiration in local communities across America.
The Joint Select Committee on Deficit Reduction is conducting an across-the-board review of federal government spending, taxing, and entitlement programs in search of law changes that will result in $1.2 trillion in federal deficit reduction over ten years. The committee, created by the Budget Control Act in August, must report its plan by November, and Congress is required to enact legislation by December to reduce the deficit by $1.2 trillion in order to avoid triggering automatic spending cuts of $600 billion to both categories of defense and domestic spending. President Obama has proposed limiting the value of the charitable and itemized deductions for upper-income taxpayers as a source of new revenues to pay for a job-creation package pending in Congress. Other tax reform proposals are likely to be considered by the 12 members of the supercommittee that could adversely affect the ability of charitable nonprofits to provide current or increased services in their communities.
Proposals to Alter the Charitable Deduction
- Obama 28% Limit: President Obama has proposed limiting the value of charitable and itemized deductions for upper-income taxpayers, capping the deduction at 28 percent, regardless of whether the individuals are in the 33 percent or 35 percent tax brackets. This proposal has been included in the President’s American Jobs Act, his deficit reduction plan submitted to the supercommittee, and in his three annual budget proposals
- 12% Tax Credit: The National Commission on Fiscal Responsibility and Reform (Bowles-Simpson Commission) empaneled by President Obama recommended significant changes to the federal tax code, including converting the current charitable itemized deduction into a 12-percent, non-refundable tax credit available to all taxpayers, but only for donations above two percent of Adjusted Gross Income (AGI).
- 15% Refundable Credit: the Bipartisan Policy Center’s Debt Reduction Task Force issued its own set of recommendations for deficit reduction that included cutting individual income tax rates and reducing the number of tax brackets, and eliminating the charitable deduction and replacing it with a 15 percent refundable tax credit payable to nonprofits.
- The Congressional Budget Office issued a report in May 2011 projecting the potential impact of 11 proposals to alter the charitable giving incentive in the federal tax code. The report found that both charitable giving and federal tax receipts would increase if Congress either (a) applied the tax deduction to all taxpayers (itemizers and non-itemizers alike) but imposed a minimum floor on contributions of $500 for individuals and $1000 for couples, or (b) converted the deduction to a 25 percent tax credit for everyone who gave more than the $500/$1000 floor.
What Nonprofits Can Do
Nonprofits can communicate the value of the charitable giving incentive to the supercommittee and Congress by taking these actions:
- Sign onto the nonprofit community letter calling on the supercommittee to preserve the charitable deduction.
Sign on so your voice is heard.
- Contact your Senators and Representatives directly and urge them to oppose any changes to the charitable giving incentive that threaten the ability of nonprofit organizations to serve those most in need and to continue to strengthen our communities.
- Nonprofit Community Sign-On Letter
- Budget Control Act creating the Joint Select Committee on Deficit Reduction
- American Jobs Act
- Recommendations of the National Commission on Fiscal Responsibility and Reform (Bowles-Simpson Commission)
- Recommendations of the Bipartisan Policy Center’s Debt Reduction Task Force