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An Uncertain 100th Birthday for the Charitable Deduction

by Jennifer Gray
The following content from the National Council of Nonprofits has been reprinted with permission. 

Today marks the 100th birthday of the federal tax deduction for charitable giving. It should be a day of celebration for all it’s done for the American people, making the United States the model of the world for personal philanthropy. The underlying policy–Congress shouldn’t tax money that people give away to help communities–remains as valid now as it was in 1917 shortly after Congress began taxing income.

But this day of celebration is marred by the uncertainty proposed in the tax reform framework that the White House and congressional leaders released last week. Throughout this birthday week, we encourage all who are committed to the work of charitable nonprofits to reflect on the value of the charitable deduction to missions, communities, and society as a whole. Let Congress know that tax reform is the time to expand charitable giving incentives, as through a non-itemizer or universal deduction, rather than a time to shrink giving, as would occur if last week’s framework for tax reform were enacted without improvements. (Note: MANP has taken a position in support of the non-itemizer or universal deduction.)

The Details on Federal Tax Reform

Administration and Republican congressional leaders’ long-awaited, “Unified Framework for Fixing Our Broken Tax Code,” released last week, starts the tax reform process that has been promised since January. The new nine-page framework lays out their agreements on some top-level issues in tax reform. Their plan calls for compressing the seven current tax brackets into three – 12%, 25%, and 35%, and giving the tax committees flexibility to add a fourth rate on the wealthiest taxpayers “to ensure that the reformed tax code is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower- and middle-income taxpayers.” As expected, the proposal, if enacted, would nearly double the standard deduction to $12,000/individual and $24,000/married couple (up from $6,300/individual; $12,600/couple), while repealing personal exemptions of $4,050 per taxpayer, spouse, and dependants.

The framework calls for repealing the estate tax, the alternative minimum tax, and most itemized deductions, specifically targeting the deduction for state and local taxes. It asserts a goal of keeping the tax deductions for charitable donations and mortgage interest, but experts have determined that the framework actually would reduce the value of both, because the number of people eligible to take advantage of the tax incentives would drop to only five percent of taxpayers (down from more than 30 percent of taxpayers). The tax committees will be “encouraged to retain tax incentives for higher education, retirement and work.”

The National Council of Nonprofits released a Statement on Potential Consequences for the Work of Nonprofits highlighting the framework’s potential adverse effects on the ability of charitable nonprofits to advance their missions. The statement makes the case: “the impacts on nonprofits of doubling the standard deduction and its resulting reduction in charitable giving, repealing the estate tax, making other changes that could disrupt service delivery, and greatly expanding the deficit require further consideration. It could well be that the people who benefit from the framework’s proposed tax cuts may see unacceptable reductions in their quality of life and survivability due to a resulting limit on the ability of nonprofits to serve. This must be avoided.”

One thought on “An Uncertain 100th Birthday for the Charitable Deduction

This group must boil their argument down to one or two bullet points and get folks out talking about it. To my mind, the most compelling argument is saving government funds and societal deterioration by providing important community service. While this seems to ignore the enriched results of the arts, it is a better argument to sway voters and Congressional staffers at this point in time.

Best example is case management and social services imbedded in low income housing. Barely holding some of these folks together as all other community services have been de-funded.

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