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Nonprofit leaders: Don’t roll back tax incentives for charitable giving
Nonprofit leaders railed against proposals to rein in the tax break for charitable giving on Thursday — and seemed to have support from key Republican senators.
At a Senate Finance Committee hearing, Brian Gallagher, CEO of United Way Worldwide, said that limiting the tax deduction — despite government projections to the contrary — would put a serious crimp in charitable giving.
“I think it is rare that someone only gives to charity because of a tax incentive,” said Gallagher, who estimated that capping the deduction for donations could cost charities as much as $5.6 billion per year. “But tax incentives are often a factor in how much someone donates. I can tell you from my experience, large donors are very sensitive to the tax code.”
Gallagher and Dallin Oaks, a top official in the Church of Jesus Christ of Latter-day Saints, signaled that it was especially wrong-headed to consider changing incentives for charitable giving during a sluggish economy.
“The charitable deduction should remain unimpaired, not just for religions and their unique role but for the benefit of the entire private sector of our nation,” Oaks said in his opening statement.
As it stands, only the roughly one-third of taxpayers who itemize their deductions receive the incentive for charitable giving, generally obtaining a tax break equal to their tax rate. But under President Obama’s proposal, deductions would be capped at 28 percent for taxpayers who pay the current top rate of 35 percent.
Officials and analysts who favor changing the incentive said those kinds of moves are necessary, given the steep budget deficits facing the federal government. According to the Joint Committee on Taxation, the current charitable deduction will cost around $230 billion between 2010 and 2014.
“In the case of tax law toward charitable contributions, there is a lot we can do to make our subsidy system more effective from both a fiscal and charitable standpoint,” Eugene Steuerle of the Urban Institute said in his opening statement for Tuesday’s hearing.
In fact, according to the Congressional Budget Office, there could be ways to both boost charitable giving and save the Treasury some money.
One way, CBO’s Frank Sammartino said Tuesday, referencing a May report, would be to replace the current deduction with a 25 percent tax credit that all taxpayers can receive, as long as they meet a certain donation threshold.
But Finance Committee ranking member Orrin Hatch (R-Utah) was skeptical of those claims, and indicated that he would strongly oppose any attempts to alter the current deduction.
“The tax-reform options being discussed today are options that target charitable giving, concocted by those who, hungry for more taxpayer dollars to finance reckless government spending, are now casting their sights on the already-depleted resources of charities and churches,” Hatch said.
“It makes perfect sense to provide the greatest tax incentive for giving to the donors with the greatest capacity to give.”
Meanwhile, committee Chairman Max Baucus (D-Mont.) was more diplomatic in his discussion of the issue.
“It is the obligation of this committee to ensure that nonprofits uphold their commitment, and it is our duty to make sure the tax code encourages charitable donations in the most efficient way possible,” Baucus said.
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