Trump eyes cap on charitable deductions
The Trump administration is taking a serious look at capping tax deductions for charitable contributions, according to a source familiar with the discussions.
Treasury Secretary Steven Mnuchin and Trump’s other senior advisers are mulling their next steps on tax reform, and the proposal to limit deductions for charitable giving hasn’t yet gained widespread acceptance, two officials said.
A senior Senate aide said limiting charitable giving is “within the realm of possibility,” although Mnuchin has not raised it explicitly in his meetings with some GOP senators.
A White House spokeswoman, Natalie Strom, said “all options are on the table until we have a plan to announce.”
Limiting tax deductions for major charitable gifts would be a way to raise revenue by targeting wealthier taxpayers. A major criticism of Speaker Paul Ryan’s (R-Wis.) border-adjustment tax proposal is that it would hit middle- and low-income Americans by increasing the costs of consumer products.
Capping charitable deductions would fit with the secretary’s declaration last year that “there would be no absolute tax cut for the upper class.”
A request for comment submitted to the Treasury Department’s press office on Tuesday was not answered.
Limiting tax incentives for charitable giving would trigger a lobbying frenzy against such a plan. It’s also likely to stir opposition from conservatives who would like to see groups funded by private donations assume more responsibility from the government to provide a social safety net.
But the Trump administration is under pressure to find sources of revenue for tax reform because Senate Republicans have criticized Ryan’s proposal, which is also opposed by some GOP lawmakers in the House.
Republican senators say they have communicated to the administration that the border-adjustment tax isn’t going to pass the upper chamber and alternatives need to be explored to offset the cost of lowering individual and corporate rates.
Grover Norquist, the president of Americans for Tax Reform who has close ties to the White House and GOP leaders in Congress, argues that lowering tax rates could spur giving to charitable organizations by boosting economic growth and net incomes.
“I always assumed there would be some sort of overall cap on deductions in that zone,” Norquist said.
“People are less affected by taxes than they are by general income,” he said of charitable giving. “If people feel like they’ll make another thousand dollars next year or another million dollars next year, then you don’t mind making a contribution. You can replenish it with more work.”
But if economic strength and future income is uncertain, “even if you have the million dollars, you’re not giving it to anybody,” he added.
Former President Barack Obama proposed limiting the value of itemized deductions for wealthy taxpayers — individuals earning more than $200,000 and couples earning more than $250,000 — at 28 percent.
Under current law, earners in the top tax bracket of 39.6 percent can get a tax deduction of $39.60 for every $100 given to charity. Capping deductions at 28 percent would reduce that deduction to $28. The Joint Committee on Taxation estimated it would raise $542 billion over 10 years, but it was defeated by charitable groups and members of Obama’s own party.
The Washington Post reported that more than 60 nonprofit groups spent more than $20 million lobbying against the proposal during Obama’s first term in office.
During his presidential campaign, Trump proposed capping all itemized deductions at $100,000 for single people and $200,000 for couples. Since taxpayers earning over $1 million paid an average of $260,000 on state and local taxes, which are also deductible, the nonpartisan Tax Policy Center estimated that such wealthy earners would lose tax incentives for charitable giving.
Vikki Spruill, the president and CEO of the Council on Foundations, said eliminating the deduction for charitable giving would hurt nonprofit groups dedicated to serving the public good.
“2017 is the 100th anniversary of Congress creating the charitable deduction, which has enabled the philanthropic sector to support communities all across America. With mounting social problems, we’re hoping the nation’s communities don’t get shortchanged,” she said.
Hadar Susskind, senior vice president of government relations at the Council on Foundations, said Republicans are divided on capping charitable donations.
“One of the plans Trump put out during the campaign talked about capping the deduction. [A subsequent plan] said we’re not going to do that. Since they’ve been in office, there was a comment or two that came out of the White House saying they were considering it and then others saying they were not considering it,” he said. “They’ve got at least two camps going on in the White House.”
But while capping charitable giving would spark controversy, it’s viewed as an easier deduction to limit compared with more popular ones, such as deductions for mortgage interest, medical and dental expenses, state and local taxes, and educational tax credits.
Limiting charitable deductions was something former House Ways and Means Committee Chairman Dave Camp (R-Mich.) focused on in a blueprint released in 2014. He proposed only allowing taxpayers to deduct contributions in excess of 2 percent of their gross income, which the Tax Policy Center estimated would have reduced charitable giving by as much as $34 billion a year.
But limiting itemized deductions would bring in a lot of new revenue, something Trump and congressional leaders are eager to find to pay for a broad reduction of individual and business tax rates.
Earlier this year, Mnuchin predicted tax reform would be passed this summer. But this week, noting that Republicans are still working on healthcare, Mnuchin told The Financial Times that his initial timetable is “highly aggressive to not realistic at this point.”
The House Ways and Means Committee, meanwhile, will soon start to hold hearings on tax reform.
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