Recently, several of us from Abila had the opportunity to travel to Washington, D.C., and join forces with more than 200 nonprofit leaders from across the nation, representing a diverse group of charities, to urge lawmakers to protect charitable giving in America. We gathered as part of the Charitable Giving Coalition’s “100 Years of Giving Fly-In.”
As Congress continues to tackle the largest, most comprehensive re-write of our tax code in more than 30 years, congressional leaders have made clear that one major objective is to simplify the rules for individual taxpayers. I think most Americans would welcome this relief from the over-complicated and conflicting tax code we all follow today.
But an unintended consequence of simplifying the tax code could create major pitfalls for America’s charities. Under the current tax code, a little more than 30 percent of taxpayers itemize their deductions. They’re eligible to take the charitable deduction, and many clearly do. Giving USA reported that individual giving in America accounted for more than $265 billion to charities in 2015. More than 80 percent of those dollars are given by taxpayers who itemize and use the charitable deduction.
Why does this matter? As lawmakers aim to simplify the tax code, one appealing proposal is to raise the amount of the standard deduction and allow far more taxpayers to take the standard deduction rather than itemize. That probably sounds good to most itemizers – more certainty and less expensive tax preparation.
But there’s a consequence. Under at least one proposed scenario, an expanded standard deduction would leave only 5 percent of taxpayers who would itemize. So, only 5 percent of taxpayers would have the charitable deduction available to them.
That is one of the reasons why I joined with my colleagues to urge our lawmakers to maintain the full scope and value of the charitable deduction, as well as its possible expansion.
We also offered a solution – a universal charitable deduction available to all taxpayers. Regardless of income level, all American taxpayers should receive an incentive to give to charity. If the tax incentive is broadly available to all taxpayers, it will:
- Increase giving, in terms of both dollars and donors
- Increase fairness by treating all taxpayers’ contributions equally
- Provide modest tax relief to middle- and lower-income taxpayers
Research confirms that, regardless of income level, taxpayers who receive a deduction for their contributions give more to charities than those who don’t receive a deduction. Expanding a tax incentive to all taxpayers could increase overall charitable giving in America. It might also offset any declines in charitable giving resulting from any inherent uncertainty created by tax reform.
We also proposed that Congress not place limitations – such as floors or caps – on the charitable deduction. Here too, studies from diverse research institutions indicate that charitable giving would decline by billions of dollars annually if floors or caps are imposed.
The Charitable Giving Coalition, supported by hundreds of charity leaders, will continue to navigate the best possible outcome for America’s charities in this tax reform process. Since its founding in 2009, the CGC has been dedicated to preserving a charitable giving incentive that ensures our nation’s charities receive the funds necessary to fulfill their essential philanthropic missions.
The mission-driven work of the broad patchwork of human service and health care organizations, educational institutions, faith-based organizations, associations, arts and cultural institutions, private and community foundations, and other public interest-serving organizations that make up the charitable sector is absolutely vital to our economy and society.