Charities could face dwindling donations if Congress adopts a new tax reform proposal introduced by Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee.
Camp’s long-awaited plan to overhaul the tax code, introduced last month, has received some positive reviews, but charitable organizations say it could cost them billions in donations.
“I know Chairman Camp wants charitable giving to go up, [but] his discussion draft does not [promote] that,” said David Wills, president of the National Christian Foundation (NCF). “It hurts charitable giving significantly.”
NCF is part of the Faith and Giving Coalition, which along with the Charitable Giving Coalition and other groups has been lobbying to preserve the current charitable deduction as part of tax reform.
Russell Moore, president of the Southern Baptist Ethics & Religious Liberty Commission, told Baptist Press that any tax reform legislation passed by Congress should encourage rather than discourage charitable giving.
“The worst thing we could do as a country in this case is dis-incentivize the very giving that meets human needs,” Moore said. “What we need is more giving, not less.”
In testimony before the Senate Finance Committee in 2011, Moore said legislators should not evaluate charitable giving merely in terms of its “economic impact.” Giving to the arts, religious organizations and charities promotes America’s flourishing, he said.
Being “other-directed” through charitable giving “is a signal and a building of a fabric for the next generation that teaches and shows that there are things more important than simply the abundance of our possessions,” he told the Finance Committee.
Nonprofit leaders applauded Camp’s proposal for preserving the charitable deduction – since some on both sides of the aisle wanted to do away with it. But they expressed concern over several specific provisions, especially the 2 percent floor on charitable giving, which the Congressional Budget Office in 2011 estimated would reduce charitable donations in the United States by $3 billion annually.
Under current law, any tax filer who opts to itemize can deduct charitable donations of any amount up to 50 percent of Adjusted Gross Income (AGI). Camp’s plan would only allow deductions above 2 percent and below 40 percent of a filer’s total AGI.
“They’re shrinking and shrinking and shrinking the pie of people that can basically use the deduction for charitable giving, and that’s not good,” Wills said. “We actually want to expand the number of people who can exclude charitable giving from their income.”
The plan also aims to dramatically reduce the number of people submitting itemized tax returns, primarily by increasing the standard deduction from $6,100 for single filers and $12,200 for married taxpayers filing jointly, to $11,000 and $22,000 respectively. According to a Congressional Research Service report released last month, 32 percent of all taxpayers itemized their returns in 2011 – with 63 percent of those coming from filers who earned under $100,000. The Camp plan aims to get the total number of itemized returns down to around 5 percent.
Though the incentives would still be there for upper income individuals, some critics of the plan contend it’s been removed for lower and middle income givers. While the main reason people give may not be for the charitable tax deduction, some have argued, the amount they give actually could be dependent on the tax deduction.
Camp’s stated goal has always been to simplify the tax code by consolidating seven tax brackets into two, but charitable organizations question whether simplifying is always a good thing. Leaders said it’s difficult to predict how much giving would be affected, but they believe unintended reductions are probably inevitable.
According to Giving USA, Americans gave a record $316 billion to charitable causes in 2012. The Joint Tax Committee estimates giving would increase by $2.2 billion under the Camp plan – likely from projected increases in disposable income – but it doesn’t specify how that money would come into the system. Several leaders said they don’t believe the projection of increased disposable income is accurate.
“They’re assuming the bill would create very aggressive economic growth,” said Rhett Butler, government liaison for the Association of Gospel Rescue Missions, an organization with 275 members. “The bill would supposedly give people more discretionary income, but it repeals a ton of personal deductions. I think there are more things that will dis-incentivize than will incentivize giving.”
Among other concerns, the Camp plan would limit deductions on donated property to the purchase price, rather than fair market value, and it would extend the window to claim charitable deductions through the date a person files a return. While the extension was painted as a positive, Butler said rescue missions think it’s a “terrible idea,” since December donations account for 22 percent of their yearly revenue. He said extending the deadline would require more tracking and have a disruptive effect on donors’ giving habits.
“Any kind of changing of timing makes confusion rampant in the giving process,” said Tom Laymon, who heads Sunday Breakfast Mission in Wilmington, Del. “For any of us, we live and die by giving, and we really need for the government not to make it harder for our donors to give.”
Roger S. (Sing) Oldham, vice president for convention communications and relations at the SBC Executive Committee, called faith-based ministries and other charitable organizations “the backbone of American benevolence” and said dis-incentivizing contributions to such groups “undermines the common good of our nation.”
“How long can programs – such as those that gave our president an opportunity for community service in his youth; that help fund research into cures for HIV/AIDS, cancer and other debilitating diseases; that provide resources for voluntary disaster response; or that encourage donations for food, clothing and shelter to the most needy Americans – survive if this proposal is adopted? It will inevitably increase dependency on government-run programs and end up harming our most vulnerable citizens,” Oldham said.
Camp’s tax reform proposal is the result of three years of work, including collaboration with the Senate Finance Committee. The plan is not expected to go anywhere this Congress, but it likely will be used as a benchmark for future negotiations. The nonpartisan Joint Committee on Taxation projected the proposal would create 1.8 million jobs, and the average middle-class family of four would gain about $1,300 per year.
As tax reform talks continue, nonprofit groups plan to keep making the case for preserving the charitable deduction’s full value. It appears they have a significant force of allies in Congress. In late January, 33 senators – 17 Democrats and 16 Republicans – wrote a letter urging the top Democrat and Republican on the Senate Finance Committee to keep the charitable deduction as part of tax reform.
“It is the only provision that encourages taxpayers to give away a portion of their income for the benefit of others,” the lawmakers wrote. “It is not a loophole, but a lifeline for millions of Americans in need.”
Sen. Ron Wyden, D-Ore., co-authored the letter, and in February took over as the Finance committee chairman when Sen. Max Baucus, D-Mont., became U.S. Ambassador to China.
(EDITOR’S NOTE – J.C. Derrick, a writer for WORLD Magazine, and Baptist Press’ chief national correspondent David Roach contributed to this report. This article is used by permission from WORLD News Service.)