Charitable Tax Deduction

Tax incentives for charitable giving, such as the income tax charitable contribution deduction, have been sending an essential message for 100 years about the core value our society places on voluntary giving and the important role of charitable organizations in meeting critical individual and community needs. Though studies indicate that donors give for many reasons, incentives such as tax deductions are among them. While Americans do not make charitable gifts solely for tax reasons, tax incentives make additional and larger gifts possible and more prevalent.

The charitable deduction is unique, and it is good tax policy. It encourages individuals to give away more of their income, investing it in their communities. As Senate Finance Committee Chairman Orrin Hatch (R-UT) said, “Every charitable gift has one thing in common: The donor is always left worse off financially, but society is made better.” The true beneficiaries of the charitable donation, then, are not only the generous Americans who make charitable gifts, but all citizens whose local communities both within our nation and around the world are made better through the work of the charitable sector.

The charitable deduction is not a matter of providing a reward or something of value to the taxpayer; rather it is a matter of encouraging those with financial means to use their wealth to support charitable causes of their choosing and to help those in need. According to Giving USA, Americans contributed almost $265 billion to charities in 2015, and this voluntary redistribution of wealth is a cornerstone of America’s philanthropic heritage, which is respected across the world.

CGP opposes any proposal that would limit the full value and scope of the current-law charitable deduction.

While CGP appreciates that an incentive for charitable giving has been a part of recent tax reform proposals, many of these same proposals would significantly reduce tax incentives to give. The House Republican Blueprint and President Trump’s tax plan, for example, propose to vastly increase the number of taxpayers who take the Standard Deduction. Such a change to the tax code would decrease taxpayers who itemize, from about 30 percent to 5 percent, which means the charitable deduction would not be available to 95 percent of all taxpayers. President Trump’s plan also places a hard cap on itemized deductions ($100,000 for individual and $200,000 for couples filing jointly), severely capping the value of the current-law deduction. The nonpartisan Tax Policy Center has estimated the Trump plan would reduce giving by 4.5 to 9 percent. Likewise, American Enterprise Institute estimates the Trump plan could eliminate more than $17 billion in annual giving.

Other proposals, like former Ways & Means Chairman Dave Camp’s Tax Reform Act of 2014, have proposed a floor for the charitable deduction. Floors send a signal that smaller gifts are less valued – a particularly troubling message to middle- and lower- income donors. The Congressional Budget Office indicated that a floor of two percent of Adjusted Gross Income, exactly what was proposed in the Camp draft, would reduce annual charitable giving by $3 billion. Studies from highly-regarded think tanks and universities, including the Tax Policy Center, Tax Foundation, American Enterprise Institute and Indiana University, find – report after report – that charitable giving will significantly decline if the charitable tax deduction is limited or otherwise constrained.

CGP believes Congress should use tax reform in 2017 to take good tax policy and make it better. Instead of enacting changes that would curtail the charitable deduction, lawmakers should strive to enhance and expand it. Therefore, CGP encourages Congress to enact a universal charitable deduction that is available to all taxpayers. Regardless of income level, all American taxpayers should receive an incentive to give to charity, and the tax incentive should not be tied to itemizing deductions. Such an above-the-line deduction would increase giving, in terms of both dollars and donors; increase fairness by treating all taxpayers’ contributions equally; and provide modest tax relief to middle- and lower-income taxpayers.

A 2017 study conducted by Indiana University calculated that a universal charitable deduction could increase charitable giving by $4.8 billion per year. It would also act to simplify the tax code and promote fairness. This idea is also widely popular outside of public policy circles. For example, a 2016 national survey on the issue found that 88 percent of respondents believe Congress should make it easier to deduct charitable contributions from taxes, and 79 percent of respondents believe that all taxpayers should be able to take advantage of the charitable deduction

Simply put, a universal charitable deduction for all American taxpayers will retain and unlock additional charitable giving, helping to keep our charities and the communities they serve strong.

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