House Tax Reform Proposal Limits Charitable Deduction for All

Nonprofit leaders are voicing opposition to a tax reform proposal (executive summary, 32 pages, PDF) released by House Ways and Means Committee chair Dave Camp (R-MI) that would limit the charitable deduction at all income levels, the Chronicle of Philanthropy reports.

The proposed plan would set a floor — rather than a ceiling, as President Obama has proposed — for the deduction, allowing donors to deduct only the amount they give in excess of 2 percent of their gross income. The committee estimates that the change and other proposed changes in the bill — which include simplifying tax brackets and limiting or eliminating the deductions for mortgage interest and state and local taxes — would result in an increase of some $2.2 billion in  charitable giving, although Forbes contributor Howard Husock notes that it is unclear how the figure was arrived at. Experts at the nonpartisan Tax Policy Center told the Chronicle that limiting the charitable deduction would have a minimal effect on charitable giving.

The 2 percent threshold would significantly limit the number of donors eligible to claim a charitable deduction. According to the draft proposal, 95 percent of taxpayers would take the standard deduction — which would rise to $11,000 for individuals and $22,000 for married couples filing jointly — compared with the 25 percent to 30 percent who claim one currently. "Independent research confirms that charitable giving is closely tied to the health of the economy," the executive summary of the plan states. But United Way Worldwide CEO Brian Gallagher told the Chronicle that the provision would erode the tax incentive for middle-income Americans to give to charity. "It's been proven over and over again," said Gallagher, "that positive tax incentives for charity matter and increase giving."

Other changes in the proposal include mandatory Form 990 e-filing for all tax-exempt organizations; a five-year payout requirement for donor-advised funds; and limits on types of supporting organizations. Political observers were skeptical, however,  that the proposal would get far in Congress before the mid-term elections.

Council on Foundations president and CEO Vikki Spruill praised the proposal for simplifying the private foundation excise tax by introducing a single rate of 1 percent and extending the deduction to charitable contributions made through April 15. "Among the council's concerns with the proposal, however, is the impact of the proposed floor on the charitable deduction, which would deny donors a deduction for the full value of their charitable gifts," said Spruill. "As Congress considers how to best reform the tax code, the council urges members of Congress to ensure that proposed reforms do not impede the philanthropic sector’s efforts to serve the country."