As lawmakers work to find new ways to eliminate the federal deficit, a greater focus has been placed on reducing or eliminating certain tax deductions, including the charitable deduction, which taxpayers may claim for donations made to nonprofits, churches, colleges and hospitals. In fact, according to the Joint Committee on Taxation, the charitable tax deduction alone will eliminate $246 billion in federal revenue between 2010 and 2014.
It doesn’t take a genius to reason fewer Americans would donate to charity without the incentive of a tax break, however, and the possibility is frightening to nonprofits across the country. According to a United Way public opinion poll, 62 percent of Americans surveyed said they would have to significantly reduce their contributions if the charitable tax credit was eliminated.
“It is the children and families all across America that will suffer if the charitable deduction is scaled back or eliminated. Given the budget cuts that have already happened and others on the way, this is not the time to curtail non-profits’ ability to serve those most in need,” said United Way Worldwide President and CEO Brian Gallagher.
The Charitable Giving Coalition plans to meet in Washington D.C. Dec. 4 for a campaign called “Protect Giving—DC Days,” and the Independent Sector—a trade group for nonprofits—has established a Web site asking Americans to contact their representatives in support of the deduction.
“We’re seeing talk that we’ve never seen before, which suggests that we have a real issue here,” the Independent Sector’s Diana Aviv told CNN. “The charitable deduction is not the same as other deductions. It doesn’t benefit the individual.”
Aviv is only partially correct. Although the charitable tax deduction does, in fact, contribute to the public good, it also benefits individuals’ tax bills—especially taxpayers earning more than $100,000 a year. The Congressional Budget Office has reported 76 percent of the charitable tax subsidy was claimed by taxpayers earning more than $100,000 a year in 2006, even though the group makes just 57 percent of all donations. CNN outlines a variety of reasons for the discrepancy.
First, the deduction can only be claimed by taxpayers who itemize. Therefore, the 70 percent of taxpayers who don’t itemize—the lower income earners—can’t deduct their donations. Likewise, those taxpayers in higher earnings brackets net a greater savings from the same amount of donations. For example, a person in the 40 percent tax bracket who donates $1,000 will see a $400 reduction in the tax bill. But a taxpayer in the 15 percent tax bracket making the same donation will see just $150 in tax savings. Therefore, wealthy people save more money for donating.
Still, the majority of Americans seem to support continuing the charitable deduction, according to results of the United Way poll released Nov. 29. Among respondents, 79 percent believed reducing or eliminating the charitable tax deduction would have a negative impact on charities and the people they serve. Two-thirds of Americans surveyed are opposed to either reducing or eliminating the deduction.
Other studies indicate giving—at least charitable giving by the wealthy—would not be harmed as much by eliminating the tax credit—which was created in 1917—as the nonprofits fear. A recent survey conducted by the Center on Philanthropy at Indiana University found 50 percent of high-net-worth households would donate the same amount of money in the absence of a tax break.
“People tend to forget that some of the most significant giving in the US dates back hundreds of years, Stanford political science associate professor Rob Reich told CNN. “The Rockefellers and the Carnegies created foundations in the absence of any incentive whatsoever.”