How Tax Reform Could Impact Charitable Giving

As Congress works to implement tax reform, much of the focus has been on business and personal income tax relief and on simplifying the code.  But in the flurry of activity between proposals and counter proposals, there’s been little coverage related to the charitable deduction.  I received an email the other day from a colleague who has been active on Capitol Hill, offering some analysis:

1. Some of the proposals have argued for raising the standard deduction to $12,000.
2. Currently 33% of tax filers itemize. This group essentially doesn’t pay taxes on what they give.
3. If the standard deduction is doubled, only 5% will itemize.
4. The remaining 28% that previously itemized will no longer do so. Therefore, they will now be taxed on their giving.
5. The Tax Policy Center believes the unintended consequence of the House bill will be a decrease in charitable giving between $12-$20 billion per year.
6. To give you an idea of the magnitude of this, the combined contributions of all the following Philanthropy 400 faith-based organizations are less than $10 billion per year:

Salvation Army, Habitat for Humanity, Goodwill, World Vision, Compassion Int’l, Samaritan’s Purse, CRU, Operation Blessing, Young Life, Christian Broadcasting Network, Wycliffe Bible Translators, Museum of the Bible, Convoy of Hope, Merry Corp., Christian Aid Ministry, Christian Blind Mission, Int’l, Navigators, Baylor University, Fellowship of Christian Athletes, In Touch, Billy Graham Evangelistic Association, Focus on the Family, Intervarsity Christian Fellowship, Mercy Ships and Willow Creek Community Church.

What’s the problem with this loss in giving?  Some legislators argue that tax reform will so dramatically improve the economy that it will offset the loss in giving.  However, this simply isn’t the case. These legislators fail to recognize that the bulk of charities today are supported by middle-income donors. A cap on itemized deductions will take away the middle-income donors’ incentive to give. And since the church and the nonprofit provide the bulk of true social services, this means less food for the homeless, care for the elderly, education for those in poverty, housing for those at risk, etc.

Congressman Mark Walker has proposed an amendment to the potential legislation called the Universal Charitable Giving Act which he says will help address these problems. Others have proposed similar legislation.  Members of the Senate Finance Committee will ultimately control the fate of tax reform and any amendments like the one proposed by Congressman Walker.  Those Committee members include:

Utah (Hatch),

Texas (Cornyn),

Iowa (Grassley),

Georgia (Isakson),

Pennsylvania (Toomey),

Nevada (Heller),

South Carolina (Scott),

Kansas (Roberts),

Wyoming (Enzi),

Ohio (Portman),

Idaho (Crapo),

Louisiana (Cassidy),

North Carolina (Burr) and

South Dakota (Thune).

As we consider these critical times in our country, preserving and encouraging charitable giving should be a high priority.