Initial Tax Proposal Leaves Charitable Deduction Alone

April 26, 2017       Mark Hrywna      

The White House released a preliminary tax plan this afternoon that would double the standard deduction, keep the itemized deduction for charitable contributions and eliminate the estate tax and the alternative minimum tax.

The standard deduction would be raised from the current $6,350 for individuals and $12,700 for joint filers to $12,700 and $25,400, respectively. In addition to the charitable deduction, the itemized deduction for mortgage interest would remain while most other itemized deductions would be eliminated.

For individuals, the seven tax brackets currently used would become three — 10 percent, 25 percent, and 35 percent — though it’s unclear what levels of income would be affected. The proposal also calls for repealing the Affordable Care Act’s 3.8-percent tax on small business and investment income. The corporate tax rate would be lowered to 15 percent.

There was no accompanying information in the federal budget and the potential impact of the proposed tax reductions.

About one-third of taxpayers typically itemize their taxes rather than take the standard deduction. The two-thirds of taxpayers who do not itemize account for about 18 percent of charitable giving, according to the Urban-Brookings Tax Policy Center.

Increasing the standard deduction would simplify the tax code and likely reduce the number of taxpayers who itemize to about 1 in 20 rather than 1 in 3. By some estimates, that would impact about 28 million taxpayers who itemize and are responsible for almost $95 million in charitable contributions, or about 37 percent, of all charitable giving.

That has led some nonprofit leaders to support a universal deduction in recent months as tax committee staff have been working on tax reform, as detailed in the upcoming May print issue of The NonProfit Times. Independent Sector earlier this month launched Giving100, a campaign for a universal deduction.

Tim Delaney, president and CEO of National Council of Nonprofits, agreed that the time has come for tax reform but feared what the impact of increasing the standard deduction would have on charitable giving. “Pronouncements of keeping the existing tax deduction for charitable giving create the impression that the status quo would remain, but proposals to double the standard deduction would effectively eliminate the tax incentives for millions of individuals and couples to give to support the work of charitable nonprofits in cities, towns, and rural areas across the country,” he said.

If the standard deduction is to increase significantly, Delaney urged Congress to support charitable giving by implementing a universal or non-itemizer charitable deduction open to all taxpayers. Alliance for Charitable Reform Executive Director Sandra Swirski also called on President Donald Trump to hold a listening session with the nonprofit sector to examine the impact of his proposal and a universal deduction on giving.

According to the Center on Budget and Policy Priorities, repealing the estate tax would provide a “windfall” to heirs of the wealthiest estates. The federal estate tax is due on a portion of an estate’s value that’s more than $5.5 million per person or $11 million per couple. The wealthiest 0.2 percent of estates pay the tax and repeal would cost about $269 billion over 10 years and worsen wealth inequality, according to the center.

“Today’s White House statement on its tax reform position clarifies the first step in what will be a long process towards meaningful tax reform,” Council on Foundations President and CEO Vikki Spruill said in a statement. “We are especially pleased to see the White House recognized the importance of the charitable deduction. We look forward to seeing even greater clarity from the White House in the coming months on its position,” she said.

Spruill called a tax code that supports the work of foundations critical. The council will “continue to be a megaphone on this issue to protect the interests of our sector and pursue policies that will allow philanthropy to keep playing a crucial leadership role in our nation, as it has done for many generations,” she said.

The “2017 Tax Reform for Economic Growth and American Jobs” describes as its goals for tax reform to simplify the tax code; grow the economy; provide tax relief, especially to middle-income families, and lower the business tax rate.

The administration said it plans to hold “listening sessions with stakeholders” throughout May to receive their input and continue working with the House and Senate to developer details of a plan that “provides massive tax relief, creates jobs, and makes America more competitive — and can pass both chambers.”

This is breaking news and will be updated regularly with additional information and reactions.

  • Center on Budget and Policy Priorities
  • charitable deduction
  • Council on Foundations
  • estate tax
  • Giving100
  • Independent Sector
  • National Council of Nonprofits
  • President Donald Trump
  • standard deduction
  • tax reform
  • Vikki Spruill
  • White House