Opinion: Enhanced Incentives for Charitable Giving Make Good Tax Policy
June 12, 2017 Susan N. Dreyfus and Brian A. Gallagher
This year marks the 100th anniversary of the charitable tax deduction, an element of the tax code that has incentivized millions of Americans to support philanthropic causes, from human and social services to arts, education, and religious charities.
That incentive might soon be in jeopardy though, based on tax reform proposals making the rounds in Washington, D.C.
On the face of it, the Blueprint for Tax Reform released this past April (which bears strong similarities to Congressional proposals) is good news for the charitable tax deduction. While the plan calls for the elimination of the majority of tax deductions applicable today, it specifically calls out the charitable tax deduction and mortgage interest deduction as exceptions to that change.
However, closer scrutiny reveals that the overall proposal would negatively impact charitable giving. By simplifying down to three tax brackets and doubling the standard deduction, it will greatly reduce the number of people who itemize, which is the only way for the charitable tax deduction to be applied.
In fact, a new study commissioned by Leadership 18 and Independent Sector, and conducted by the Indiana University Lilly Family School of Philanthropy, found that current tax reform proposals would decrease charitable giving by an estimated $13.1 billion annually.
For organizations such as United Way and the Alliance for Strong Families and Communities, this reduction would have an immediate and negative impact on the work we do in communities to build well-being and provide vital services for children and families.
Imagine the impact on a single community: In Sacramento, Calif., the local United Way affiliate provided 130,000 meals last year to young people who lacked access to nutritious food.
Other organizations, like East End House, an Alliance member in Cambridge, Mass., rely on charitable giving to cover costs when government grants fall short. Nearly 35 percent of the budget to support East End’s government-funded early childhood education program comes from charitable dollars that help pay for facilities that children need to learn.
These programs are representative of thousands more nationwide that provide critical services, such as healthcare, access to education and after school programs, healthy food, economic empowerment, and daily care to people in need. Across this country, we work as vital partners in the community to provide what individuals and families need to not just survive, but to thrive.
There is no doubt that Americans have a tremendous spirit and capacity for giving. In 2015, Americans donated nearly $265 billion in individual donations to non-profits. But research has also shown that people donate more when given the incentive to do so, and that the charitable tax deduction has been an effective tool in providing that incentive for 100 years.
Thankfully, there is an easy fix and one that an overwhelming majority (75 percent) of American support: Make the charitable tax deduction available to everyone whether they itemize or not. Research from the Indiana University Lilly Family School of Philanthropy demonstrates that this move would lead to a net gain of $4.8 billion in increased giving each year.
That’s more needed support for children, families, seniors and many others. So let’s give every American the opportunity to deduct their giving to charity. It’s what makes America unique; and, it will make our country a better and healthier place to live.
Susan Dreyfus is chair of Leadership 18 and president and chief executive officer of the Alliance for Strong Families and Communities, based in Milwaukee, Wisc. Brian Gallagher is standing vice chair of Leadership 18 and president and chief executive officer of United Way Worldwide in Alexandria, Va. Leadership 18 is a coalition of nonprofit human servicing organizations that collectively serve 87 million people.