Tax reform is once again the focus of many discussions, debates and deliberations taking place on Capitol Hill. Considering that comprehensive federal tax reform was last enacted in in 1986, most agree that an updated tax code is needed — but not at the expense of our nation’s charities.
We are pleased that the charitable deduction is retained in current proposals.
However, the recently released tax reform framework calls for doubling the standard deduction for individuals and couples and eliminating tax deductions and credits to simplify the tax code. While a simplified tax code would be a welcome change for many Americans, I join many of our nonprofit colleagues in believing that the proposed reforms would have unintended consequences for giving and our sector’s ability to meet the needs of the people and communities we serve every day.
Here’s why: The proposed reforms would shrink the number of Americans who claim the itemized charitable deduction — the primary tax incentive for charitable giving — to 5 percent, as compared to the current 33 percent.
What would that mean for America’s charities? A new study commissioned by the Leadership 18, a coalition of nonprofit human service organizations, and conducted by the Indiana University Lilly Family School of Philanthropy, finds that charitable giving would drop by an estimated $13.1 billion annually.
Fortunately, there is a simple solution. Make the charitable deduction universal by moving it “above the line” on the tax form. This would allow taxpayers to subtract charitable contributions from their income, which would lower their adjusted gross income and, as a result, their tax bill. The universal deduction is an idea that 75 percent of Americans support, and the Leadership 18/Indiana University study concludes it would increase charitable giving by $4.8 billion annually. Both taxpayers and the charities they support would benefit.
America’s nonprofit sector generates the best return on investment in the tax code. For every $1 that a donor receives in tax relief, the public receives $3 in benefits.
Our nation simply cannot risk a steep decline in charitable giving at a time when government budget cuts are requiring non-governmental organizations to deliver more social services and meet more critical community needs. Without the generous support of our donors, YMCAs across the country would be forced to discontinue or modify some of the vital programs and services we provide to communities.
For more than 100 years, the charitable tax deduction has been a powerful incentive for millions of Americans to support philanthropic causes, from community-based organizations like the Y to the arts, educational institutions and houses of worship. It is a force for good in our country. Americans are generous folks, as evidenced by our $264.58 billion in individual donations in 2015 (Giving USA report, 2015). No doubt many of us would donate even if there was no tax incentive to do so.
However, research clearly shows that people donate more when given an incentive. One of the Congressional leaders on tax reform, Rep. Kevin Brady (R-Texas), Chairman of the House Ways and Means Committee, recently suggested that tax reform has the potential to “unlock” more giving. Many of us in the nonprofit sector think he is right, and we urge Congress to consider the universal charitable deduction as part of a comprehensive tax reform plan.
By making the universal deduction law, Congress can simplify the tax code, protect charitable giving for existing donors and create incentives for more taxpayers to give. It would be winning policy for charities and taxpayers alike.
Kevin Washington is president and chief executive officer of the YMCA of the USA and is based in Chicago.