Tax Plan Doubles Standard Deduction, Leaves Charitable Deduction In Place

Nonprofit leaders applauded the preservation of the charitable deduction but are wary of other changes that might hurt charitable giving, such as doubling the standard deduction and repealing the estate tax, under a framework for tax reform presented by Republican leaders.

Among the changes under the framework released today, the tax reform proposal would:

  • Double the standard deduction to $12,000 for single filers and $24,000 for married taxpayers filing jointly;
  • Repeal the estate tax;
  • Increase the child tax credit while repealing most personal exemptions;
  • Reduce seven tax brackets ranging from 10 to 39.6 percent into three tax brackets of 12, 25 and 35 percent, with a possible fourth bracket for the highest-income taxpayers; and,
  • Reduce the corporate tax rate from 35 percent to 20 percent.

The nine-page “Unified Framework For Fixing Our Broken Tax Code” is similar to a preliminary tax plan released by the White House in April at least when it comes to provisions that impact the nonprofit sector and charitable giving.

Doubling the standard deduction would reduce the number of itemizers from about 1 in 3 taxpayers to about 1 in 20, and removing the tax incentive for an estimated $95 billion of annual charitable giving.

Removing the charitable deduction for most Americans could reduce giving by as much as $13 billion while expanding the deduction to all Americans could increase giving by almost $5 billion annually, according to a study by the Indiana University Lilly Family School of Philanthropy released in May. The study commissioned by Independent Sector estimated that making the charitable deduction universal for all taxpayers would make up that potential $13-million decline and possibly increase giving anywhere from $1.1 billion to $4.8 billion.

The Washington, D.C.-based coalition launched Giving100, an effort to push for a universal charitable deduction for all taxpayers on the 100th anniversary of the U.S. tax code.

“Much like trying to knock over weighted milk bottles with a hollowed-out tennis ball, the tax play that emerged from the administration and Congressional leaders today could ultimately ‘rig’ the tax code so that the impact of the charitable deduction is severely limited,” Allison Grayson, director, policy development and analysis, and Jamie Tucker, director, public policy strategy and operations, for Independent Sector, wrote in a blog post today.
“By lowering the top rate and increasing the standard deduction so that only 5 percent of all taxpayers itemize, we would be faced with a scenario where only a small number of wealthy households will be incentivized to give to charity,” they wrote.

The Alliance for Charitable Reform (ACR) also reiterated a call for lawmakers and the administration to expand the charitable deduction to all Americans, not just those who itemize.

“The impacts on nonprofits of doubling the standard deduction and its resulting reduction in charitable giving, repealing the estate tax, other changes could disrupt service delivery, and greatly expanding the deficit require further consideration,” said Tim Delaney, president and CEO of the National Council of Nonprofits. “It could well be that the people who benefit from the framework’s proposed tax cuts may see unacceptable reductions in their qualify of life and survivability due to a resulting limit on the ability of nonprofits to serve. This must be avoided,” he said.

Delaney reminded Congressional committees that will shape the framework into legislation that governments at all levels depend on charitable nonprofits to deliver services in communities.

Tax reform must enhance, not undermine, the ability of organizations to serve communities, Delaney said. “That means promoting greater incentives for giving to nonprofit work in communities, such as a universal charitable deduction and setting stable tax and spending policies that address immediate and future needs of the people we collectively serve,” he said.