Leaders of nonprofit advocacy organizations have applauded legislation introduced to create a universal charitable deduction for all taxpayers but note concerns about limiting it to a third of the standard deduction.
The bill would establish a universal charitable deduction, which would be available to taxpayers who itemize as well as those who do not and merely take the standard deduction, currently $12,700 for married filers. Non-itemizers would get the deduction but only up to an amount equal to one-third of the standard deduction, or about $2,100 for individuals and $4,200 for married couples. Under the Republican tax reform framework released last month, the standard deduction would be nearly doubled to $24,000. About 70 percent of taxpayers currently claim the standard deduction, which, according to the GOP, would rise to 95 percent.
While nonprofit advocacy organizations applaud the legislation’s introduction and the universal deduction, one sticking point appears to be the limit for non-itemizers.
“While we have some questions about the approach envisioned in this bill, it is a tangible first step in unlocking greater charitable giving in America, a goal we share with Chairman of the House Ways and Means Committee, Kevin Brady (R-TX),” Independent Sector President and CEO Daniel Cardinali said in a statement. “This proposal would also move us closer to another important goal for Independent Sector – making a tax incentive for charitable giving available to all those who pay taxes in the United States,” he said.
The bill “is a clear effort to provide a solution to our communities for a problem created by the tax reform framework released in late September by Republican leaders in Congress and the Administration,” said Tim Delaney, president and CEO of the National Council of Nonprofits. The measure “takes an important step toward possibly resolving significant problems that the framework creates,” he said, adding that it’s too early to determine whether the limit on charitable tax deductions in the bill is “properly calibrated” to promote greater overall giving and whether alternatives should be considered.
In a statement, Council on Foundations (CoF) President and CEO Vikki Spruill thanked Walker for introducing the bill but added that CoF has concerns about language in the bill which limits the ability of non-itemizers to claim the charitable deduction – “an inclusion we believe would ultimately harm charitable giving.”
Doubling the standard deduction would lower the number of itemizers from about 30 percent of taxpayers to 5 percent. Doubling the deduction also would likely decrease charitable giving anywhere from $5 billion to $16 billion annually, according to a recent study, which also estimated that giving could rise from $1.1 billion to $4.8 billion if the charitable deduction became universal.
“For too long, only the most wealthy have been incentivized to give to the causes they believe in,” Warner said on the House floor last week. The measure incentivizes giving for low- and middle-income taxpayers, he added, allowing everyone to deduct charitable giving regardless of itemizing status. “By broadening the base of people who can deduct charitable donations, this bill aims to empower lower and middle income earners to direct funds willingly to socially productive organizations they wish to support,” he said. Walker is chairman of the Republican Study Committee, the largest conservative caucus in the House.
“Any shift in policy I think that discourages charitable giving, it could put a lot of nonprofits out of business,” Baptist Children’s Homes of North Carolina Chief Operating Officer Keith Henry said in a video as part of a press release from Walker’s office. About 65 percent of the organization’s budget comes from charitable donations.
“When we tax folks, we deny them the ability to give voluntarily, as opposed to taking from them,” Henry said. “I think something like this would bring in new donors to our ministry…open up a whole other segment of folks who would be able to give to us and other nonprofits,” he said.