The House Republican tax bill would significantly lessen the tax incentives for charitable giving, and charities and nonprofits are worried that they could be among tax reform's “losers.”
The legislation, which Republicans say is meant to spur economic growth, would lessen incentives for charitable giving in several ways, according to nonprofit representatives.
“It is a big net negative for the sector, there’s no doubt,” said Sandra Swirski, executive director of the Alliance for Charitable Reform, a group representing donors and foundations.
One major issue is that the GOP plan would double the standard deduction to $24,000 for couples, allowing more people to deduct earnings from taxable income without having to itemize deductions. That is a big simplification and would benefit many families, but it would mean that far fewer people would claim the charitable deduction.
In May, the group Independent Sector, which represents nonprofits, commissioned an Indiana University study that found that a version of tax reform that doubled the standard deduction would lower annual charitable giving by up to $13 billion. Total charitable giving was $390 billion in 2016, according to Giving USA.
Charitable organizations had lobbied Republicans to make it so that all taxpayers could deduct donations, regardless of whether or not they itemized deductions. That provision, which would have added to the cost of the bill, was not included in the House bill released Thursday.
Steve Taylor, senior vice president and counsel for public policy at United Way, said his organization was trying to get local United Way groups to contact their congressmen to add the universal deduction to the bill.
“I’m afraid that this legislation, if it became law, it would be a real debacle for humanitarian and faith-based and social services charities of all kinds,” he said.
Allison Grayson, a director in the policy department of Independent Sector, said her group is hoping to have an amendment offered next week in the House Ways and Means Committee to include the universal deduction in the bill. “We are optimistic that there is still time and opportunity” to improve the bill in the House, she said.
The doubling of the standard deduction, and the consequent sharp reduction in the number of people claiming the charitable deduction, is just one of several disincentives for giving the bill would create.
The bill also would lessen incentives to give by lowering tax rates for many individuals, a somewhat paradoxical result. An individual paying a 35 percent tax rate would get 35 cents on the dollar for deducting a dollar of giving. If the same individual is paying a 25 percent rate, though, he would get only 25 cents on the dollar.
“I think it’s problematic,” said Philip Hackney, a law professor at Louisiana State University.
Repeal of the estate tax, Hackney noted, also would hit charities hard. The threat of the estate tax spurs many wealthy individuals to give to schools, charities and nonprofits rather than leave bequests to their families.
Because the bill wouldn’t affect charitable giving directly, but instead lessen incentives indirectly, many representatives still don’t understand the threat posed to charities, churches and nonprofits, Taylor said. “It is astounding to us that after months and months of going up to Capitol Hill, we are still at this basic level of education,” he said.