Published February 12, 2013
Giving is a virtue under the U.S. tax code, but concern is growing among philanthropic leaders about the charitable contributions deduction, a key fund-raising tool for charities.
Worried that federal deficit-fighting efforts are putting a pinch on the tax break, dozens of United Way executives will visit Congress this week to plead their case.
The tax-writing House of Representatives Ways and Means Committee will hold a hearing on the deduction on Thursday, with United Way leaders planning to lobby lawmakers on Wednesday.
At issue is a write-off by more than 30 million Americans annually at a cost to taxpayers of $38 billion a year. The donations deduction is not in danger of outright repeal.
But proposals to cap tax breaks generally for the affluent are being discussed, and one has been enacted. Non-profits and other charities worry such measures could squeeze the charitable donations deduction, though some experts downplay this danger.
In any case, charity lobbyists wish they were hearing a louder hue and cry over the matter on Capitol Hill.
"It is almost the largeness of the silence" that is so worrisome, said Diana Aviv, president of Independent Sector, a group that represents United Way, American Red Cross, American Cancer Society and hundreds of other charitable groups.
"Lawmakers in the past were very quick to step up and support the sector," she said.
Congressional tax-writers are working on plans to revamp the tax code, presumably including new ideas for the deduction. Prospects of a full-scale tax code rewrite are remote, but talk of more limited measures persists.
For instance, White House spokesman Jay Carney said last week President Barack Obama's proposal to cap tax deductions is still on the table. Obama's formal budget request is due out soon, and the cap may show up in that wish list to Congress.
The White House did not respond to a request for comment.
"Our hope is that Obama's forthcoming budget will not have a limit to the charitable deduction, but our expectation is that" a general cap on deductions likely will be included, said Steve Taylor, chief lobbyist for the United Way in Washington.
FISCAL CLIFF CHANGES
Obama first proposed capping deductions and exemptions for high-income taxpayers in 2009. His proposal would limit the value of these tax breaks as one moves to a higher tax bracket.
The New Year's Day "fiscal cliff" deal, which headed off hundreds of billions in tax hikes and spending cuts, reinstated a measure, known as the Pease limit, that shaves the value of deductions for high-income households. United Way's Taylor wants charities to be exempted from this, but backers of Pease say there is no cause for concern for charities.
Charities say limiting the deduction would lead the wealthy to donate less. Congress' Joint Tax Committee confirmed this trend, but also said the long-term impact would be hard to forecast.
"The charitable deduction does encourage giving, but there is a debate in the literature about how extensive that is," said Gene Steuerle, an economist at the Urban Institute and former Treasury Department tax official.
The United States is one of the world's most generous countries, ranked fifth on the Charities Aid Foundation's World Giving Index for 2012. No. 1 was Australia.
Resuming a giving level not seen since 2007, individual Americans in 2011 donated $218 billion to charities and other tax-exempt groups, including religious organizations, according to the Joint Committee on Taxation.
WEALTHY BENEFIT MORE
Gifts to charity are itemized deductions. Individuals can cut their tax bills by a portion of their total deduction roughly equal to the top tax bracket into which they fall, which rises in line with rising taxable income.
For this reason, wealthy people benefit more than others. They can cut their tax bills by up to 40 percent of the total value of their deduction, while others cut their taxes by their lower tax rates, if they can itemize deductions at all.
The charitable giving deduction is one of the 10 costliest so-called tax expenditures, or provisions of the tax code that favor certain groups or activities with preferential treatment.
Aviv said she is most worried about Democrats hunting for revenue. But that fear may be premature, with some lawmakers saying the across-the-board approach of capping tax breaks without regard to their merits may be too blunt an instrument.
Sander Levin, the chief Democrat on the Ways and Means panel, when asked about protecting the charitable deduction, said any attempt to limit tax breaks for the rich must be done "with a sensitivity to the basic purpose of each of those tax incentives and the impact any limitation may have."