Tax Break For Giving to Charity May Increase
As non-profits struggle Congress is looking to use tax breaks to increase donations.
There is currently a bipartisan effort aiming to expand tax breaks for charitable donations. The Coronavirus has left many nonprofit groups struggling to survive encouraging Congress to pass such measures.
"Senators, including James Lankford (R., Okla.) and Jeanne Shaheen (D., N.H.), want to let taxpayers deduct charitable donations, even if they don't itemize their deductions. Their plan would greatly increase a small tax break created in March that allowed such extra charitable deductions", the Wall Street Journal reports. The idea is supported by large organizations such as Habitat for Humanity International and the YMCA.
Senator Shaheen said "Their services are most in need right now, as the challenges from the pandemic and the economic fallout are so great… How can we help them in ways that are going to make a difference?" The pandemic has hit charities particularly hard. Habitat has laid off 10% of its employees while some religious congregations have seen donations decline by more than 30%.
The Senate proposal could help improve the growing issue that nonprofits have seen their donor bases decrease in number leaving only the wealthiest donors. "In 2000, 66% of Americans donated to charities; by 2016, that proportion had dropped to 53%, according to the Indiana University Lilly Family School of Philanthropy's Philanthropy Panel Study."
"The 2017 tax law dealt another blow to charitable giving. By nearly doubling the standard deduction, the law reduced the number of people who have enough deductions to make itemizing worthwhile. The number of itemizers fell to about one-tenth of households from about one-quarter."
Many tax experts are not in support of the proposal. Jeremy Bearer-Friend, a George Washington University law professor said "At its core, it's not even getting more money to charity… It's a tax cut proposal. Is that what the moment is calling for?" A 2019 study by the Indiana University Lilly Family School of Philanthropy showed that a deduction of $4,000 for individuals and $8,000 for married couples would increase donors by 7 million. It also showed that federal revenue would reduce by $20 billion while donations would only increase by $17 billion.
"The Indiana University analysis considered other ideas that could be more efficient. One would impose a floor of 1% income. Under that approach, an individual making $100,000 who donates $5,000 couldn't deduct the first $1,000 but could deduct the other $4,000." While the plan would not attract as many new donors, it would exceed the cost to the government. "Converting the deduction into a credit - where the donor's benefit doesn't increase with income - would also shift the incentive toward middle-income households."
The senators proposing these changes have begun to incorporate these ideas: "in March, congress created a charitable deduction for non-itemizers. But at just $300, the deduction is likely doing little to spur giving, because many people already give that much without a deduction."
Lawmakers continue to see the tax system as a way to influence donations. While there are several reasons people give to charity, the surge in donations in December show that there is a link. Mr. Lankford said "That is not the Christmas spirit that does that… It's the end of the tax year that does that".