Federal tax law currently encourages individuals to give to charitable organizations whose missions they support by providing an itemized deduction. Policymakers in Washington are focusing on how to reduce the federal budget deficit through spending cuts, entitlement reforms, and changes to the tax code. The President, Senators, Representatives, bi-partisan commissions, and think tanks have all put forward plans to address these issues, and many propose changing the charitable giving incentive in one way or another. No one knows the true impact that any of these proposals will have on the ability of charitable nonprofits to raise the resources needed to provide the programs and services that fulfill their missions. It is imperative that Congress make no changes to the charitable deduction that threatens the ability of nonprofit organizations to serve those most in need and to continue to strengthen our communities.
Capping all itemized deductions, including charitable giving, would effectively take away incentives for donations to churches and synagogues, domestic violence shelters, early childhood programs, food banks, school alumni groups, and all other charitable nonprofits, and would further reduce the ability of charitable organizations to meet the increasing need for services in their communities.
Nonprofit organizations throughout the United States are dedicated to the public good; their work improves lives, strengthens communities and the economy, and lightens the burdens of government, taxpayers, and society as a whole. Maintaining the value of the charitable deduction is essential to the ongoing work of nonprofit organizations in delivering essential services, enhancing quality of life, and uplifting the spirit of faith, innovation, and inspiration in local communities across America.
Changes to the charitable giving incentive remain a threat as part of comprehensive tax reform. Help protect the charitable giving incentive that supports the work of nonprofits in our communities now and in the future by sharing your story here and contacting your Senators and Representatives to tell them how the giving incentive translates into impact in your community.
On June 27, 2013, Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) sent a letter informing Senators that the Committee will start consideration of a tax reform package with a "blank slate," meaning that it contains no deductions or credits, so Senators will have to fight to get their favored tax provisions re-inserted into the bill that is being drafted. The Committee leaders stressed that the legislation they are drafting on a bi-partisan basis will restore only those deductions, exclusions, credits, and other tax expenditures that (1) help grow the economy, (2) make tax laws fairer, and (3) effectively promote other policy objectives. They've asked Senators to submit recommendations for provisions that meet these standards by July 26. They've asked Senators to submit recommendations for provisions that meet these standards by July 26. Senators are likely to use as a guide a Committee staff report on tax-exempt organizations and charitable giving that includes a list of options including repealing the charitable deduction outright, converting the deduction to a tax credit, imposing a minimum for deductible donations (floor), and capping the value of the deduction at a certain percentage or dollar amount (ceiling).
The President signed into law on January 2, 2013 the "American Taxpayer Relief Act of 2012," an agreement reached by leaders in the House and the Senate that averts the fiscal cliff while maintaining incentives for charitable giving for most Americans. The new law stands to impact some donations from higher income earners through the reinstatement of the Clinton-era Pease Limitation. The Pease Limitation reduces itemized deductions, including the charitable deduction, by three percent for adjusted gross incomes over $250,000 ($300,000 for couples), with a maximum reduction in itemized deductions of 80 percent.
Estimates on the economic impact that the President's original proposal and other recommendations on changing the giving incentive vary widely.
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