Opponents of President Barack Obama’s proposed cap on charitable deductions say they have gotten a boost from a bipartisan letter by two Senate Finance Committee members that urges maintaining the tax break.
Senators John Thune, a South Dakota Republican, and Ron Wyden, an Oregon Democrat, composed their letter last week and intend to deliver it to leaders of the Finance panel, Bloomberg BNA reports, as debate heats up revising the U.S. tax code.
The deduction for charitable contributions has been lumped with 10 other similar measures -- including the mortgage interest deduction -- on a list of tax expenditures that may be ended or altered as lawmakers consider the most comprehensive changes to the code since 1986.
Charitable-sector leaders gathered in Washington Nov. 20 to meet with members of Congress and detail their arguments against limiting the deduction.
“The Thune-Wyden letter is a game-changer” in efforts to press that case, said Steven Taylor, United Way Worldwide senior vice president and counsel for public policy. “We have been trying to get something like this for a long time. We get a lot of folks in Congress who say they are with us in private meetings, who say they support charities and they support the deduction, but having something like this in writing that is public really shifts the debate dramatically.”
Obama has proposed limiting itemized deductions, including for charitable contributions. His proposal would treat high-income taxpayers as if they were in the 28 percent bracket, so that a $1,000 contribution for someone in the top tier would save the taxpayer $280 instead of the current $396. Under existing law, taxpayers can deduct most contributions of up to 50 percent of their adjusted gross income, which is much less restrictive than Obama’s proposal.
Thune and Wyden, in their Nov. 19 letter, differentiated the charitable deduction from other tax expenditures that might be eliminated.
“It is the only provision that encourages taxpayers to give away a portion of their income for the benefit of others,” it said. “For this reason, it is not a loophole, but a lifeline for millions of Americans in need.”
Charity leaders were especially cheered that the letter called for protecting “the full value and scope of the charitable deduction.”
The letter will go to Senate Finance Committee Chairman Max Baucus, a Montana Democrat, and the panel’s ranking Republican member, Senator Orrin Hatch of Utah. Thune and Wyden plan to gather other signatures for the letter through Dec. 12.
Baucus has teamed with House Ways and Means Committee Chairman Dave Camp, a Michigan Republican, to promote revising the tax code, though neither have said publicly whether they support changes to the charitable deduction.
Part of the focus on the fate of such breaks stems from Camp’s proposal to lower both the current top tax rates for corporations and individuals without specifying how he would offset the budgetary cost.
In 2012, Americans donated more than $300 billion to charitable organizations, and itemized giving accounted for nearly $229 billion, according to the foundation Giving USA.
Keeping the charitable deduction intact is also a jobs issue, the Thune-Wyden letter said. The organizations that received those donations leveraged their contributions through volunteers and other in-kind aid to generate $1.1 trillion in jobs and services, employing nearly 10 percent of the U.S. workforce.
The meetings the charitable-sector leaders held with lawmakers dovetailed with a Washington briefing on proposals to limit the deduction.
American Enterprise Institute President Arthur Brooks, speaking on a panel of experts, said Obama’s proposed cap would drop giving by $9 billion in the first year alone due to lowering the incentive for people who earn a lot to give a lot away, he said.
Brooks said the U.S.’s economic slowdown already has taken a toll on charitable contributions. Charitable giving declined sharply after 2007 and still hasn’t fully recovered, he said.
“Wall Street may be doing well, but America’s nonprofits are still hurting,” he said.