It looks as if the nation's charities are about to get a much-needed boon. In early April, the Senate finally passed long-stalled legislation that would provide up to $13 billion over 10 years for a slew of new tax breaks for contributions to charities and nonprofits. The new inducements for Americans to open their wallets could boost philanthropic donations by several billion dollars over the next decade, experts say (table).
That's a welcome prospect to United Way and other charities, whose donations and assets have been battered by the stock market slump even as demand for their services has soared in the economic downturn. "We need help or the services [Americans] count on won't be there," says Patricia Read, a vice-president of Independent Sector, a coalition of nonprofits.
Of course, the bill, which was co-sponsored by Senators Joseph I. Lieberman (D-Conn.) and Rick Santorum (R-Pa.), first must pass the House and be signed by President George W. Bush. Although the Senate favored it 95 to 5, the Administration is miffed that the bill didn't include a key Bush social policy -- allowing religious groups to bid on federal contracts. A few Senate Democrats insisted that the idea violated the separation of church and state and threatened a filibuster. So the President is now planning to pursue that goal through other legislative vehicles, such as welfare reform, making it likely that he'll overlook the setback and sign the charity bill. First, though, House Republicans will try to slice the earmarked $13 billion, which includes $1.3 billion in block grants to states for social services.
If the bill becomes law, its biggest impact will be to spur philanthropic giving. It would allow the 86 million people who don't itemize their taxes -- generally lower- and moderate-income Americans -- to deduct charitable contributions of $250 to $500. While the provision would last for only two years, it would still be likely to generate lots of new cash. Back in 1986, charitable giving jumped nearly 40% after Congress allowed non-itemizers to deduct 100% of their contributions that year, up from 50% before. (The entire deduction expired in 1987 and wasn't renewed.)
There are incentives for wealthier Americans to write checks, too. One provision of the new bill would allow anyone 59 1/2 or older to transfer individual retirement account assets to a charity without having to pay a tax penalty. Tapping into even a sliver of the total $2.5 trillion in IRAs could shower charities with billions. A disproportionate amount likely would go to nonprofits such as colleges, which have strong ties to the wealthier donors who would be most able to part with some IRA savings.
The most novel part of the Senate bill -- using an unusual definition of charity -- is one to help the working poor save more. A limited program for up to 300,000 poor families -- defined as those with heads of households making less than $30,000 a year -- would match their savings in an "individual development account" dollar for dollar, up to a maximum of $500 a year. The accounts could be used only to buy a first home, start a small business, or pay for post-secondary education. The scheme may not sound like traditional charity, but it got lumped in because the feds would be doling out money to the poor. "We're trying to get these folks into the financial mainstream," says Ray Boshara, a fellow at the New America Foundation, a Washington think tank, who backs the plan.
Another innovation: Roughly $2 billion is set aside for enhanced tax deductions for farmers and restaurant owners who donate food to charity. The provision would yield some 765 million new meals over 10 years, according to congressional estimates. So even if the final bill is scaled back somewhat, charities should soon be receiving a big helping hand.
By Alexandra Starr in Washington