Nonprofits stand to lose billions as a result of federal tax reform. Take action!
Congress is currently working to enact a sweeping federal tax reform package before Christmas this year. And charities stand to be among the losers of the reform package.
Both the House and Senate versions of tax reform incorporate proposals to double the standard deduction. While this may benefit some low and middle-income taxpayers, it would leave far fewer taxpayers able to claim an itemized tax deduction for charitable giving. Put simply, the higher standard deduction would likely exceed the value of itemized deductions that would remain in the tax code.
Currently the charitable tax deduction makes it less expensive for donors to give to charity. For example, a taxpayer in a 25 percent tax bracket pays only $0.75 for every $1 donated to charity. The nonprofit and faith-based agencies providing services that would otherwise fall to government reap the full benefit of every dollar donated.
To be sure, the charitable tax deduction is not the sole reason that donors give to charity. But it is no accident that 31 percent of charitable donations are made in December of each year, according to Charity Navigator, as taxpayers look ahead to filing season.
The impact: What this tax proposal means for charitable giving
An Indiana University study finds that Congress’s tax reform proposal would inadvertently reduce charitable giving by $13 billion, or 4.6 percent, annually. According to a Wall Street Journal article, that is about four times the Salvation Army’s 2015 annual revenue.
More recently, the independent nonpartisan Joint Committee on Taxation projected that some 41 million donors would give around $241 billion in 2018 under current law as opposed to 9 million donors giving around $146 billion under the tax reform plans.
Whatever the actual impact, the net result is that nonprofit and faith-based agencies would have far fewer resources to serve their communities and people in need.
The solution: A universal tax deduction for charitable gifts
To prevent the loss of charitable giving, United Ways and other nonprofits are urging tax writers to enact a “universal” tax deduction for charitable contributions. The switch would let taxpayers deduct donations from taxable income even if they don’t itemize by deducting some or all the value of their gifts from adjusted gross income “above the line.”
Doing so would strengthen the incentive to give and help charities to meet their missions. For nonprofits with a human service mission, charitable giving is more important than ever as federal, state and local resources shrink.
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Ann Marchetti Mintz is the Senior Director for Public Policy & Advocacy at United Way of Greater Atlanta.