Charities and nonprofits could lose more than $13 billion annually in gifts from American taxpayers if the tax reform proposals pushed by congressional Republicans and President Donald Trump become law, according to a study from the University of Indiana.
To combat that loss, Rep. Mark Walker — a Greensboro Republican, chairman of the conservative Republican Study Committee and former pastor — has introduced a bill that would would allow all taxpayers to claim a charitable deduction.
Republicans in Congress want to double the standard deduction – the amount income taxpayers can claim even if they don’t itemize their tax deductions. The proposed change would simplify filing and reduce the need to itemize, so fewer people would be eligible to claim charitable deductions.
That’s where Walker’s bill comes in. It would allow taxpayers to claim a charitable deduction of up to $2,100 for individuals and $4,200 for married couples even if they claim the standard deduction. That figure is about one-third of the current standard deduction.
“Giving to charity is crucial for economic prosperity, happiness and the success of our people. But for too long, only the most wealthy have been incentivized to give to the causes they believe in,” Walker said when he introduced the bill in the House. “The Universal Charitable Giving Act incentivizes charitable giving for low and middle income taxpayers. It would allow everyone to deduct charitable giving, regardless of itemizing status.”
Roughly one-third of Americans currently itemize their tax deductions, allowing them to claim charitable deductions. Under the Republicans’ proposal, which is not completely written and would need to work its way through Congress, the percentage itemizing could fall to 5 percent.
Without as many people itemizing, charities worry that giving would decline.
That’s what the Indiana study found. Independent Sector, an association of nonprofits, foundations and corporations, commissioned the study by the University of Indiana’s Lilly Family School of Philanthropy. The study used the 2014 Tax Reform Act, introduced by Rep. Dave Camp, then the chairman of the Ways and Means Committee, as its benchmark — and it included most of the major policy ideas that would be outlined this fall.
The study’s conclusions did not include the effect of eliminating the estate tax, which is included in the tax reform framework released by congressional Republicans.
“The tax deduction is not the main reason that people give. People in America are just generous. They want to give back. We have this tradition of philanthropy in the United States. Those are the reasons,” said Steve Taylor, senior vice president and counsel for public policy at United Way. “What the tax deductions do is they enable people to give more.”
Expanding the charitable deduction to all Americans would avoid the predicted drop in charitable giving, the study found; instead, giving would increase by $4.8 billion per year.
“I think it will (increase giving). It will certainly keep from any concern about diminishing it,” Walker said.
Walker’s office does not yet have an estimate for the cost of the bill, which it wants included in the overall tax reform package. But the study concluded it would cost the U.S. treasury $215 billion over 10 years, including $17 billion in the first year if it’s part of the complete tax reform package.
Walker said he has had some positive conversations with members of the House Ways and Means Committee, which is writing the tax reform bill.
“I always want to encourage charitable deductions, but we’re still trying to simplify things. We’d like for 90 percent of filers to file on a postcard,” said Rep. George Holding, a Raleigh Republican who serves on the committee. “If he can come up with a simple way to incentivize charitable deductions, I’m sure the chairman and the committee will be glad to look at it.”
Holding said the committee considered charitable giving in its decision to double the standard deduction.
“It’s taking into account what most people give to charity and so forth. It’s already taken into account with the standard deduction,” Holding said.
Charities and nonprofits are hoping to convince lawmakers to add the deduction to any tax reform plan. Independent Sector has been working on the issue for more than a year.
“The universal deduction is really an essential part of tax reform,” said David Heinen, the vice president for public policy and advocacy for the North Carolina Center for Nonprofits.
The bill, Walker’s office said, fits with a conservative view, limiting the size and scope of government and allowing people to give money to support programs in their community rather than giving it to the federal government to distribute.
Though nonprofits would prefer that Walker’s bill not include a cap on deductions, they are happy that he has raised the issue in Congress and they support the effort.
“This comes with a cost, we get that. We also think charitable giving is in the DNA of the nation,” said Jeffrey Moore, chief strategy officer at Independent Sector. “It is one of the things that American taxpayers can do that is inherently not self-interested. It is to the benefit of their communities.”
There are 55 United Way chapters in North Carolina, and state residents contributed $110 million to the organization in 2016.
“Without deductions, without a tax deduction, the federal government is effectively taxing people on money that they are giving away to charity and that’s just not fair,” the United Way’s Taylor said.
Brian Murphy: 202.383.6089; Twitter: @MurphinDC