Charities are nervous about tax reform

Washington –- Charities and nonprofit groups say that tax reforms Congress may consider this summer could dry up their fundraising.

While there’s still debate over whether the campaign promises both Democrats and Republicans made to overhaul the federal tax system will happen, some movement toward that goal is expected in the coming months by the House Ways and Means Committee and the Senate Finance Committee.

Everything is on the table, including the deductibility of money given to charity by taxpayers who list deductions. The IRS allows taxpayers to deduct up to 50 percent of their adjusted gross income through the charitable deduction.

A recent study by the Congressional Budget Office shows that the most wealthy Americans give the most money to charity — and receive the biggest deductions. The CBO study said this tax break cost the Treasury $40 billion last year. Only the deductions for health insurance premiums and mortgage interest payments cost the government more.

The CBO estimated that most of the benefit of that deduction went to Americans in the top 1 percent income level.

So there are a number of proposals in Washington to curb the tax break. They range from a total elimination of the charitable deduction — and other tax deductions, including the mortgage deduction -– to trimming it for the nation’s wealthiest people.

The nation’s charities hope to convince Congress that the charitable deduction helps those who need those charities more than those who need the tax break.

“As you know, the century-old charitable deduction is a powerful American tradition that encourages people to donate a portion of their income — more often than they would have otherwise given –- to support others in need and to strengthen communities,” said a recent  letter from the nation’s top nonprofits to the Senate Finance Committee. “If Congress changes the existing policy… donations would go down and the communities we serve and the individuals we help would suffer the most –- not the donors.”

Joanne Florino, head of public policy and government relations at The Philanthropy Roundtable, said the nation’s nonprofits will closely watch the congressional debate over taxes — especially the hearings that federal lawmakers who head tax-writing committees plan to hold in July. But she said doesn’t know what Congress will do.

“What happens on Capitol Hill is always hard to calculate,” Florino said.

Maggie Gunther Osborn, president of the Connecticut Council for Philanthropy, is more optimistic.

She said she’s “shared a lot of information about the charitable deduction” with lawmakers and policymakers. “I think we have work to do so people understand it,” Osborn said. “But I feel at the end of the day, it will be preserved.”

The IRS allows taxpayers to deduct money and the value of other gifts to a wide range of nonprofit organizations -– and most of them do not directly help the poor. They include churches and synagogues, environmental groups, health organizations and other nonprofits, including The Connecticut Mirror.

A report by Giving USA shows that in 2011, nearly a third of donations to nonprofits went to religious organizations, followed by education (16 percent) and human services (12 percent). 

Although the nonprofit community is focusing its message on the impact that changing the deduction would have on the neediest, it would also affect those who give. Connecticut is among the top states in giving.

A recent Tax Foundation study said that the states making the highest percentage of charitable deductions are Maryland (40.1 percent), New Jersey (36 percent) and Connecticut (35.9 percent). At the bottom are West Virginia (13.3 percent), South Dakota (14.9 percent) and North Dakota (15.3 percent).

Although the wealthy give much more in dollar amount -– Connecticut residents with incomes higher than $200,000 gave $1.8 billion in 2010 -– many more middle-income taxpayers claim the charitable deduction, according to the Connecticut Council of Philanthropy.

The council said 67 percent of Connecticut residents who itemized deductions and earned between $50,000 and $200,000 reported giving a total of  $936 million to charity  in 2010.

Congress has already tinkered with the charitable deduction this year.

In January’s “fiscal cliff” deal that kept the federal government from shutting down, Congress reinstated the so called “Pease amendment,” which trims the itemized deductions for individuals with incomes of $250,000 or more and married couples earning earn $300,000 or more.

Some economists said the move had little effect on charitable giving because the same deal raised the income taxes for the wealthiest Americans, and that increase stimulated contributions to charity.

But the Charitable Giving Coalition said that about 60,000 taxpayers with $886 million in charitable deductions had more than half of their itemized deductions prohibited by the Pease amendment.

“That’s a significant, negative impact on support for the crucial work of nonprofits in our communities. We simply can’t afford to experiment further with incentives that encourage charitable contributions,” said the coalition, which represents 60 of the nation’s top nonprofits.

 

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