This Washington Post article yesterday opens with: “A GOP plan to raise taxes by $290 billion over the next decade would limit deductions for mortgage interest, charitable donations and state and local taxes as part of a deficit-reduction deal.”
Yesterday’s Chronicle of Philanthropy reports that the charitable giving incentive remains at risk before the Supercommittee of Congress, citing the proposal by Martin Feldstein that we wrote about earlier this week. The article states that the proposal to raise revenues by capping itemized deductions “would also reduce the incentive for charitable giving because once taxpayers reach the 2-percent cap, they would get no further tax break for their gifts. Furthermore, taxpayers who shift to the standard deduction would have less of an incentive to increase donations. ‘People who are affected would have a higher price of giving, so they would be inclined to give somewhat less,’ says Mr. Feenberg, a researcher at the National Bureau of Economic Research.”
Nonprofits cannot withstand any weakening of the charitable giving incentive, and governments at all levels cannot continue to cut public programs and expect nonprofits to fill in their gaps and pick up their slack.
Supercommittee Deliberations Focus on Deductions
Democrats and Republicans on the Joint Select Committee on Deficit Reduction last week exchanged proposals to reduce the federal deficit. Details have been sketchy as the Supercommittee moves into sensitive negotiations with less than 10 days to reach a non-amendable plan. Each side’s proposal reportedly calls for limiting the value of some or all itemized deductions, such as the charitable giving incentive. The negotiators appear to be focusing on a proposal by economist Martin Feldstein to cap the value of all itemized deductions (e.g., for charitable giving, mortgage interest, and state and local sales taxes) at 2 percent of adjusted gross income (AGI). If adopted, that would mean that someone earning $100,000 could only take a total of $2,000 in itemized deductions, which for most people who currently itemize would be consumed entirely by their mortgage interest and/or their state and local taxes – thus eliminating any incentive to give to charity.
Although some of Feldstein’s writings have suggested that Congress may want to exempt charitable giving from the cap, the limited details released so far about the parties’ two proposals do not mention this option, thus increasing concern for the work of nonprofits. The National Journal reported that “Republicans said that tax deductions for second homes and charitable deductions could be slashed or eliminated as part of the agreement, with Bush tax cuts permanently extended and corporate tax rates possibly reduced.” Others report that the Democrats’ proposal includes a two-step process which identifies itemized deductions as a revenue-generating “placeholder” provision that would be triggered in January 2013 if tax reform legislation is not enacted in 2012.
Last Monday, every member of the Supercommittee received the Nonprofit Community Letter – now signed by more than 4,000 nonprofits from all 50 states – telling Congress that nonprofits cannot withstand any weakening of the charitable giving incentive, and government cannot continue to cut public programs and expect nonprofits to fill in their gaps and pick up their slack. See who has signed so far. The letter, which continues to draw signers because of the urgency of the threat, is also being delivered to every elected official in Congress.
The panel members have until November 23 to come up with a plan, after which an automatic trigger of $1.2 trillion in cuts is imposed on federal domestic spending and defense spending under the Budget Control Act passed in August.