Nonprofit leaders look to continue work with lawmakers to strengthen charitable giving

Last year, tax policy took us all on a wild ride. Charities had an ambitious agenda during the tax reform process on Capitol Hill, urging Congress to adopt a universal charitable deduction to blunt the effect of a doubled standard deduction, which — although welcome for many — eliminates the tax incentive for charitable giving for more than 20 million Americans. Taking the charitable deduction away from that many people inevitably will lead to a decrease in giving.

That sobering reality should concern all who want a strong and vibrant civil society, prepared to deal with the pressing challenges our nation faces.

{mosads}Lawmakers ultimately decided against expanding the charitable deduction to all Americans, but they did preserve and expand its current form. That is a success for the charitable sector, particularly when you compare it to the other two deductions preserved in the bill that fared far worse: the mortgage interest deduction and the deduction for state and local taxes. The tax bill limits the amount of interest that can be deducted to the first $750,000 of a mortgage, and caps the deduction for state and local taxes at $10,000.

The bill eliminated almost every other deduction for individuals, so Congress should be commended for preserving the historical treatment of the charitable deduction, as well as introducing amendments and legislation to expand it.

Consider progress made by Congress on charitable giving over the past 18 months. President Trump’s tax reform plan from September 2016 proposed capping all deductions, including the charitable deduction, at $100,000 for individuals and $200,000 for couples. That would have been devastating for charities, likely costing more in charitable giving than a doubled standard deduction ever could. Luckily, that idea never gained serious traction during tax reform discussions.

Congress passed two other provisions as part of tax reform that will increase cash gifts to charities. They repealed the Pease limitation, which reduced the value of all deductions (including charitable giving) for high-income taxpayers, while allowing donors to increase the percentage of income that could be deducted for cash gifts to 60 percent of income, rather than 50 percent.

It’s also worth noting that the Universal Charitable Giving Act of 2017, which would expand the charitable deduction to all Americans, was introduced by Rep. Mark Walker (R-N.C.) in the House and Sen. James Lankford (R-Okla.) in the Senate. Additionally, Sens. Debbie Stabenow (D-Mich.) and Ron Wyden (D-Ore.) offered an amendment to the tax reform bill during the Senate Finance Committee markup that also would have expanded the charitable deduction to all Americans.

Congress should still work to bring those efforts to fruition, because there remain serious concerns about the effect the expanded standard deduction will have on charitable giving. Research finds that reducing the number of itemizers will reduce giving. This was the primary reason nonprofit leaders expressed concerns about the bill; some nonprofit organizations even asked their members to urge lawmakers to vote it down. Those critiques sparked a sharp reaction from lawmakers. The Wall Street Journal editorial board jumped into the fray with an editorial, “The Uncharitable Charities,” in which it argued that charities “sell Americans short by assuming that most donate mainly because of the tax break, rather than because they believe in a cause or want to share their blessings with others.”

To be sure, taxes are not the primary driver of charitable giving, and I don’t believe anyone ever suggested that was the case. But as the Journal’s editorial board understands full well, taxes do drive behavior at the margins. The Journal even reported on the significant surge in giving at the end of 2017 because of the impending changes in the tax code. In this case, the dramatic reduction in the number of Americans who can deduct their charitable contributions is estimated to cut giving by an estimated $12 billion to $20 billion out of the $390 billion Americans give annually to charity.

The potential unintended consequences of tax reform on charitable giving are troubling, but we should applaud Congress’s commitment to spurring economic growth and preserving the historical treatment of the charitable deduction. Next month, hundreds of foundation leaders from across the country will come to Washington for the annual Foundations on the Hill (FOTH), presented by United Philanthropy Forum in partnership with the Council on Foundations and the Alliance for Charitable Reform (the legislative arm of The Philanthropy Roundtable).

Even though the value of the charitable deduction is watered down under the new tax law, FOTH will be another opportunity for nonprofit leaders and Congress to continue a respectful and productive dialogue to address these issues and better secure the role of private charitable giving in our civil society.

Sean Parnell is the vice president of public policy at The Philanthropy Roundtable.