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Charitable Deduction Background
The Administration's Proposals
President's FY 2015 Budget

President Obama’s FY 2015 budget
outline includes proposals for tax changes for high-income earners, including a provision that would cap at 28 percent the value of itemized tax deductions for individuals earning more than $200,000 ($250,000 for families). This is the sixth consecutive time the Administration has proposed the cap in its budget proposal.

President Obama’s Jobs Proposal
On September 8, 2011 President Obama unveiled his $447 billion proposal to spur job growth. The President proposes to pay for the American Jobs Act of 2011. The offsets include closing a number of corporate tax loopholes, as well as imposing a 28 percent cap on itemized deductions - including the charitable deduction - for individuals earning more than $200,000 a year and households earning more than $250,000 per year. The cap on individual deductions is expected to generate $410 billion in revenue over 10 years.

President Obama's Deficit Reduction Recommendations
President Obama submitted in 2011 formal deficit reduction recommendations to the Joint Select Committee on Deficit Reduction. The "balanced" proposal of tax increases, spending cuts, and mandatory program changes would reduce the deficit by $3.5 trillion over 10 years and includes a 28 percent cap on itemized deductions on high-income earners.

Other Proposals
Camp discussion draft would create 2-percent floor in tax reform
In his major discussion draft proposal for comprehensive tax reform, House Ways and Means Committee Chairman Dave Camp (R-MI) proposes limiting the amount taxpayers can claim for charitable contributions to 2 percent of their adjusted gross income. The proposal would also extend the deadline for making deductible donations through April 15.

Senate Finance Committee outlines options for deduction
On June 13, 2013 the Senate Finance Committee released a tax reform options paper focused on tax exempt organizations and charitable giving. The 19-page report, which is not endorsed by any particular member or leader of the committee, reviews current law and compiles legislative options for the charitable deduction and other items related to the tax exempt sector. Potential changes to the deduction include a percentage cap, an aggregate dollar cap, a floor, conversion to a credit, and an extension in the accrual deadline for annual tax filings, among others.

House tax reform working groups presents options paper
The House Ways and Means Committee's charitable and exempt working group on tax reform, led by Rep. Dave Reichert (R-WA) and Rep. John Lewis (D-GA), incorporated stakeholder feedback into a broader report that the Joint Committee on Taxation (JCT) submitted to the full committee on May 6, 2013. The report begins by summarizing tax law for the charitable and exempt organizations and later outlines feedback to the Committee on many issues of importance to the sector, including the charitable deduction.

2012 presidential nominee proposes flat-cap
In a 2012 news interview, Republican presidential candidate Mitt Romney suggested that a $17,000 aggregate cap on all itemized deductions might be one way to pay to lower tax rates. A Romney aide later said the cap would likely be in addition to a personal exemption that could be adjusted if necessary to prevent a tax increase on middle class families.
  • Research suggests that many taxpayers would exceed the $17,000 cap before ever claiming a charitable deduction. According to analysis by the National Association of Home Builders, the average married, joint-filing taxpayer who itemized in 2009 claimed $20,464 in itemized deductions, $17,329 of which was consumed by deductions for home mortgage interest ($10,365), state and local income taxes ($3,667), and real estate taxes ($3,287).

National Commission on Fiscal Responsibility and Reform (The Bowles/Simpson Commission)
The President’s Commission on Fiscal Responsibility and Reform issued its report in December 2010. Commission co-chairs Erskine Bowles and Alan Simpson released deficit reduction recommendations that included a proposal to reform the current charitable deduction and by providing taxpayers a tax credit equal to 12 percent of their charitable donations, but only if they donated 2 percent or more of their adjusted gross income to charity. The Commission failed to reach the 14 votes necessary to move its deficit-reduction proposal to Congress, with a final tally of 11 member votes in support and 7 votes against. Learn more.

"Senate Gang of Six"
A bipartisan group of Senators, the so-called Senate "Gang of Six," consisting of Senators Mark Warner (D-VA), Saxby Chambliss (R-GA), Kent Conrad (D-SD), Richard Durbin (D-IL), Tom Coburn (R-OK), and Mike Crapo (R-ID), released  a deficit reduction proposal outline in July 2011 that draws on a number of deficit reduction principles proposed by the President’s Commission on Fiscal Responsibility and Reform. The proposal specifically calls for the reform, but not elimination of, the charitable deduction.

The Rivlin-Domenici Debt Reduction Task Force
The Rivlin-Domenici Debt Reduction Task Force issued its recommendations on November 17,2010, which includes a proposal to eliminate the charitable deduction and, instead, give nonprofits a tax credit equal to 15 percent of any donation received. The Task Force argued that this will “greatly increase the number of taxpayers who receive a subsidy for charitable donations, but will reduce the subsidy rate for upper-middle income and upper-income taxpayers who itemize.”

Blueprint for Economic Recovery and Fiscal Responsibility
Demos, the Economic Policy Institute and the Century Foundation released a joint “Budget Blueprint for Economic Recovery and Fiscal Responsibility” on November 29, 2010, which called for replacing the charitable deduction with a 25 percent tax credit for all charitable gifts, regardless of the donor's income, and available to itemizers and non-itemizers. 

Hearings
House Ways and Means Committee Hearing on the Charitable Deduction
The House Ways and Means Committee held a hearing Thursday, February 14, 2013 to examine the itemized deduction for charitable giving as part of its work on comprehensive tax reform. Forty-two witnesses, including Independent Sector President and CEO Diana Aviv, on 7 panels were invited to share testimony before the full Committee. 

Committee Chairman Dave Camp (R-MI) said in his opening statement that he convened the hearing in order to get direct input from the charitable community before the panel begins considering tax reform options that could fundamentally change the current charitable deduction or the way that charitable giving incentives are treated in the tax code more broadly.

Senate Finance Committee Hearing on Tax Incentives for Charitable Giving
In anticipation of the Joint Select Committee on Deficit Reduction's November 23, 2011 deadline for issuing deficit reduction recommendations, the Senate Finance Committee held a hearing October 18, 2011 to examine "Tax Reform Options for Charitable Giving."

IS President and CEO Diana Aviv submitted a statement for the record outlining the economic impact of nonprofit organizations, the incentive effect of the deduction, and urging the Finance Committee to reject proposals that would decrease giving.

Resources

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